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.”
Other prominent MIT graduates echo that sentiment. Athanasios Orphanides ‘85, PhD ‘90, who became governor of the Central Bank of Cyprus in 2007, recalls that MIT professors such as Solow, Fischer, and the late Rudi Dornbusch “had a keen interest in policy and passionately infused their lectures with real-world examples from history and current policy debates.”
Orphanides stepped into his post at a critical time for his country. In January 2008, Cyprus, which has been a member of the European Union since 2004, converted from its own currency to the euro. Orphanides’s transition efforts included launching a national help line to answer questions.
Impact on Public Policy
While alumni steer nations through turbulent economic times, MIT continues to foster “a growing recognition that most public-policy questions have an economic dimension,” Poterba says. “Economists are finding a place at the table in analyzing and finding solutions to a diverse set of social problems.”
For example, the department’s Jameel Poverty Action Lab (J-PAL) uses scientifically engineered randomized trials to improve the effectiveness of antipoverty programs around the world. The lab was started in 2003 by Professors Abhijit Banerjee, Esther Duflo, PhD ‘99, and Sendhil Mullainathan. J-PAL’s field-based research explores issues such as the impact of vouchers on private schooling in Colombia and the role of public-health programs in promoting health and productivity in India.
Other MIT scholars use macroeconomic theory to shed light on social issues. Professor Daron Acemoglu, for example, studies how governance structures and legal sys-tems, which sometimes date from colonial regimes, influence a country’s growth trajectory. Professor Michael Greenstone, who uses statistical techniques to measure the economic impact of climate change, has adapted the same techniques to the first independent quantitative analysis of the impacts of the U.S. troop surge in Iraq.
“It is often an awakening to discover
fields besides science and technology where you can apply rigorous quantitative skills,” says Poterba. “Many students who first encountered economics concepts in our two introductory courses have gone on either to careers in economics or to apply economic analysis in a range of other career pursuits.”