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The $300,000 Man
The strange economics of economists.

By Paul Krugman
(posted Saturday, April 11)

       Bob Barro doesn't deserve a salary of $300,000 per year. But then, who does? The ability to do innovative economic research is at least as rare as the ability to sink a basketball through a hoop--and a lot rarer than many other abilities that routinely command six- or even seven-figure salaries. So there is nothing particularly outrageous in principle about the record-breaking offer that has just induced the Harvard economist to move to Columbia University.
       Still, the April 8 New York Times story that confirmed the rumors about Barro's deal has caused quite a stir here in academe. Nobody, as far as I can tell, begrudges his good fortune: Barro is, by anybody's standards, a first-rate economist. But a description I once saw of Stephen Hawking's reputation among physicists applies to Barro quite well: He is "esteemed but not revered" by his colleagues. That is, there are a couple of dozen other economists who can, with reasonable justification, regard themselves as being in the same league. Are they all now going to be demanding comparable paychecks?

Well, probably not. But there is certainly the possibility of a pay and perks explosion among a small circle of high-profile economists. Why--and what does it say about economics as a profession?
       The first thing you need to do is drop any stereotype you may have about economists as a bunch of suit-wearing, slogan-parroting guys divided into squabbling ideological factions. I have never seen Barro in a suit (the photo in the Times was a revelation). More important, nobody makes a career in academic economics by repeating traditional slogans. "Free trade good, protectionism bad" may get you a job at a think tank, but not at Harvard. Academic success depends on a reputation for cutting-edge research--which typically means either clever mathematical models or ingenious statistical exercises that redefine some important issue or explode some piece of conventional wisdom. And while there are, of course, factions and cliques within economics--don't get me started--there is, in general, a surprising degree of agreement about what constitutes good work. Mainly this is because leading university departments value technical skill and originality rather than ideology (in fact, the profession is startlingly apolitical, given how politics-driven economics is outside the ivory tower).

Now it turns out that the ability to write "home run" economics papers--yes, that's the phrase everyone uses in hiring meetings--is a quite rare one. Anyone who manages to do it two or three times becomes, in the eyes of the whole profession, a "star"--again, that's the word people actually use--and immediately becomes a very desirable commodity. A department with five or six star faculty out of, say, 30 will be highly visible. It will be the kind of department that can make a strong case to the university administration that it should receive preferential financial treatment, because it contributes to the prestige of the university as a whole, and hence ultimately to the institution's ability to raise money. A department without stars, no matter how excellent its teaching or worthy its long-run contributions to human knowledge, will not be able to make that case. And so any economist who has managed to establish himself (or, rarely, herself) as a universally acknowledged star can routinely expect to receive offers from many of the leading departments.
       But not, until now, $300,000 offers. What's going on? I think that a major part of the explanation lies in the development of economic theory over the past couple of decades and a somewhat dysfunctional response of the profession to those developments.

It is now becoming clear in retrospect that the '70s and '80s were a sort of golden age for the academic star system. Some big new ideas--"asymmetric information" (the seller knows if a car is a lemon, the buyer does not), game theory, "rational expectations" (the market is as smart as the economist modeling it), monopolistic competition, etc.--opened up dramatically new ways of thinking about a number of economic issues. (One of the truly ludicrous things about Brian Arthur's fantasy about how stodgy economists refused to listen to his radical ideas is that it is set in an era that everyone knows was in fact marked by a manic neophilia, a worship of the wild and crazy.) And for a smart, teched-up guy it was a perfect environment for career building: Just be the first person to work out how asymmetric information could be applied to industrial organization, or game theory to international trade theory, and--presto!--a star was born. It became not only possible but common for a successful young economist to become famous within a few years after graduate school, to become a full professor at a top school in his late 20s or early 30s. (No sour grapes here: My own career followed exactly that script.) And to this day, top departments regard instant stardom as the normal career track for the kind of person they want to hire.
       But something has gone wrong with the star formation process. The people are as smart as ever, but the state of economic theory has changed. The big, liberating ideas of the '70s and '80s have been absorbed--we are liberated up to here--and now the problem is one of application, of really careful work that helps us decide which wild and crazy ideas actually make sense or fit the facts. A good barometer of the change is the John Bates Clark Medal, which is given every two years to an economist under 40 (which, incidentally, makes it harder to get than the Nobel). From the '70s to the early '90s the Clark generally went to home run hitting theorists, but the last couple have gone to empirical labor economists whose reputations have been built not on a couple of thrilling papers but from an accumulation of careful, data-intensive research. The days of instant stardom, in other words, appear to be largely over.

And yet the demand for stars continues unabated. Indeed, it has probably increased due both to cultural contagion--this is the Age of Celebrity in all walks of life--and to the heightened competition among universities for increasingly footloose donor dollars. So what happens? Well, ambitious departments are in more or less the same position as producers of action films who, having been unable to find bankable new stars, are still bidding against each other for the services of Arnold Schwarzenegger or Bruce Willis. If a young economist should show even a simulacrum of old-fashioned star quality, he is likely to be deluged with offers, but for the most part the race for academic prestige has become a game of musical chairs in which everyone still wants the same old enfants terribles, and there are not enough of them to go around. (In my own field of international trade, the joke is that there are only three people in the top 10.) Result: Juicy offers for a handful of aging superstars.
       It's not such a terrible thing. When you consider how large a role economics plays in our national debate--and how much of the public discussion of economics is dominated by cranks and poseurs--seeing a serious economist like Barro get offered what is still, by private sector standards, a fairly modest paycheck doesn't seem particularly out of line. But I do worry that the Barro offer sends the wrong signals to younger economists--that by telling them the profession still insists on the appearance of superstardom, that it only values home runs when we really ought to be looking for a solid series of base hits, it will encourage what is already a disturbing propensity to favor attention-grabbing showmanship at the expense of deeper, more time-consuming work.


Get a look at Barro's Harvard home page before it moseys over to Columbia. Featured: Barro's bio and CV. ("Currently being updated.") The Economists with Web Pages site will help you find your favorite soon-to-be-overpaid academic. Both the Harvard economics department and the Columbia Business School finance and economics department maintain sites. A fan devotes an excellent site to the "admired but not revered" Hawking.

Paul Krugman is a professor of economics at MIT. His new book, The Accidental Theorist and Other Dispatches From the Dismal Science, will be published this month. His home page contains links to many of his other articles and essays.

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