Berkeley's Real-World Economists

by Fernando Quintero

Deep inside the Federal Reserve, an imposing Art Deco building that occupies a city block across from the Mall's swath of greenery that links the nation's capitol to Washington's majestic monuments, Haas School of Business professor Janet Yellen wields the kind of policy making power that would make even the mightiest Wall Street executive quake in his wingtips.

As governor of the Federal Reserve Board and a high-profile authority on national economic issues, Yellen joins Laura D'Andrea Tyson, former director of the Berkeley Round Table on the International Economy and outgoing chief economic advisor to the newly re-elected President of the United States, as the second Berkeley economist who has held a top-level policy position.

Yellen's appointment to the federal board in August 1994 made her the ninth Berkeley economist to land a job in Washington during President Clinton's tenure. Since then, nearly a quarter of the university's economics faculty from the business school and the College of Letters & Science has taken leave to go to Washington. No other university outside the Ivy League has provided the White House with so much economic brain power as Berkeley has.

Other Berkeley faculty members who have been tapped by the Clinton administration include Jeffrey Frankel, an economics professor nominated in September by President Clinton to the Council of Economic Advisors, and Richard Gilbert, an economics professor who provided economic analysis for the Justice Department and played a key role in the Microsoft Corp. antitrust case. He was replaced by Carl Shapiro, professor of business and economics. Michael Katz, also a business and economics professor, served as chief economist at the Federal Communications Commission, and was replaced by economics professor Joe Farrell. And Brad De Long, associate economics professor, was deputy assistant secretary for policy at the U.S. Treasury Department.

"Certainly, talk of a Berkeley 'mafia' would be premature, despite the school's expanding network," wrote the Los Angeles Times in an August 1994 article titled, "West Coast Economists Forge a Connection With Washington Political Power Base."

If there is a Berkeley "mafia" in Washington, then Tyson is The Godmother. Tyson, who recently announced her departure and plans to return to Berkeley in January, helped bring David Levine, an associate business professor, and Jay Stowsky, a Berkeley research associate, to serve as senior economists on the Council of Economic Advisors. William Dickens, an associate economics professor, served as staff economist.

And it was Tyson, along with former Treasury Secretary Lloyd Bentsen, who interviewed Yellen for her job at the Federal Reserve. "It would be erroneous to call it a good old boys network," said Levine.

For Yellen, most important of all was the fact that Tyson was close enough of a colleague to know the name of her travel agent. Around the time she was nominated for the federal position, Yellen had decided to go on a brief spring vacation to a secluded island in Hawaii with her husband, George Akerlof, an economics professor who divides his time between the Brookings Institution in Washington and a class he teaches at Berkeley.

"Meanwhile, my office answering machine was filling up with messages from Washington," Yellen recalled with delight.

"I saved the tape. It was the most incredible string of messages, starting with so-and-so from the Council of Economic Advisers to White House Operator Number One. Laura happened to remember that my travel agent was at Northside Travel, and she was able to track me down. They were ready to find someone else."

Yellen had learned her first lesson in Washington protocol.

"One of the major differences between life in Washington and life in Berkeley is that you can't go anywhere here without leaving a number where you can be reached. It's unthinkable in government that someone couldn't be reached."

The early afternoon sun sliced through an opening in the thick blue taffeta curtains of Yellen's Colonial-appointed office and lit up her slightly disheveled silver hair. She was wearing the same outfit she bought the day she was nominated: a navy blue jacket with a matching pleated skirt and a multicolor scarf draped around her shoulders. She accessorized with a bulky black calculator watch.

"I didn't even own a suit. I never felt I had to have a suit at Berkeley. I was to be nominated in front of the Presidential Seal. The minute after I got the call, I walked across the street and bought a blue suit. I haven't stopped buying blue suits, or their equivalent, since then. I consider this my uniform," she said, then added with a sparkle in her eye. "Someday, I'm hoping to go back to my slacks and burn everything I own that's navy blue."

"Nobody has clothes for this," said Akerlof between bites of cafeteria food at the Brookings Institution, a prestigious think tank near trendy Dupont Circle where the part-time senior fellow has caused a stir.

In September, The Wall Street Journal ran an article about one of Akerlof's studies. "A controversial new paper suggesting that a little bit of inflation may be good for the economy has people talking at the Federal Reserve," it read. "It also generated a buzz inside the Fed because one of its authors. . . is married to Fed governor Janet Yellen, and its conclusion that a little inflation should be tolerated is supposed to be heresy at the central bank."

"The big difference between working at Berkeley and working in Washington is that in Washington, people care about you if you have the 'right' ideas, no matter where you get them from," said Akerlof, a pleasant, soft-spoken man with an independent, outsider's view of the D.C. scene. "In academia, you get credit for being the innovator."

Akerlof said getting noticed was also a matter of logistics. "A large part of everything is the agenda. If you get on the agenda, you get listened to."

If getting listened to is a goal, then Yellen has superseded it. She was still reeling from the fallout over comments she made before a group of Kansas City bankers and business professionals a few weeks before, where the press reduced her comments to a quote saying the economy was operating in an "inflationary danger zone." Within a few days, headlines were attributing a decline in the Dow Jones to Yellen's statement.

"As a professor, you're not accustomed to censoring your opinions. The only thing you have to worry about is whether a student is going to ask, 'Is this going to be on the exam?' Here, if I say the sky is blue, the stock market moves," she said. "The newspapers and wire services are right on us."

"I thought my mission in life was to explain things. I like to teach, to explain how things tick. I came to this job with that mind-set. Having to think about the political and economic consequences of my words, and having to anticipate every nuance of every word, has been the biggest frustration for me."

Ironically, it is Yellen's penchant for teaching, along with her applied approach to economics, that caught the Clinton administration's attention - a special combination of qualities shared by the unprecedented number of Berkeley faculty members laying siege to Washington.

"They're great communicators, that's why they're here," said Halsey Rogers, a Berkeley graduate student and former student of Tyson currently doing research at Brookings. "When Laura Tyson is debating Dick Army on McNeil-Lehrer or explaining economics in layman's terms to the President, she is using the same skills that allow her to express complicated economic concepts to undergraduate students."

It is also what the Berkeley economists are teaching that has garnered the attention of the White House as well as the press.

"Their battle cry is 'real-world economics,' and they talk and write about today's hot button issues, such as jobs and wages, immigration policy, the dollar and currency markets, business cycles and technology's role in economic growth," wrote the Wall Street Journal last December. "While intellectually rigorous, many of their pursuits are a sharp departure from the esoteric realms of many economists, who churn out papers strewn with Greek-letter formulas understood by few and interesting to even fewer."

Yet, Berkeley faculty have also received the highest honors for their theoretical work. In 1994, professor emeritus of economics John Harsanyi shared a Nobel Prize for his work on game theory. And in 1983, economics and math professor Gerard Debreu won

a Nobel for his theoretical research on how prices work to balance supply and demand.

Berkeley is currently ranked as having one of the top five economics faculties in the country.

"At Berkeley, we have a very good theory and econometrics group, but also very talented economists focused on real world issues." said Yellen. "What we've tried to do at the business school is not just have practitioners with solid economics backgrounds, but faculty members who are strong researchers and can teach students things they have personally found useful. That means we end up with people like Shapiro, Katz, Gilbert and the others."

On the way to Frankel's office inside the Old Executive Office building, an outrageous six-story French Second Empire building that flanks the White House, visitors are greeted by a gaggle of Secret Service agents, herded through a metal detector, and given color coded dog tags. It is where senior-level staff members have their offices, and where the professor of economics patiently awaits senate confirmation hearings before he officially joins the Council of Economic Advisers.

"I think how remarkable it is to be able to walk off a college campus and into the White House," said Frankel, looking dapper in a new gray plaid suit. "This is extremely rare in other countries. It creates a shock to the system, but it also gives you a renewed sense of appreciation for how this country is run."

Frankel, who joined the Berkeley economics faculty in 1979, has since worked as a research associate and senior fellow in Washington. He also served as senior staff economist at the CEA under the Reagan administration.

"A major difference I've come to notice between life in Washington and life in Berkeley is how much shorter the time horizons are here. In academia, you could conceivably take a year to think of a research idea, another year to write a grant proposal, another year to get the data you need, another year to write it up, and another year to get it published," he said. "Now take those five years and squeeze them into five days. That's an oversimplification, but not too far from reality. People here think academics have it easy. People in academia think people in Washington have it made."

A call from the Treasury interrupted Yellen's methodical train of thought. It was late afternoon, humid compared to Berkeley's perfect early autumn weather, and the 50-year-old wife and mother of a teenage boy turned her focus toward her family.

"I made up my mind early on that my family would remain a priority. We value our family life," said Yellen. "I try to spend some evenings with my son. I typically go home and have dinner with my family."

A typical workday begins at 6 a.m. and ends when Yellen falls asleep, sometime between 10 and 11 p.m. She drives her son, Robert, to school on the way to the office. Economics briefings are held each Monday morning, and a "Treasury Lunch" gathering takes place each Wednesday. "I have something to read virtually every night," she said.

"By 10 at night, she's still reading files. Not all those files look interesting," said Akerlof, who once occupied an office next to Yellen at Barrows Hall.

With what little time she has left, Yellen makes it a point to share some of it with her Berkeley colleagues. "We talk about the woes and joys of life here. We talk about who's coming and who's going. We all miss Cafe Roma, we miss the food and we miss our colleagues."

Nostalgia comes easy to Yellen and her Berkeley cohorts. "My husband and I were very happy at Berkeley. My son was happy in school." But the opportunity to apply ivory tower ideas to the real world is a chance many scholars only dream of.

"The job was attractive to me because most of my research and teaching was on macroeconomic issues, looking at international economics and monetary policy," she said. "You say to yourself, 'Sure, I'd like to try my hand at actually making policy."

"When someone offers you the opportunity to put to use what you've taught - I'm sure that's what motivates most academics who come to Washington - you take it. It's a chance to be useful. A chance to get that sense of excitement from direct participation," she said. "It's a dream come true."

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