Akerlof: Outspoken in Hiking Boots (continued)

“I asked Akerlof why he had never held a government job,” wrote The New Yorker’s Nicholas Lemann. “Gesturing at his ancient sweater, his unruly hair, and his battered hiking boots, he said, ‘Isn’t it obvious?’… In his academic work, he has written papers with provocative titles such as ‘The Market for Lemons’ and ‘Looting: The Economic Underworld of Bankruptcy for Profit.’ When they wrote together, one Berkeley colleague told me, ‘one of Janet’s roles was to be the reality check.’

“In 2003, Akerlof gave an interview to Der Spiegel, in which he said of the Bush Administration, ‘I think this is the worst government the U.S. has ever had in its more than 200 years of history. It has engaged in extraordinarily irresponsible policies not only in foreign and economic but also in social and environmental policy. This is not normal government policy. Now is the time for people to engage in civil disobedience.’ (Bush had cut taxes and created big government deficits, an unpardonable sin to a Keynesian, because those are powerful tools that need to be kept honed and ready for use during recessions, to stimulate demand.) Yellen would never be so impolitic, but she is no less passionate about the liberal tradition in economics….

“Akerlof, a 2001 Nobel Prize winner in economics, now does research at the International Monetary Fund, a few blocks away from Yellen’ s office. His current interest is something he calls ‘identity economics,’ which is the study of how people’s conceptions of who they are, including race, gender, and ethnicity, can shape their lives and decisions more than standard economic incentives.

“When Akerlof was eleven, his father, a research chemist at Princeton, lost his job. The family’s experience with unemployment left a deep impression on him. Both Yellen and Akerlof are known among their colleagues for being cautious. During an earlier period when Yellen was in government, Akerlof moved to Washington with her but flew home to teach his courses, lest Berkeley eliminate his job. Yellen timed her initial government jobs in Washington — first as a governor of the Federal Reserve Board, then as chair of the White House Council of Economic Advisors – partly with an eye to the five-year limit that Berkeley had given her for how long she could be away and retain her professorship.

“‘Both of us, separately and together, really, really care about unemployment,’ Akerlof told me. When jobs are unavailable for someone looking for work, as he put it, ‘you’re seriously in the soup. You’re in the soup in two ways. One, you have insufficient savings. Two, for a very significant portion of the unemployed, that’s what they do all day. You’re sitting at home, feeling bad about yourself. You’re not fulfilling what you think you should be doing. We feel very seriously about this.’

“Yellen, who prides herself on being more in touch with the real world of the economy than most economists are, and Akerlof have published a series of papers on why labor markets don’t automatically work according to the laws of supply and demand. They believe that people’s economic behavior is not mechanically rational, and that government – specifically the Fed – can often manage the economy in ways the produce happier results than the markets would achieve on their own.”

 The full article is available to New Yorker subscribers at http://www.newyorker.com/reporting/2014/07/21/140721fa_fact_lemann

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