Economics, Harvard Style

When the National Bureau of Economic Research Inc. (NBER) moved to Cambridge two years ago at the order of newly-chosen president Martin S. Feldstein, professor of Economics, 14 other professors began to exit Littauer regularly for offices on Cambridge Street, with some two dozen students in tow.

"The tie between the bureau and Harvard is fairly close now because Feldstein is president and has rebuilt the bureau around a younger generation," Otto Eckstein, Warburg Professor of Economics and Harvard's appointee to the NBER's Board of Directors, says. "He has attracted a group of young scholars, many from Harvard--bright, capable people still in their creative years."

While Eckstein defends the independence and diversity of NBER, many observers have noted with some skepticism Feldstein's influence in guiding and shaping the bureau: critics have claimed the bureau has developed into a Harvard-dominated research center. Though the University's presence in the NBER is inescapably obvious, proponents maintain the bureau has full independence.

Dwight H. Perkins, professor of Economics and chairman of the Economics Department, says now that the bureau has moved to Cambridge, he suspects more professors work there than at any other research institute. "All professors do research, and really, the bureau is just one vehicle through which to do it. It probably diverts them less than some other activities," he says.

Wesly Clair Mitchell, a professor at Columbia and the first president of the NBER, chartered the bureau in 1920 as an organization "devoted to objective quantitative analysis of the American economy." That quantitative analysis included the compilation of statistics on the business cycle and labor supply. The bureau began amassing information like flow of fund accounts and national income accounts for the government to use in fiscal planning.

After Mitchell's tenure, John R. Meyer, president of the bureau from 1967 to 1977, extended the range of the NBER's research from simply empirical studies to areas that include more social concerns such as the economy of the family and income distribution. But the federal government itself now produces the statistics the bureau pioneered. And under Feldstein, who took office in spring of 1977, "The nature of the bureau has changed to more theory instead of statistics and number games," Takatoshi Ito, a research assistant, says.

Eckstein says Feldstein's revamping of old programs and initiation of capital formation and human resource studies, along with a tremendous turnover in personnel, have given the bureau new vitality. "The bureau has always been a great institution, and periodically it needs renewal," he says. "Now, it has been renewed." Eckstein adds that a factual and empirical focus is not subject ot renewal; the NBER's first president began the bureau in a rebellion against the theoretical thrust of economics at that time. But because it is impossible to dictate what research will improve the performance of the U.S. economy, Eckstein says research must be done without prior expectations. "Goal-oriented research has traditionally been a failure," he adds.

Robert W. Fogel, Burbank Professor of Political Economy, heads an NBER program concerned with long-term trends in the development of the American economy. One of his studies deals with the economics of change in human stature through the years. He says he is finding that the rate of change reflects the wealth of the community. "It's a very good index of inequality of income. We're using it to investigate patterns by which different income and wealth existed and the circumstances under which they disappear and diminish," Fogel explains. He adds that a number of researchers felt there was a glaring absence of the kind of information about the American economy. "Through the bureau we're filling a very important vacuum in research," he says.

In fact, the NBER strives to remain research-oriented and discount a project's lack of immediate application. The federal government funds many of the bureau's projects through the National Science Foundation and through individual agencies for which NBER does work. But NBER's charter states, "the bureau makes no recommendations on legislation or policy, only determines economic factors with impartiality."

Albert E. Rees, honorary research associate in Economics, on leave for the year from Princeton, says he doesn't expect immediate results' from his studies of youth unemployment. Still, he says he has found that whether a teenager is employed bears no relation to his parents' employment status, but rather it seems to correspond to whether his brothers and sisters have jobs.

Research associate Anthony J. Pellechio is one of two full-time staff members hired to do his own research. "You hope you're right and that your results might be useful." Pellechio says, "but you can't go on the assumption that they will be used." In his study of the effect of social security on retirement, he notes that a "retirement effect" induces people to retire early or work less to receive more benefits. He says that, although there is a lot of concern about how social security should be financed, "if social security induces people to retire early, it's sort of chasing its own tail in trying to finance it." He, like other researchers at the bureau, is building a simulation model and will then input data on population and labor sources, as well as behavioral estimates.

Researchers at the bureau have access to a larger data base and a small databank service from Data Resources Institute (DRI), a publicly-held forecasting firm where Eckstein works half time for half pay. DRI provides the services free as a professional courtesy to economists solving large systems of complicated equations or developing simulation models.

Research associates may apply for grants through the bureau, or use the unrestricted contributions that companies and individuals give the NBER--"untied funds that we are able to move into an area without waiting for the gestation of a project," Charles E. McLure Jr., vice president of the NBER, explains. NBER publishes about 100 research papers a year. The bureau faced deficits in fiscal years 1975 and 1976 but, McLure adds, its endowment covered the loss. Feldstein has closed out fiscal '77 and '78 with surplusses.

"The objective of bureau research is to provide information on the U.S. economy to policy-makers in the public and private sectors," McLure says. "Our prime interest is to communicate our results to people who use them. Naturally we don't mind them falling into the hands of people who think our projects are worth funding," he adds.

Feldstein has developed a major project this year, a $1.5 million study on capital formation, and his presence is felt in the budgeting process and in determining the character of the bureau funds. "I think there has been more emphasis on economic theory rather than statistics (since Feldstein became president)," Rees comments. "He has areas he wants to stress and he invites people to join the bureau who are doing research in those areas." The New York Times, on May 20, 1979, suggested Feldstein is using the NBER as "his own private vehicle." But people inside the bureau don't see it that way, though they say they clearly feel Feldstein's influence.

Joel B. Slemrode, a research analyst working on his dissertation, says Feldstein was his adviser before, he adds jolingly, the "Marty Feldstein incarnation of the NBER was created." He says Feldstein "probably could be characterized as one who has faith in the ability of the market unfettered to operate efficiently."

Slemrode adds that the bureau's president doesn't tell people what to think but Slemrode suggests that preconceptions can influence results. "My prediction (of the economy's next move) depends on all the assumptions I've had to make. Because that's true I try to test the model with many different assumptions," he explains. Slemrode says that basic to the whole project is the conservative assumption that all markets stay in equilibrium.

While the main thrust of Feldstein's economics is conservative, Eckstein says that "the basic question is 'Does he impose his views on the bureau?' And he has not, if you look at the type of research that's done."

Certainly Harvard professors have engaged in a variety of areas of research. McLure cites five or six areas of study, although he says he "would guess that maybe half the professors are in capital formation."

Several people connected with the bureau say both Harvard and the NBER have benefitted from their close relationship. The bureau fosters a community spirit, provides an efficient and effective environment for study, as well as office space, resources and access to other economists. In addition, some say it may be easier to get grant money through the NBER than through an individual application. The bureau, in turn, has at its disposal young and outstanding economists. "Harvard has been very good in facilitating our operation," McLure says.

But Slemrode suggests the interaction between the NBER and the Harvard Economics Department may not be so mutualistic as the one between the bureau and individual Harvard professors. "The department was never noted for its cohesiveness. Some would say the bureau breaks down the cohesiveness that is there," Slemrode says.

Perkins counters that cohesiveness has not been a problem in the department, and that the bureau makes no difference to its functioning. "We're not cohesive in having a single ideology," Perkins says. "There is a great diversity in our basic attitudes toward what constitutes good economics. And I hope that diversity stays with the department at least as long as I'm here." As for the advantages to professors, Perkins says, "Except maybe in the amount it's publicized, I don't think it makes any difference whether an economist does the research sitting at his desk in Littauer or at the bureau."CrimsonChris DammTAKATOSHI ITO, NBER assistant.