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Economics as a Public Science, Part II: Institutional Settings

Peddling Macroeconometric Modeling and Quantitative Policy Analysis: The Early Years of the SSRC’s Committee on Economic Stability, 1959-1963

La modélisation macroéconométrique et l’analyse quantitative, de nouveaux outils de prise de décision de politique économique : les premières années du Comité pour la Stabilité Économique du SSRC, 1959-1963
Juan Acosta et Erich Pinzón-Fuchs
p. 537-558

Résumés

En utilisant les archives du Social Science Research Council, nous discutons les deux projets que le Comité pour la Stabilité Économique réalisa durant les trois premières années de son existence : (i) la construction d’un modèle macroéconométrique (1960-1963) et (ii) l’organisation d’une conférence sur l’analyse quantitative de politique économique (1963). Ce papier s’inscrit dans la thématique centrale de ce numéro spécial dans la mesure où nous nous concentrons sur l’effet que les activités du Comité ont eu sur le discours public économique. Nous soutenons que le Comité a contribué délibérément à établir l’importance des modèles macroéconométriques dans le débat politique, malgré le fait qu’il n’ait pas participé directement au débat public. Ainsi, à partir de ces activités, le Comité a joué un rôle décisif dans l’instauration d’une ère caractérisée par un discours économique basé sur la modélisation et la quantification. Toutefois, cette période ne fut pas exclusivement basée sur la technique puisque les économistes reconnurent le caractère politique du processus de prise de décisions politiques et les limitations méthodologiques de leur boîte à outils.

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  • 1 The SSRC’s records include mainly minutes and correspondence related to the functioning of the Comm (...)

1The Committee on Economic Stability of the Social Science Research Council (SSRC) was established in 1959 and played a key role in the construction of large-scale macroeconometric models during the 1960s and early 1970s. Using archival material from the SSRC, we discuss the two projects that the Committee carried out during its first three years of existence:1 (i) the construction of a macroeconometric model (1960-1963) and (ii) the organization of a conference on quantitative policy analysis (1963). In line with the central theme of this special issue, we focus on the effect of the Committee’s activities on public economic discourse and argue that, while the Committee did not participate directly in the policy debate, it did purposefully contribute to the growing importance of macroeconometric models in policy analysis. Thus, with its activities, the Committee helped usher in an age of quantified and model-based economic discourse that was not, however, exclusively technical but that recognized both the importance of the political character of the policy-making process and the limits of the economists’ toolkit.

2The Committee was created as a joint venture of economists in academia, think tanks, and government institutions that were interested in better understanding economic instability in postwar United States. Although the available evidence suggests that advising government agencies on economic policy was not a clear priority when the creation of the Committee was initially discussed, a much stronger interest in influencing economic policymaking is clear in the two projects that the Committee carried out during its first years and that we discuss here. First, the Committee’s model was designed to be useful for policy analysis and not just for forecasting: it was considerably more disaggregated than the models built by Lawrence R. Klein at the Cowles Commission (Klein, 1950) and the Klein-Goldberger model built at the University of Michigan (Klein and Goldberger, 1955), and it included parameters that represented actual policy instruments to accommodate the needs of policy makers. In addition, the project successfully engaged important government agencies that provided data series and whose officials also contributed with their expertise in the construction of individual sectors of the model. Second, the 1963 conference deliberately reinforced the Committee’s role as a promoter of quantitative methods for policy analysis in the United States by showcasing the experiences of Japan, France, and the Netherlands—which relied in these methods to a much greater degree than the United States. The Committee, however, did not offer ready-made solutions. Instead, they promoted the more modest view that quantitative policy analysis had the potential to make economic policy better and that it was worth investing resources in its development.

3The activities of the Committee also offer a useful contrast with some of the institutions and people considered elsewhere in this special issue. The Committee’s active and purposeful engagement with government institutions and officials contrasts with Robert Lucas’s careful distancing from the world of policymaking described in Goutsmedt et al. (2019, this issue). At the same time, contrary to the privileged place of Walter Heller at the Council of Economic Advisers and the direct policy advice he provided to President Kennedy (Cherrier, 2019, this issue), the Committee’s activities involved the technical staff and mid-ranking officials, and they were related to the creation of tools and to the promise of providing better ways of thinking about economic policy instead of giving concrete policy advice. Finally, the Committee’s outsider position and its efforts in peddling the potential uses of the methods it promoted are in stark contrast to the authority and legitimacy that the Central Planning Bureau and its model exerted, from the start, in Dutch policy making, given that the Bureau occupied a central position at the heart of the Dutch government (Kayzel, 2019, this issue).

1. The Establishment of the Committee on Economic Stability

  • 2 “Notes for the SSRC Conference on Economic Stability,” SSRC1, box 145, folder 801. Gordon (1957) ha (...)
  • 3 Ibid.

4The establishment of the Committee was the result of an SSRC “Conference on Economic Instability” held on June 17-19, 1959 at the University of Michigan. According to Robert A. Gordon (Berkeley), he and other economists associated with the SSRC who were interested in creating a committee on business cycle research proposed the conference to explore this possibility further (Gordon, 1975, 31; 1959, 38). As the first column of Table 1 shows, participants came from academia, government agencies, and private institutions like the Brookings Institution and the National Bureau of Economic Research (NBER). Gordon opened the discussion by briefly introducing the topics that would be discussed at the conference, centered on understanding what was known about the instability of the US economy and whether there were fundamental differences between pre and postwar business cycles. He stressed three characteristics of the postwar experience: “(1) the absence of a serious depression associated with a fairly rapid rate of growth, (2) the persistence of inflationary pressures, and (3) the continued recurrence of what have come to be called ’minor cycles.”2 These phenomena needed an explanation, and Gordon noted in particular the lack of interest that theoreticians working on models based on the multiplier-accelerator mechanism seemed to have on explaining these minor cycles and even the extraordinary ones like the 1930 depression. Not surprisingly, Gordon considered that “this theoretical model-building ha[d] been largely divorced from the empirical and policy literature of the postwar period.”3

  • 4 A couple of the participants had double affiliations and were thus counted twice. The information a (...)

Table 1: Participants in Committee activities.4

  • 5 This includes multilateral agencies and foreign government agencies.

Michigan (1959)

Dartmouth 1 (1961)

Dartmouth 2 (1962)

1965 Volume

Conf. QPA (1963)

Number of participants

19

29

30

25

32

Participants with PhDs

16

21

20

21

-

Participants from academia

11

18

21

21

11

Participants from gov. agencies5

5

8

7

4

13

Participants from private institutions

3

3

3

1

9

Source: Records of the SSRC.

  • 6 “Stability and Instability in the American Economy,” SSRC1, box 145, folder 801. A revised version (...)

5Geoffrey Moore (NBER), Bert Hickman (Brookings Institution), and James Duesenberry (Harvard) also presented papers that looked in detail at the characteristics of the business cycle and at the changing role of specific elements in making the economy more or less stable (e.g., fiscal policy, financial distress, and the so-called automatic stabilizers that had been put in place in the postwar). The paper presented by Duesenberry—co-authored by Gary Fromm (Brookings Institution) and Otto Eckstein (Joint Economic Committee)—had been specifically commissioned by the organizers of the conference and was the only paper that contained an econometric model.6 The core of the paper consisted of the various simulations, “policy experiments,” that Duesenberry, Eckstein, and Fromm carried out to consider the effects of different fiscal policies and of the automatic stabilizers on economic instability. The model had several intentional limitations that the authors willingly acknowledged—it only considered an economy in recession and it did not consider monetary policy or price changes—but it showcased effectively the type of questions that could be investigated with such a model. As Lawrence R. Klein (Pennsylvania) later put it, the model played an important role in “the whetting of the appetites” for a large-scale macroeconometric model (Klein, 1975, 13).

  • 7 Discussion summary, SSRC1, box 145, folder 801. These notes were taken by someone with the last nam (...)
  • 8 While econometric modeling clearly occupied a central role, the historical approach of the NBER w (...)

6The summary of the discussion shows that there was an active debate around each of the papers presented, not only on the specific elements that were considered to contribute to the stability or instability of the postwar economy of the US but also on the methodological and organizational aspects of carrying out research on this subject.7 The conference concluded with a vote in favor of the establishment of a committee at the SSRC that would fulfill several functions. As reported in Gordon’s summary of the conference (1959, 39) for ITEMS—the SSRC’s magazine—these functions were to (i) “facilitate the coordination of research,” (ii) “help integrate current research methodologies,”8 (iii) “facilitate the collection and publication of needed data, particularly by the Federal Government,” and (iv) “serve as a channel of communication and a facilitating agency in the field of research on problems of economic instability.” The first function was specifically geared towards helping researchers working on econometric models come together. Gordon highlighted the need to take stock of the research available in order to avoid duplication of work and to channel efforts into disaggregation. He hoped that “[i]n this way econometric business-cycle research could have much more of a cumulative effect than has been true in the past, when each investigator has started largely from scratch (ibid.). Judging from the summary of the discussion at the conference it would seem that the idea to build a larger, more disaggregated model was explicitly considered, but this is not completely clear. Gordon (1959) is equally unclear in this respect.

  • 9 Discussion summary, SSRC1, box 145, folder 801. See footnote 7 above.

7It should also be noted that a fifth function of the committee, not reported in Gordon (1959) but discussed at the Michigan conference, was that of “providing information to policy-making agencies of the government.” Specifically, the conference’s discussion summary reports that Henry Wallich (CEA staff) emphasized “the value that the model-building project could have in providing government agencies with policy recommendations” and that Duesenberry “said that simulation experiments with a model could easily be made to provide policy implications.”9

  • 10 Ibid. Our emphasis.

8However, and this might explain why this function did not appear in Gordon (1959), the discussion summary of the Michigan conference also reports that “[t]here was some debate on the question of whether the task of providing recommendations for current policy would conflict with the basic research objectives of the project.”10 Unfortunately, there is no further record of the specific points that were advanced against this function during the conference. On the contrary, the attitude towards policy analysis of the group of researchers that built the Committee’s model would be clearly positive.

  • 11 See the “Proposal for committee on economic instability,” Sept 12, 1959, SSRC2 Box 151, folder 1721 (...)

9The proposal to establish the Committee on Economic Stability was accepted in September of 1959 and the initial members of the Committee were recruited in the following months (Gordon, 1959, 39).11 Table 2 lists the Committee members during the early 1960s—the exclamation sign (!) denotes the chairman—and it can be seen from their affiliations that most of them were academics. However, as Table 1 shows, the Committee’s activities had a broader reach and engaged more government officials in an effort to develop macroeconometric models and promote the use of quantitative policy analysis.

Table 2: Members of the Committee on Economic Stability, 1959-1964

Members CES

Affiliation

1959-1960

1960-1961

1961-1962

1962-1963

1963-1964

Klein, Lawrence R.

U. Pennsylvania

X

X

X

X

X

Duesenberry, James

Harvard University

X

X

X

X

X

Hickman, Bert

Brookings Institution

X

X

X

X!

X!

Gordon, R. A.

UC Berkeley

X!

X!

X!

X

X

Moore, Geoffrey

NBER

X

X

X

X

X

Lusher, David

CEA

X

X

X

X

X

Abramovitz, Moses

Stanford

X

X

X

X

Bronfenbrenner, Martin

U. Minnesota

X

X

X

Modigliani, Franco

MIT

X

X

Fox, Karl

Iowa State University

X

X

Source: Records of the SSRC

2. The Macroeconometric Model of the CES

  • 12 Herring to Riecken, October 4, 1960. SSRC2, box 151, folder 1721.
  • 13 Fouraker to Klein, June 16, 1961. SSRC2, box 151, folder 1721.
  • 14 It is noteworthy to point out that Klein did not attend the 1959 Michigan conference, but was invit (...)
  • 15 See in particular Bodkin et al. (1991). Acosta and Pinzón-Fuchs (2018) describe in detail the appro (...)

10Planning for the construction of a large-scale macroeconometric model started in early 1960. The team of experts that would be in charge of each of the individual sectors of the model was almost complete by October 1960 and funding was sought from the National Science Foundation (NSF).12 Preliminary work on the model began in February 1961, although the NSF’s grant seems to have been awarded in June of that year.13 From 1961 to 1963 a team of more than 20 researchers led by Klein and Duesenberry worked on the model.14 Researchers worked mostly individually, meeting only a couple of times a year, most notably during two multi-week conferences at Dartmouth during the summers of 1961 and 1962 (Klein, 1961; 1962). The model was handed over to the Brookings Institution for management and further development in September 1963, thus becoming the Brookings model. Several volumes appeared afterwards describing its structure and simulation results—starting with Duesenberry et al. (1965), which reports mostly the work carried out during the Committee phase of the model. The model was a milestone in the practice of large-scale macroeconometric modeling due to its size, its technical innovations, and the way it was built. These aspects have been discussed elsewhere, but two important elements stand out in connection with the relationship that the model helped build between academic economists, private institutions, and government agencies.15 First, the model was conceived from the beginning to be useful for economic policy analysis, and second, the model drew extensively on both data and expertise from government agencies. Although it took a few more years of work on the model beyond its Committee phase to obtain the type of quantitative policy analysis that the project promised (Fromm and Taubman, 1968), the project was successful in gaining the attention of government agencies and in building important connections between academia and government that paid out in the following years.

  • 16 Herring to Riecken, October 4, 1960. SSRC2, box 151, folder 1721.
  • 17 Meeting minutes, Feb 24, 1960, SSRC1, box 147, folder 810; meeting minutes, Feb 3, 1961, SSRC1, box (...)
  • 18 For comparison, a model focused exclusively on forecasting the GDP or the price level need not worr (...)

11As we mentioned in the past section, at the Michigan conference there was some discussion around the potential role that the Committee could have in advising government agencies. And although we have not located the proposal presented to the NSF, the cover letter sent by the SSRC’s president did not mention anything related to economic policy either.16 It is possible that emphasizing the scientific aspect of the project was a strategic choice to appeal to the NSF, but it is in any case clear that, on the contrary, the team behind the model project had a clearly positive attitude towards the potential uses of the model for policy analysis. The intention to “produce a system that [would] be jointly useful in forecasting and policy formation” was explicitly stated in February 1960 meeting where the construction of the model was decided, and it was confirmed a year later in the first preliminary meeting between the team of researchers in charge of the individual sectors of the model.17 In terms of the structure of the model, this concern for policy usefulness meant an overall higher degree of disaggregation in the production sectors and other segments of the model, and the explicit inclusion of parameters representing actual policy instruments. These parameters would allow the model to produce quantitative estimates of the effectiveness of any specific policy instrument considered.18

  • 19 “The Dartmouth Conference on an Econometric Model of the United States,” August 7-25, 1961, SSRC1, (...)

12The relationship with government agencies was crucial due to the amount and variety of data series that were used to build the model, some of which were specially put together for the project. Officials from the Department of Commerce’s Office of Business Economics (OBE) seem to have been particularly helpful in getting the needed data series.19 The detailed specification of each of the individual sectors was left to experts whose models would then be combined into a full model of the whole economy. As shown in columns 2-4 of Table 1, some of the experts involved in the discussion and construction of the model also came from government agencies. Columns 2 and 3 refer to the participants of the two Dartmouth conferences where the team of researchers involved in the project, as well as occasional guests, met to discuss their progress and worked on turning the various parts of the model into a consistent whole; column 4 refers to the researchers that authored the individual sector models included in Duesenberry et al. (1965). Although our data still has some gaps, we found that at least four (out of eight) of the government-affiliated participants at Dartmouth 1, at least three (out of seven) of the participants at Dartmouth 2, and three (out of four) of the government-affiliated contributors to Duesenberry et al. (1965) held Ph.D. degrees. This information is not a perfect indicator, but it does suggest that the connections established during the model project involved the technically oriented government officials, that is, staff members who could understand the technical discussions or, that at the very least, were interested in hearing about them.

  • 20 Minutes of the Board meeting of September 23, 1960, 4ff. The minutes of the Board meetings are avai (...)

13Even if the connections between the model building project and government agencies were not built directly with people high up in the decision-making ladder, they did have a long lasting effect by helping some of these agencies establish macroeconometric modeling research agendas. This is particularly clear in the case of the Board of Governors. The Committee initially contacted the Board looking for funding, but the Board’s response was lukewarm. They would let Daniel Brill—who was initially in charge of building the model of the financial sector—and other members of the staff participate in the project but were hesitant to fund it.20 Paul Webbink, who handled the administrative affairs of the Committee at the SSRC, reported that:

  • 21 Webbink to Gordon, Oct 05, 1960, SSRC2, box 151, folder 1721. Our emphasis.

[f]urther discussion with Jack Noyes [Director of the Board’s Division of Research and Statistics] has made it clear that getting financing from the Federal Reserve would require a more specific statement of plans and anticipated results. It would probably be better to err on the modest side of this rather than on the expansive side, but it might also be necessary to make some contention that what will be accomplished is something that the Federal Reserve otherwise, sooner or later, would have to do, or at least ought to do, with its own staff. 21

  • 22 Op. Cit. See also Gordon to Webbink, Oct 10, 1960, SSRC2, box 151, folder 1721.
  • 23 For details on the Fed-MIT-Pen model see Acosta and Rubin (2019), Backhouse and Cherrier (2019), an (...)

14The request for Board funds was eventually dropped. The Committee was confident that they would get the funding from the NSF and considered that following up on the request for funds from the Board would take up too much valuable time from Klein.22 Even so, the proposed strategy is noteworthy and proved to be prescient. The idea that the model project was in the Board’s best interest and, even more so, unavoidable, fits in well with the attention given to the policy usefulness of the model and with the agenda pursued in the 1963 conference. And the Board did in fact develop a macroeconometric model afterwards, in collaboration with the Committee’s Subcommittee on Monetary Research. The Board’s model was another joint project led by Frank de Leeuw (Board’s Division of Research and Statistics, DRS), Franco Modigliani (MIT), and Albert Ando (Pennsylvania). Brill, who became the director of the DRS in 1963, established a modeling project led by De Leeuw—who had replaced him as the final responsible for the financial sector in the Committee’s project (De Leeuw, 1965). The DRS’s project merged in 1966 with a project at MIT led by Modigliani and Ando, and that became the Federal Reserve Board-MIT-Pennsylvania model project (1966-1970). The project was fully funded by the Board via the Committee’s Subcommittee on Monetary Research, an initiative that had brought the DRS staff and academic monetary economists together since 1964.23

  • 24 Gordon to Webbink, August 28, 1961; Gordon to Webbink, October 16, 1961, SSRC2, box 151, folder 172 (...)
  • 25 See the minutes of the meeting between the OBE team and the Committee, November 5, 1963, SSRC1, box (...)
  • 26 See for example Klein to CES members, March 29, 1965. SSRC1, box 147, folder 812.

15A less well documented, though equally interesting relationship, emerged between the Committee and the Department of Commerce’s Office of Business Economics. The Department was a major source of data as it produced the national accounts, but a group of their officials was also interested in obtaining help from the Committee in kick-starting its own econometric research group at the OBE.24 The OBE had taken up and updated Klein’s quarterly model (Klein, 1964), and they had the intention of doing further work on econometric policy analysis. Researchers at the Department wanted the Committee to help them guide their research agenda and find adequate personnel.25 There is some evidence in the SSRC’s records that suggests that the Committee advised the OBE at least until 1965, but the details are unclear.26 In any case, the first version of the OBE’s model was ready by 1966, which later became the BEA model, when the OBE changed its name to the Bureau of Economic Analysis (Bodkin et al., 1991, 120).

  • 27 Lusher also received help from the Treasury and Klein was glad they were showing interest in their (...)
  • 28 See Gordon’s memos of April 7 and April 19, 1961, as well as the minutes of the Committee’s meeting (...)
  • 29 It is also worth noting that, as Bodkin et al. (1991, 93) point out, the OBE’s model’s forecasts we (...)

16Finally, it is worth noting that the CEA also showed some interest in the model project and got involved in the initial phase of its construction. Both Henry Wallich (CEA member) and David Lusher (CEA staff) attended the 1959 Michigan conference, and Lusher became the expert in charge of the Government revenues and expenditures sector together with Louis Weiner (DRS).27 The Committee approached Council members James Tobin and Walter W. Heller, its chair, early on with an open invitation to discuss and see if the Council would be interested in the Committee’s work, apparently getting an enthusiastic response from both of them.28 It would seem that a meeting took place on May 17 of 1961 but we have not found any further evidence of collaboration. Lusher dropped out of the model project—but not the Committee—due to an illness and his work was taken up by Albert Ando, Cary Brown, and Earl Adams (1965).29

17It would be impossible to say for sure whether the Board of Governors or the OBE would have carried out their model projects if the Committee’s own project had not existed. But the Committee’s project certainly helped move things along, particularly because it showed officials from these and other agencies how a large-scale model could be built and what was needed to do so. Thus, the Committee’s model project helped diffuse macroeconometric modeling by example. The conference on quantitative policy analysis organized by the Committee in 1963 reinforced the message, but it did so in a much more direct and open way.

3. Promoting Quantitative Policy Analysis in the United States

  • 30 Hickman to Fox. December 4, 1962. SSRC2, box 151, folder 1722.

18The Committee organized an international conference in August 1963 that supplemented the interest that the macroeconometric model project had provoked in some government agencies. The conference was explicitly aimed at giving quantitative policy analysis more visibility among economists in the United States, including government officials. Bert Hickman (Brookings Institution), Charles Holt (Wisconsin), Karl Fox (Iowa State), and Erik Thorbecke (Iowa State) were in charge of the planning of the conference. Concrete plans started taking shape in late 1962 and Hickman suggested that it might be a good idea to contact the organizers of an NBER conference on the same topic (i.e., planning).30 It is unclear whether the organizers actually contacted the NBER but the evidence suggests that, if they did, nothing came out of this. The NBER did carry out a conference on “National Economic Planning” in November 1964 (Milikan, 1967), but none of the Committee members seem to have participated in it and, similarly, nobody from the NBER participated in the Committee’s conference. As we point out in Acosta and Pinzón-Fuchs (2018), this shows that despite the presence of George Moore (NBER) in the Committee, there doesn’t seem to have been much collaboration between the Committee and the NBER.

19The conference had a clear goal from the start: to promote quantitative policy analysis in the United States by showcasing the experience of other countries. Indeed, early in 1963 Hickman emphasized this objective:

  • 31 Hickman to Fox. January 2, 1963. SSRC2, box 151, folder 1722.

I believe that we should be careful not to lose sight of the educational function of the conference, both for the participants and profession at large. There should be heavy emphasis on milking the experience of the foreign economists who have been working with the tools and the associated political and administrative problems. A volume of collected papers on country experience[s] with “Quantitative Planning of Economic Policy” on the national level, rounded out with a general report on the proceedings of the conference and possibly supplemented by other papers, should attract wide attention among US economists.31

  • 32 Proposal for a conference on ‘Quantitative Planning of Economic Policy’ under the sponsorship of t (...)

20The initial version of the conference proposal, sent later to the Ford Foundation, emphasized this educational purpose. The proposal noted the experience accumulated in other countries “concerning the quantitative formulation and planning of economic policy on a national and regional level” and explicitly stated that the purpose was to “acquaint American economists with this body of foreign experience and to stimulate research on the application of quantitative tools to policy problems in the United States.” Papers would be commissioned from “persons actively at work in the field and [would] not be burdensome to prepare” so that the conference volume could be published soon afterwards.32

  • 33 Ibid.

21The conference would last five days and bring together up to 40 economists to discuss the techniques of quantitative policy analysis and the experience of countries that had led the path in their use. In the proposed agenda mornings would be occupied with technical papers dealing with the theory of economic policy, and estimation and specification issues. The Friday session also included two papers about “the political-economic process, dealing with problems of communications between economic advisers and policy makers, interpretation of results by economists to policy makers, administration and implementation of the policy process, etc.” Technical discussions would be supplemented with afternoon discussions based on the relevant parts of papers that presented the experiences of the Netherlands, Norway, France, Italy, and Japan with “quantitative planning and [the] implementation of economic policy.” The structure of these papers would follow the proposed agenda of the conference so as to facilitate comparisons and would be “solicited from the chiefs of the relevant government bureaus or close associates. These papers would not be delivered at the conference but would be prepared as background papers and circulated in advance of the conference.”33

  • 34 Ibid.

22The proposal was also explicit on the pedagogical objective in regards to the selection of US participants who were “selected in conformity with the basic purpose of fostering interest in research on quantitative analysis of economic problems.” The organizers not only invited young and senior scholars, but they also sought to have “a wide coverage of institutions.” In addition, “[e]conomists with basic policy interest but comparatively little econometric training [were] asked to participate, and conversely, econometricians who had not previously done research on policy matters [were] also ... invited.”34

23The Ford Foundation’s initial response to the grant application was negative. Despite the apparently balanced agenda of the conference, which included both technical and real-world implementation discussions, the Foundation considered that there was too much emphasis on the technical side. As Hickman reported to the rest of the planning committee:

  • 35 Hickman to Fox, Holt, Thorbecke. March 4, 1963. SSRC2, box 151, folder 1722.

The Ford Foundation is cool to the conference as we planned it—cool to the point of refusing to finance it. Their principal objection is that too much emphasis is planned on techniques and too little on the actual contribution of quantitative methods to economic policy. Does the advice of the technicians get accepted? Is the advice straight from the models or does the judgment of the planning chief and his staff enter heavily into the final recommendations? What role do political factors play in setting constraints on admissible goals? On crucial variables like the money wages? What means are used to implement the policies?35

  • 36 Hickman to Fox, Holt, Thorbecke. April 12, 1963. SSRC2, box 151, folder 1722.
  • 37 Agenda for a Conference on ‘Quantitative planning of economic policy’ under the sponsorship of the (...)
  • 38 Ibid.
  • 39 See the May 1, 1963 version of the conference agenda. SSRC1, box 147, folder 811. Unfortunately, it (...)

24The proposal was modified to increase the emphasis on the pragmatic problems and was finally approved by the Ford Foundation.36 The new proposal had similar language, insisting on the fact that “American economists and policymakers are largely uninformed about these important developments” made in France, the Netherlands, Norway, and Japan, and that “[a] critical appraisal of the contribution of quantitative techniques to the planning and implementation of economic policy in these countries could significantly affect the future direction of economic research and economic policy in the United States.”37 The new proposal also explicitly emphasized the effort made to communicate these techniques to a wider public, insisting that technical papers should be “expository in nature and [confine] any difficult mathematical material to appendixes.”38 In addition, the new agenda explicitly incorporated the questions suggested by the Ford Foundation, which would be treated in the papers prepared on the experiences of the above mentioned countries. Policy papers now appeared explicitly in the agenda and occupied the last three full days of the conference, with the technical papers confined to the first two days. The country experiences to be discussed were cut to three: France, the Netherlands, and Norway instead of Japan. A couple of months later, however, this last choice was reversed, and Japan was included again.39

  • 40 Hickman to Fox, Holt, Thorbecke. January 29, 1963. SSRC2, box 151, folder 1722.
  • 41 See for example Hickman to Bauchet. June 18, 1963. SSRC2, box 151, folder 1722.

25It is unclear how the final choice of the authors of the policy papers was made, but Hickman does point out that he got some suggestions from Jan Tinbergen—who could not personally attend the conference but was reportedly very enthusiastic about it.40 In any case, the educational purpose of the conference was also made explicit to the authors of the policy papers,41 and the questions included in the conference’s instructions clearly echoed those proposed by the Ford Foundation:

  • 42 19630501 Note to authors of country papers.” May 1, 1963. SSRC1, box 147, folder 811. These questi (...)

How is the economic policy problem identified and defined? How or to what extent is the policy decision problem formulated in quantitative terms? How are the specific objectives or targets of economic policy determined? How are the relationships between proposed policy actions and desired economic outcomes estimated and how successful are the models in forecasting economic activity and the influence of policy actions on economic activity? If a formal quantitative model is used, how is the mathematical solution of the decision problem obtained? How do the results of the quantitative economic analysis contribute to the political decision process?42

  • 43 See the initial list of potential candidates: Hickman to Fox et al., April 12, 1963. SSRC2, box 151 (...)

26The conference took place in August 19-24, 1963 at the Brookings Institution in Washington. As shown in Table 1, in the end there were 32 participants and those associated with government agencies outnumbered academic economists: 13 participants were affiliated to government agencies, 11 to academic institutions, and 9 to private organizations; 10 out of 23 US participants were associated with government agencies. In particular, there were officials from the Board of Governors of the Federal Reserve System, the Council of Economic Advisers (CEA), the Department of Commerce’s Office of Business Economics (OBE), the Department of Labor’s Bureau of Labor Statistics, the Treasury’s Office of Financial Analysis, and the Agency for International Development. With the exception of the Joint Economic Committee and the Bureau of the Budget, the organizers were successful in getting officials from the agencies they originally wanted, although they did not get some of the high-profile officials they had considered, such as Gardner Ackley (CEA) and George Jaszi (OBE). It is also noteworthy that none of the Harvard and MIT economists associated with the Committee such as Franco Modigliani, Edwin Kuh, Duesenberry, and Eckstein attended the meeting. Other major names like James Tobin, Arthur Okun, and Kenneth Arrow were considered initially but did not participate in the conference.43

27The presentations of the conference and the published volume (Hickman, 1965a) provided a broad introduction to the technical aspects of quantitative policy analysis as well as a presentation of the experiences of the Netherlands, France, and Japan. The conference showed even more clearly why proponents of the use of quantitative tools in economic policy considered these tools valuable. A short note published as a Brookings Research Report summarized their view:

  • 44 The uses of quantitative economic planning.” SSRC2, box 151, folder 1722. Our emphasis. The note w (...)

The techniques of policy planning provide a rigorous and systematic method of exploring the impact on the economy of specific governmental actions. Their purpose is to supply the policy maker with a more scientific basis for choosing among alternative economic policies than is given by the rough estimates or intuition frequently underlying policy decisions.44

28The conference volume conveyed a general support for the use of quantitative tools and also showed that there were different approaches available. The chosen countries illustrated this well: Japan and France focused on long-term planning and the Netherlands focused on short-term planning. The Committee’s macroeconometric model was closest in type to the work done in the Netherlands, but there too, it was possible to choose between using previously specified values for the target variables (Tinbergen’s approach) or deriving the optimal values from a maximization program using a decision-maker’s preference function (Theil’s approach) (Hickman, 1965b; Theil, 1965). It was clear that in order to apply either of these approaches in a rigorous way, “a complete econometric model must be built in which all relevant target and instrument variables are included and all coefficients are numerically estimated” (Hickman, 1965b, 6). The kind of econometric model used in the Dutch case was studied in van den Beld’s (1965) and Fox and Thorbecke’s (1965) papers in the volume. And yet, an important message that the book wanted to convey was that, even if it was still under construction and preliminary, a project already existed in the United States that tried to build such an econometric model with the purpose of doing quantitative policy analysis in a rigorous way. This project was, of course, the Committee’s macroeconometric model that had now been passed on to the Brookings Institution.

29Another important point emphasized both during the conference and in the book, was the political character of quantitative economic policy analysis. More specifically, Hickman (1965b, 9) reminded the readers that the “determination of desired values of targets and instruments ... and the weights attached to them” was conditioned to higher order political aims. Indeed, Etienne S. Kirschen and Lucien Morissens (1965) described how higher order political aims such as full employment, price stability, improvement in the balance of payments, expansion of production, or improvement in the allocation of factors of production, had affected the formulation of different targets in nine Western countries in the postwar era. Kirschen and Morissens (1965, 133) insisted that the choice of these political aims depended on the preferences of the political parties, administrators, and interest groups. As Hickman (1965b, 9) put it, “these last findings serve[d] as a healthy reminder to the economist that quantitative policy analysis was not only a technical endeavor, but that it was essentially a political problem.”

  • 45 The uses of quantitative economic planning.” SSRC2, box 151, folder 1722.

30In this sense, the message that the Committee was trying to pass on was not that quantitative tools were the ultimate and infallible way to make policy analysis. Rather, they conceived these tools as a way to help policymakers make decisions, but they understood pretty well that the decision-making process could not be mechanistic, and that the political dimension was, in the end, the most important dimension in this process. In addition, the conference participants recognized that the contributions of quantitative policy analysis, while promising, were still modest and should be further developed.45 In particular, Holt (1965) called attention to the important difference between simply using quantitative tools as a way to make policy decisions and the quantitative decision analysis approach. The use of quantitative methods for policy analysis, on the one hand, helped policy makers achieve a “coherent and timely set of economic policies” at all the levels of the decision process using economists’ “unconditional and conditional forecasts ... of the outcomes of alternative courses of action” (Holt, 1965, 254). Yet, however important economists’ contributions were, these were scattered within a complex process that was sometimes “reduced to the art of finding legislation that stands a chance of passage in Congress” (ibid., 253) and that was dispersed among the political power of “various agencies, committees, and chairmen, as well as the Senate, the House, and the President” (ibid., 254). The quantitative decision analysis approach, on the other hand, consisted in posing the decision making problem in terms of the maximization of the “accomplishment of a welfare function subject to the constraint of economic relationships” (ibid., 255). This provided the economists with a “framework for thinking about the decision process that is less simplified,” and that “implies, not a change in the process itself, but a different way of relating the work of economists to it” (ibid., 254).

31Yet Holt was careful in his formulation of the advantages of this approach as well as of the “limited knowledge [of economists] and the genuine differences between objectives of various groups, the conclusions of the formal analysis will be, not a single ‘best’ action alternative, but rather several ‘good’ alternatives depending upon the assumptions that are made,” which clearly left the door open for the importance of the political aspects in the decision making process (Holt, 1965, 255). Holt also made clear that they were not “visualizing a benevolent dictatorial technocracy run by professional economists” but a way to make economists “better able to offer sound advice on a professional level to politically responsible decision-makers” (ibid., 255). The Brookings Research Report quoted above summarized well not only Holt’s idea on the limits of an exclusively technical approach, but also reinforced the SSRC’s pluridisciplinary approach to the process of policy decision making:

  • 46 “The uses of quantitative economic planning.” SSRC2, box 151, folder 1722.

Of equal or perhaps greater importance is the less technical problem of relating the professional advice of the economist to the political decision process so that quantitative analysis can be of maximum effectiveness and use to the responsible decision makers. Fundamental to this aim is a greater understanding of how economic policy decisions are actually made. These are problems which cannot be solved with the economist’s toolkit alone. The skills, techniques, and theories of other social science disciplines must be utilized more fully before the promise implicit in quantitative decision analysis can be realized.46

32In summary, the conference did not propose a program for making policy decisions that was blindly based on quantitative methods. Rather, the organizers of the conference were willing to recognize that this process was conditioned by higher order political aims, that it was complex, and that the economists’ toolkit alone was not sufficient to provide sound evaluation of alternative policies.

4. Conclusions

33The two activities we have discussed, the construction of a large-scale macroeconometric model and the organization of the 1963 conference on quantitative policy analysis, were certainly important in furthering the Committee’s guiding objective of channeling efforts into the understanding of instability in the United States. The model project, in particular, was at the forefront of macroeconomics and played an important role in the consolidation of macroeconometric modeling. But besides the scientific contributions of the Committee in these years, its activities helped promote quantitative policy analysis in the United States. The model did so by establishing and promoting direct collaboration with government officials, who provided much needed data and expertise. The type of highly disaggregated model that was conceived and the concern for its policy usefulness made collaboration with government officials unavoidable, but the project also built important communication bridges between the Committee and government agencies that helped other model projects come into being at the Board of Governors and the Office of Business Economics.

34The 1963 conference further emphasized the usefulness of quantitative policy analysis. Having a macroeconometric model was the first step—and the Committee’s model was certainly going to be bigger and “better” than anything available until then—but it was also necessary to rethink the approach to economic policy. The conference sought to show economists in the United States how a deeper involvement of quantitative analysis could help make economic policy better, more rigorous. Although countries that had taken the lead in the use of quantitative policy analysis had obtained only modest results so far, the conference showcased these various experiences and approaches to try to convince economists in the United States that this was a path worth following. It was also clear that the politics of economic policy were a fundamental part of the policy process that was not going to go away. However, once a policy was formulated, quantitative analysis could help policymakers carry it out more effectively.

  • 47 Such a change, of course, followed the change that the economics discipline itself had gone through (...)

35The Committee and its activities thus provide a rich historical example of how economists and economics progressively gained influence in the policy making process. Following Hirschman and Berman’s (2014) classification of the modes in which economists can influence policy, the Committee clearly contributed to the creation of a “cognitive infrastructure” favorable to economists. They did so by constructing a model, a “policy device,” but also by pushing for a greater role for quantitative policy analysis and thus contributing to the change in the style of reasoning in economic policymaking.47 At the same time, the model projects related to the Committee’s own model that emerged at key government agencies became important parts of the policymaking process and helped open up spaces for a specific type of economists, thus increasing their “institutional position.” Further research into the history and internal dynamics of the agencies where econometric modeling gained these spaces should help us better understand the Committee’s role in the consolidation of the practice of macroeconometric modeling. Finally, this research should also illuminate the effect that macroeconometric modeling had on the “professional authority” of economists, in particular regarding the contribution (or lack thereof) of policy results and of ideas about rigor and scientificity in economics.

We want to thank the organizers of the conference “Economics and public Reason” (University of Lausanne, May 2018) for providing financial support for us to present a previous version of this paper, as well as the participants of this conference for their comments and suggestions. We would also like to thank Roger E. Backhouse, Béatrice Cherrier, Emilie Lefèvre, Aurélien Goutsmedt, and two anonymous referees for their fruitful feedback.

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Acosta, Juan, and Goulven Rubin. 2019. Bank Behavior in Large-Scale Macroeconometric Models of the 1960s. History of Political Economy, 51(3): 471-491.

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Notes

1 The SSRC’s records include mainly minutes and correspondence related to the functioning of the Committee and its activities. Several of the papers presented at the different meetings and conferences organized by the Committee are also included. They thus offer a window into the everyday planning and discussions of the Committee members, which we hope will be complemented as archives from individual participants become available. References to the records of the SSRC—located at the Rockefeller Archive Center—are identified by SSRC1 (Record group 1, Accession 1, series 1.) and SSRC2 (Record group 2, Accession 2, Series 1).

2 “Notes for the SSRC Conference on Economic Stability,” SSRC1, box 145, folder 801. Gordon (1957) had previously discussed these characteristics of the US economy in the postwar.

3 Ibid.

4 A couple of the participants had double affiliations and were thus counted twice. The information about the education of participants is not complete, so the number of PhDs presented is a lower bound. Given the amount of international participants for which we do not have adequate information, we do not report the number of PhDs for the 1963 conference.

5 This includes multilateral agencies and foreign government agencies.

6 “Stability and Instability in the American Economy,” SSRC1, box 145, folder 801. A revised version of the paper appeared later in Econometrica with a different title: “A Simulation of the United States Economy in Recession” (Duesenberry et al., 1960). Note that during our period of interest Eckstein was part of the CEA’s staff, not a member. He did serve as a member later, during 1964-1966.

7 Discussion summary, SSRC1, box 145, folder 801. These notes were taken by someone with the last name Barlow, perhaps Robin Barlow, who is unfortunately not included in the conference’s list of participants. Inter-office correspondence mentions he did a good job considering the difficulty of the task, but that some individual views might not have been captured completely faithfully. We thus stress the contents of the discussion more than the individual views presented in the discussion. See inter-office correspondence, September 22, 1959, SSRC2, box 151, folder 1721.

8 While econometric modeling clearly occupied a central role, the historical approach of the NBER was seen as a potentially useful complement. The discussion summary of the conference explicitly shows these approaches were seen as complementary rather than substitutes. As we mention in Acosta and Pinzón-Fuchs (2018), however, the NBER’s approach ended up playing only a minor role in the activities of the Committee.

9 Discussion summary, SSRC1, box 145, folder 801. See footnote 7 above.

10 Ibid. Our emphasis.

11 See the “Proposal for committee on economic instability,” Sept 12, 1959, SSRC2 Box 151, folder 1721. In the end, though, the last word of the committee’s name was replaced by “Stability,” SSRC inter-office correspondence, September 22, 1959, SSRC2, box 151, folder 1721.

12 Herring to Riecken, October 4, 1960. SSRC2, box 151, folder 1721.

13 Fouraker to Klein, June 16, 1961. SSRC2, box 151, folder 1721.

14 It is noteworthy to point out that Klein did not attend the 1959 Michigan conference, but was invited to participate in the Committee soon afterwards. We ignore the reasons for his not having attended the conference given his stature as one of the main proponents of macroeconometric modeling, but we conjecture it might be related to his previous experience at the University of Michigan, where he had been accused of sympathizing with communism and driven out into exile. Pinzón-Fuchs (2017, ch. 2) describes this episode in detail.

15 See in particular Bodkin et al. (1991). Acosta and Pinzón-Fuchs (2018) describe in detail the approach followed in the construction of the model and its importance for the consolidation of the practice of macroeconometric modeling during the 1960s.

16 Herring to Riecken, October 4, 1960. SSRC2, box 151, folder 1721.

17 Meeting minutes, Feb 24, 1960, SSRC1, box 147, folder 810; meeting minutes, Feb 3, 1961, SSRC1, box 147, folder 810.

18 For comparison, a model focused exclusively on forecasting the GDP or the price level need not worry with a disaggregated, detailed specification of the model as long as it produces good estimates. Thus, explicit variables for the different types of taxes on personal income or corporate revenues, which represent actual fiscal policy instruments, need not be used if a general tax variable produces good enough forecasts.

19 “The Dartmouth Conference on an Econometric Model of the United States,” August 7-25, 1961, SSRC1, box 147, folder 810. Our emphasis. A slightly reduced version of this summary appeared in ITEMS as Klein (1961).

20 Minutes of the Board meeting of September 23, 1960, 4ff. The minutes of the Board meetings are available at https://fraser.stlouisfed.org/title/821.

21 Webbink to Gordon, Oct 05, 1960, SSRC2, box 151, folder 1721. Our emphasis.

22 Op. Cit. See also Gordon to Webbink, Oct 10, 1960, SSRC2, box 151, folder 1721.

23 For details on the Fed-MIT-Pen model see Acosta and Rubin (2019), Backhouse and Cherrier (2019), and Rancan (2019). For a discussion of what the model meant for the Board’s relationship with economists see Acosta and Cherrier (2019).

24 Gordon to Webbink, August 28, 1961; Gordon to Webbink, October 16, 1961, SSRC2, box 151, folder 1721.

25 See the minutes of the meeting between the OBE team and the Committee, November 5, 1963, SSRC1, box 147, folder 811.

26 See for example Klein to CES members, March 29, 1965. SSRC1, box 147, folder 812.

27 Lusher also received help from the Treasury and Klein was glad they were showing interest in their work. Klein to Webbink, July 1962, SSRC2, box 151, folder 1721.

28 See Gordon’s memos of April 7 and April 19, 1961, as well as the minutes of the Committee’s meeting of December 28, 1960, SSRC1, box 147, folder 810. Tobin had been initially considered as a candidate to take over the work on consumption for the model. It would seem that he was officially invited, and declined, but there is no further evidence on this in the Committee’s records. See Klein’s letter of invitation to collaborate on the model project, July 13, 1960, SSRC1, box 147, folder 810.

29 It is also worth noting that, as Bodkin et al. (1991, 93) point out, the OBE’s model’s forecasts were used by many government agencies, including the CEA.

30 Hickman to Fox. December 4, 1962. SSRC2, box 151, folder 1722.

31 Hickman to Fox. January 2, 1963. SSRC2, box 151, folder 1722.

32 Proposal for a conference on ‘Quantitative Planning of Economic Policy’ under the sponsorship of the SSRC Committee on Economic Stability.” January 18, 1963. SSRC1, box 147, folder 811.

33 Ibid.

34 Ibid.

35 Hickman to Fox, Holt, Thorbecke. March 4, 1963. SSRC2, box 151, folder 1722.

36 Hickman to Fox, Holt, Thorbecke. April 12, 1963. SSRC2, box 151, folder 1722.

37 Agenda for a Conference on ‘Quantitative planning of economic policy’ under the sponsorship of the SSRC Committee on Economic Stability.” March 15, 1963. SSRC2, box 151, folder 1722.

38 Ibid.

39 See the May 1, 1963 version of the conference agenda. SSRC1, box 147, folder 811. Unfortunately, it’s unclear from the records why exactly this choice was made and then reversed.

40 Hickman to Fox, Holt, Thorbecke. January 29, 1963. SSRC2, box 151, folder 1722.

41 See for example Hickman to Bauchet. June 18, 1963. SSRC2, box 151, folder 1722.

42 19630501 Note to authors of country papers.” May 1, 1963. SSRC1, box 147, folder 811. These questions seem to follow Charles Holt’s steps for quantitative policy formulation. As reported by Hickman these are: identification of the problem; discovering the relevant relationships; specifying the objectives; quantitative formulation; mathematical solution; interpretation of the results for policy makers; and administration and control of either the research process or the policy process or both — this was not clear to me.” See Hickman to Fox, January 2, 1963, SSRC2, box 151, folder 1722.

43 See the initial list of potential candidates: Hickman to Fox et al., April 12, 1963. SSRC2, box 151, folder 1722.

44 The uses of quantitative economic planning.” SSRC2, box 151, folder 1722. Our emphasis. The note was not signed, but it could well have been authored by Hickman—who wrote the introduction to the conference volume (Hickman, 1965b)—or any of the other members of the planning team.

45 The uses of quantitative economic planning.” SSRC2, box 151, folder 1722.

46 “The uses of quantitative economic planning.” SSRC2, box 151, folder 1722.

47 Such a change, of course, followed the change that the economics discipline itself had gone through since the end of World War 2 (Morgan and Rutherford, 1998).

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Juan Acosta et Erich Pinzón-Fuchs, « Peddling Macroeconometric Modeling and Quantitative Policy Analysis: The Early Years of the SSRC’s Committee on Economic Stability, 1959-1963 »Œconomia, 9-3 | 2019, 537-558.

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Juan Acosta et Erich Pinzón-Fuchs, « Peddling Macroeconometric Modeling and Quantitative Policy Analysis: The Early Years of the SSRC’s Committee on Economic Stability, 1959-1963 »Œconomia [En ligne], 9-3 | 2019, mis en ligne le 01 septembre 2019, consulté le 16 janvier 2022. URL : http://journals.openedition.org/oeconomia/6603 ; DOI : https://doi.org/10.4000/oeconomia.6603

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Juan Acosta

Universidad de los Andes, jc.acosta130@uniandes.edu.co

Erich Pinzón-Fuchs

Universidad Nacional de Colombia, erapinzonfu@unal.edu.co

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