Missing James Tobin
James Tobin, Yale professor, Nobel laureate and adviser to John F Kennedy, died yesterday. He was a great economist and a remarkably good man; his passing seems to me to symbolize the passing of an era, one in which economic debate was both nicer and a lot more honest than it is today.
Mr Tobin was one of those economic theorists whose influence reaches so far that many people who have never heard of him are nonetheless his disciples. He was also, however, a public figure, for a time the most prominent advocate of an ideology we might call free-market Keynesianism, a belief that markets are fine things, but that they work best if the government stands ready to limit their excesses. In a way, Mr Tobin was the original New Democrat; it's ironic that some of his essentially moderate ideas have lately been hijacked by extremists right and left.
Mr Tobin was one of the economists who brought the Keynesian revolution to America. Before that revolution, there seemed to be no middle ground in economics between laissez-faire fatalism and heavy-handed government intervention, and with laissez-faire policies widely blamed for the Great Depression, it was hard to see how free-market economics could survive. John Maynard Keynes changed all that: with judicious use of monetary and fiscal policy, he suggested, a free-market system could avoid future depressions.
What did James Tobin add? Basically, he took the crude, mechanistic Keynesianism prevalent in the 1940's and transformed it into a far more sophisticated doctrine, one that focused on the tradeoffs investors make as they balance risk, return and liquidity.
In the 1960's Mr Tobin's sophisticated Keynesianism made him the best-known intellectual opponent of Milton Friedman, then the advocate of a rival (and rather naÃ¯ve) doctrine known as monetarism. For what it's worth, Mr Friedman's insistence that changes in the money supply explain all of the economy's ups and downs has not stood the test of time; Mr Tobin's focus on asset prices as the driving force behind economic fluctuations has never looked better. (Mr Friedman is himself a great economist, but his reputation now rests on other work.)
But Mr Tobin is probably best known today for two policy ideas, both of which have been hijacked, his own word, by people whose political views he did not share.
First, Mr Tobin was the intellectual force behind the Kennedy tax cut, which started the boom of the 1960's. The irony is that nowadays that tax cut is usually praised by hard-line conservatives, who regard such cuts as an elixir for whatever ails you. Mr Tobin did not agree. In fact I was on a panel with him just last week, where he argued strongly that the current situation called for more domestic spending, not more tax cuts.
Second, back in 1972 Mr Tobin proposed that governments levy a small tax on foreign exchange transactions, as a way to discourage destabilizing speculation. He thought of this tax as a way to help promote free trade, by assuring countries that they could open their markets without exposing themselves to disruptive movements of "hot money." Again, irony: the "Tobin tax" has become a favorite of hard-line opponents of free trade, especially the French group Attac. As Mr Tobin declared, "the loudest applause is coming from the wrong side."
Why do I feel that Mr Tobin's passing marks the end of an era? Consider that Kennedy Council of Economic Advisers, the most remarkable collection of economic talent to serve the US government since Alexander Hamilton pondered alone. Mr Tobin, incredibly, was only one of three future Nobelists then working at the council. Would such a group be possible today?
I doubt it. When Mr Tobin went to Washington, top economists weren't subject to strict political litmus tests, and it would never have occurred to them that the job description included saying things that were manifestly untrue. Need I say more?
Yesterday I spoke with William Brainard, another Yale professor who worked with Mr Tobin, who remarked on his colleague's "faith in the power of ideas." That's a faith that grows ever harder to maintain, as bad ideas with powerful political backing dominate our discourse. So I miss James Tobin, and I mourn not just his passing, but the passing of an era when economists of such fundamental decency could flourish, and even influence policy.
James Tobin died on 11 March at the age of 84. This column appeared in the New York Times on 12 March and is reproduced with the author's kind permission. Paul Krugman is Professor of Economics and International Affairs at Princeton University and one of the world's most well-known and widely published economists. Just as Tobin was recognised in 1955, in 1991 the American Economic Association awarded Krugman its John Bates Clark medal, a prize given every two years to "that economist under forty who is adjudged to have made a significant contribution to economic knowledge. Image courtesy of the Economics Department, Yale University.
Krugman, Paul, 'Vale James Tobin', Evatt Journal, Vol. 2, No. 3, April 2002.<https://evatt.org.au/news/vale-james-tobin.html>