March/April 2008

Economics at MIT

The influence of a legendary department.

By Eileen McCluskey

At the Graduate Economics Association Fall Barbecue, associate professor Ivan Werning (left) benefits from the cooking skills of GEA cochairs Michael Powell and Tatyana Deryugina. Credit: James Poterba

MIT's third president, Francis Amasa Walker, understood the power of numbers. A leading economist, he directed the 1870 and 1880 U.S. censuses and founded the American Economic Association. He knew that numbers could capture truths obscured by assumptions and clarify the potential of new ideas. So he introduced undergraduate economics studies to MIT--the first required economics course at a U.S. institution of higher learning. This act set the stage for the development of the legendary department, which has influenced economists worldwide for decades.

At MIT's 140th commencement exercises in 2006, Ben Bernanke, PhD '79, 14th chairman of the U.S. Federal Reserve, outlined how the Institute's influential economics department took shape after those early years. He noted that the modern era of ­mathematics-based economics began when Paul ­Samuelson arrived at MIT in 1940, shortly before the PhD program was launched. The quality of graduate students attracted to the department, such as Lawrence Klein, PhD '44, whose econometric modeling later earned a Nobel Prize, fueled the department's growth in size and prestige. "Given the emphasis on quantitative reasoning at MIT," Bernanke said, "it makes perfect sense that the economics department here was in the vanguard of those using mathematics as a framework for organizing economic thought. ... These developments laid the foundation for economics as a discipline in the second half of the 20th century, and the department quickly rose to the top of national rankings."

The department remains top ranked by both the National Research Council and U.S. News and World Report. Only 22 of some 700 applicants are admitted each year to the PhD program, which totals about 130 graduate students. More than 500 undergraduates either major, minor, or concentrate in economics, and some 2,100 enroll in economics courses annually. Fourteen of the 64 Nobel Prizes earned by MIT faculty and alumni were for economics. The nine Nobel laureates on the economics faculty include the legendary Paul Samuelson, who won in 1970; Franco ­Modigliani, HM (1985); and Robert Solow, HM (1987). MIT economics graduates are leaders in business and government and currently head the central banks of the United States, Chile, Israel, Italy, and Cyprus.

Making Theory Relevant
As MIT faculty and students developed the quantitative framework for economic analy­sis, the department also worked to keep economics education germane to current issues. "One of the hallmarks of this department is the combination of theoretical rigor and practical relevance," says James Poterba, Mitsui Professor of Economics and department head. "This blend places MIT-trained economists in high demand for the analysis of complex policy issues in monetary economics and other fields."

"The way we were taught to think at MIT enables me to do my job," says ­Stanley Fischer, PhD '69, governor of the Bank of Israel, who taught at MIT from 1973 to 1994 and served as number two at the International Monetary Fund from 1994 to 2001. "The lessons I learned and taught at MIT have given me the confidence to decide about the key trade-offs that might have to be made in monetary policy--for example, what to do if inflationary pressures rise."