Documenting the Decline and Fall of Harvard Econ

One reason why Summers wields so much influence, both within the White House and the media, is b/c of his resume -- tenured at Harvard at 28!

President Obama, is, of course, a Harvard man, and he can't be faulted for not knowing that the Harvard Econ Dept. is stocked w/ a bunch of crazies. 'Tenured at Harvard at 28' means a lot less when one considers that the likes of Jeff Sachs was tenured in his 20s and Andrei Shleifer at 30 (see tawdry Shleifer affair )... (And I do like some of Sachs papers/books, but they strike me as very good at best, not brilliant, and occasionally awful...)

I was doing some research for a paper on the effect of currency unions on trade, and saw UC Berkeley's Andy Rose's (2000) finding that currency unions triple trade. Then Glick and Rose (2002), find that currency unions double trade. Now, of course, these findings are patently ridiculous -- they reflect the fact that most currency union pairs are not random, but that countries form currency unions with countries they have close cultural connections to, such as New Zealand sticking to Sterling. The problem is what we economists call "endogeneity" and is an ubiquitous problem in the social sciences. A famous example (perhaps made up) is of the Roman Emperor who noticed that places that had more hospitals had more sick people, and so got rid of the hospitals (although that may well have been a good bet given the state of medicine in olden times...). And so Rose, and many others, confused correlation w/ causality, despite the ridiculousness of the result -- If Japan dollarized, Americans wouldn't suddenly buy twice as many Japanese cars...

To fix the endogeneity problem, Harvard's Robert Barro comes along, and uses some sophisticated amalgam of geographic variables to proxy for currency unions, and argues that currency unions increase trade 7-fold in one paper, and 14-fold in another!!!! He's saying, in other words, that if Japan dollarized, Americans would then buy 14X as many Japanese cars! The problem, of course, is that the necessary "exclusion restrictions" in economese is that the "gravity equation" used in the estimation be perfectly linear and correctly specified in its geographic controls -- which is entirely unrealistic. Geography seems to matter for both trade and development in all types of hard to imagine ways -- the linear gravity specification is in no way likely to be a perfect fit. And a 14-fold increase in trade is just pure madness...

Then we've got Harvard's Baldwin, who's 2006 recap of the currency union issue is ok (alternately good and clueless as all hell), although he eventually concludes that currency unions increase trade by 6-10%, even though he offers no evidence at all.

And more recently we've got Harvard's Jeff Frankel who calls Rose's original garbage: "one of the most influential empirical papers of the decade" -- which tells you the state of International Macro, who argues for a big effect once again while looking at the Euro. Trouble is including a simple time trend kills the effect of the Euro, and the "natural experiment" he tries at the end with African CFA countries on the Euro doesn't work b/c European countries abolished tariffs on Sub-Saharan African countries in 2001... And we know from other studies that mere pegs have no effect on trade...

So, given this crap, why should any young economist respect Harvard Econ?

Harvard Econ = Intellectual Midgetry...