A tribute to one of the greatest economists of the last century
Robert Mundell passed away on April 4, 2021 and the world has lost one of the great titans of the economy. Widely regarded as the greatest macroeconomist of the second half of the last century, in the generation after John Maynard Keynes, Mundell was in scarce ground. Indeed, the only other credible candidate for this title would be the late Milton Friedman, who was his colleague at the University of Chicago when Mundell taught there in the late 1960s. Mundell received the Nobel Prize in economics in 1999, scheduled to coincide with the launch of the common European currency. The timing was right because, among many other achievements, he is rightly regarded as the intellectual godfather of the euro.
Readers of this column over the past half-dozen or so years will be aware of the vital role Bob (like all of us, his students and friends, let’s call it) has played in my life, and the fundamental importance of his research. . which spans over half a century. Readers may also be interested in my appreciation for the National Post, a leading Canadian daily newspaper, “ Economics perd a Wunderkind and prophet ” (April 8, 2021), which explains how Bob’s Canadianness was central to his work. on macroeconomic analysis in economics.
Here let me comment on the intellectual lineage of some of Mundell’s work. His connection to Keynes is quite direct, publicized by his disciple, James Meade, whom Bob knew during a stint as a visiting doctoral student at the London School of Economics in the late 1950s. ‘important work by Sir John Hicks, himself a future Nobel laureate, who synthesized the main message of Keynes’ general theory of employment, interest and money as a description of the short term with classical economic theory, which describes the long term. Indeed, the famous Mundell-Fleming model, which, despite all the technical developments of the last decades, remains the basic toolbox used by economists to understand the management of macroeconomic policies in an open economy, and is an extension of the open economy of Hicks’ closed economy. IS-LM model.
The fact that Bob was born and spent his early formative years in Canada is not incidental to his accomplishments. As one of the few countries that experienced flexible exchange rates and relatively open capital markets during the Bretton Woods years, the country was a laboratory of open economy macroeconomics long before such arrangements became the norm. standard.
The other aspect of Mundell’s intellectual development was his deviation from Keynes and his return to the classics, from the early 1970s. In private correspondence, Martin Wolf, chief economic commentator for the Financial Times, hypothesized that the final collapse of the Bretton Woods international monetary system, triggered by the closing of the Golden Window by US President Richard Nixon in 1971, could have been a reason.
There is, in a sense, an interesting parallel with Friedman, who, while retaining elements of Keynesian thought, pointed out, from the late 1960s, that policymakers could not exploit the putative relationship between inflation and unemployment – known as the Phillips curve, and itself derived from Hicks’ IS-LM curve – over the long term. Friedman anticipated the “stagflation” crisis (a combination of recession and high inflation) of the 1970s.
As it turns out, both Mundell and Friedman are associated with the change in economic policy undertaken by US President Ronald Reagan, albeit in different ways. While Friedman’s libertarian background – he was, after all, a founding member of the Mont Pelerin Society, first convened in 1947 by the arch-libertarian economist and philosopher Friedrich von Hayek – provided intellectual support to the Reagan’s deregulation that aimed to restore the primacy of the place for private entrepreneurship as the engine of economic growth, Mundell’s connection was much more direct. As a recent article in The New Republic by columnist Bruce Bartlett explains (“ Remembering the Father of Supply-Side Economics, ” April 7, 2021), who was on the scene in the 1970s, Mundell emerges as the intellectual godfather. of what would be called “supply-side economics,” or “Reaganomics,” spurred on by his disciple Arthur Laffer’s popularization efforts of the eponymous curve fame.
The policy mix Reagan pursued – tax cuts, not only intended to stimulate demand, but as a supply-side push for productivity gain and long-term growth, and tight monetary policy for curb inflation, implemented by Federal Reserve Chief Paul Volcker – This was exactly what Mundell had been calling for throughout the 1970s. This policy mix was incongruous with conventional Keynesian thinking, according to which fiscal policy and monetary policy are both relaxed or tightened together, and reflected Mundell’s thinking that fiscal and monetary policies each had a distinct role to play in the management of macroeconomic policy and were not substitutes, for in conventional Keynesian thought.
All in all, in their power as much as foreknowledge, the ideas of Bob Mundell (1932-2021) remain among the most important in the history of economic thought and policy.
Vivek Dehejia is a columnist for La Monnaie