His editorship pretty much single-handedly got me back to reading the HBR after I had given it up for a couple decades as a time waster, mush-minded pablum for consultants pitching Fortune 500 clients with more money than brains.
Thanks to a reader
From the Harvard Business Review, February 3, 2014:
There was a lot of uncertainty and debate last summer and fall over whether President Obama would appoint Janet Yellen or Larry Summers as Federal Reserve chair. What wasn’t really up in the air was whether the new head of the world’s most powerful central bank would have a doctorate in economics.
Yellen, whose first workday as chair (the Senate confirmed her as “chairman,” but the Fed seems committed to leaving the “man” out) is today, got her PhD at Yale. She also has more than two decades experience teaching economics, mostly at UC Berkeley, although for the past two decades she’s spent most of her time in various White House and Fed posts. Summers got his PhD at Harvard, and has been going back and forth between there and Washington, D.C., pretty much ever since. Obama also mentioned Donald Kohn (PhD, Michigan, and a career at the Fed) as a possibility, and the name of Roger Ferguson (PhD, Harvard, and a private sector career plus a past stint as Fed vice chairman) came up a few times in journalists’ speculations. The lone exception to the PhD rule was former Treasury Secretary Tim Geithner, possessor of a mere MA in international economics, but he took himself out of consideration early on.
In 2006, the last time a President had to nominate a Fed chairman, the job went to Ben Bernanke, who had spent his entire career as an economics professor before being called up to Washington for a stint as a Fed board member in 2002. The other main contenders seemed to be Harvard economics professor Martin Feldstein, Stanford economics professor John Taylor, and of course Columbia Business School dean (and economics professor) Glenn Hubbard, whose students made an awesome viral video about his purported disappointment at being passed over.
So has an economics PhD basically become a prerequisite for running the Fed? “I think the answer is ‘probably yes’ these days,” former Fed vice chairman Alan Blinder — a Princeton economics professor — emailed when I asked him. “Otherwise, the Fed’s staff will run technical rings around you.”
That Fed staff is loaded with economics PhDs. In fact, the Federal Reserve System is almost certainly the nation’s largest employer of PhD economists, with more than 200 at the Federal Reserve Board in Washington and what is likely a similar number (I got tired of counting) scattered among the 12 regional Federal Reserve Banks.
The first PhD economist to be Fed chairman was the illustrious Columbia professor Arthur Burns, who served from 1970 to 1978. History has not judged his tenure well. The next two chairmen didn’t have PhDs (although Paul Volcker had a master’s in economics). Alan Greenspan launched the all-PhD era in 1987, but his doctorate was of an unconventional sort — he acquired it in his early 50s from NYU after he’d left graduate school at Columbia decades before (Burns had been one of his professors) to start an economic consulting firm.
You can clearly see the PhDward shift in the makeup of the Federal Open Market Committee, the Fed’s main monetary-policy-making body:
I compiled this data in not very scientific fashion by picking a few FOMC meetings through the years, then getting the attendees’ educational backgrounds from the Richmond Fed’s helpful Federal Reserve history site, from the websites of other Federal Reserve Banks, and in a couple of cases from obituaries in The New York Times. The FOMC is made up of the seven members of the Federal Reserve Board, the president of the New York Fed, and a rotating crew of four other regional Federal Reserve Bank presidents — the total membership is usually less than 12 because of vacancies on the Fed board. The 2014 numbers above include two new Fed board members (Stan Fischer and Lael Brainard) and one renominated to a second term (Jerome Powell) who haven’t been confirmed by the Senate yet.
One obvious and unsurprising trend in the chart is that overall educational standards have risen. It doesn’t really happen anymore that a guy who drops out of high school to work at John Deere, as Robert R. Gilbert did, can end up as president of the Dallas Fed (although who knows, maybe Tumblr founder David Karp has a shot).
The other big shift is the one from lawyers to economists that happened after 1949. A little Federal Reserve history helps explain it: In reaction to the Fed’s muddling in the early years of the Great Depression, Congress reorganized it in 1933, creating the FOMC and giving the chairman in Washington more power. But the first chairman under this new structure, Utah banker Marriner Eccles (who as best I can tell attended but did not graduate from BYU), was an advocate of aggressive fiscal stimulus who didn’t believe that monetary policy mattered. So the Eccles Fed didn’t do much to stimulate the economy in the 1930s. Then, during World War II, Eccles acceded as the Treasury Department forced the Fed to buy U.S. government securities to keep interest rates down — in the process generating lots of monetary stimulus — and kept dictating monetary policy after the war. In 1949, President Harry Truman appointed Scott Paper CEO Thomas McCabe (BA in economics, Swarthmore) to take over from Eccles, and McCabe began pushing Treasury to give control over interest rates back to the Fed. The result was the Fed-Treasury Accord of 1951, which McCabe hammered out with Assistant Treasury Secretary William McChesney Martin. Then McCabe went back to Scott Paper and Martin took over as chairman of a re-empowered Federal Reserve.
Martin was a former stockbroker and New York Stock Exchange president who took graduate classes in finance at Columbia while working on Wall Street in the 1930s. He stayed on as Fed chairman until 1970 — the longest-serving ever, beating out Greenspan by a few months — and appears to have been largely responsible for creating the modern, economist-dominated Fed. Under Martin, regulating the economy through monetary policy pushed aside bank regulation to become the central bank’s No. 1 job. So hiring economists, and bringing people with serious economics backgrounds onto the FOMC, became a priority. There weren’t all that many people with economics PhDs around in the 1950s and early 1960s, so the Fed was willing to make do with less. Then the U.S. witnessed a PhD explosion, with the number of doctorates granted in all fields rising from 8,773 in 1958 to 31,867 in 1971 (currently it’s around 50,000 a year, of which about 1,100 are in economics). More and more of these PhDs found their way to the Fed.
Still, when Blinder arrived as vice chairman in 1994, he says the presence of an economics professor on the board still seemed new and different. The Fed staff was full of career employees with economics PhDs; some of the regional Federal Reserve Banks had begun appointing staff economists as presidents....MORE