Home > Economics - General > A tribute to Fred Gruen

A tribute to Fred Gruen

October 24th, 2016

A few weeks ago, I gave the FH Gruen lecture, on the topic After reform: the economic policy agenda in the 21st century. Thanks to sound editor Simon Kravis, I now have a version of the podcast with improved audio quality, but unfortunately the part of my tribute to Fred that was drowned out by a hailstorm is permanently lost.

So, I thought I would try to write something like what I said, with a few (I hope) improvements. Here it is:

It’s great honour to be invited to give the FH Gruen Lecture.

Fred was very much a role model for me, and while I will never be able to emulate his effortless personal style, I have done my best to follow his lead in my approach to economics. He saw economic theory as a tool, and only part of what economics should be: what really matters is the application of theory to improve policy.

In a small country like Australia, it’s necessary for economists to take part in public discussion and public debate. The older generation of academic economists, exemplified by Fred, did this, and I’ve tried to maintain this approach.

Like me, Fred began his career as an agricultural economist, and I’ve always thought this was some of the best training for an economist. But Fred’s contributions weren’t limited to agriculture. He ranged across a wide range of policy issues. He always brought to bear both a keen economic insight and a commitment to the use of economic policy to improve the lives of ordinary Australians.

He greatly encouraged me, and many of my generation of economists who worked with him in the Economics Department of the Research School of Social Sciences at ANU.

I am very proud to be able to give a lecture in his honour.

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  1. hc
    October 24th, 2016 at 17:43 | #1

    There are many prominent Australian economists who began their lives in agricultural economics. Apart from Fred and yourself, John Freebairn is a good example. I think Ted Sieper and Ross Parish were was aggies also. A possible explanation for this phenomenon – that you doubtless will disagree with – is that agricultural economists got a good education in how specific markets worked in a partial, rather than general equilibrium. They understood the basic and most important ideas of economics.

    I once read an article claiming that the non-agricultural US firm, Kodak, employed agricultural economists, in preference to general economists, because the former had better training in the partial equilibrium view of the mechanics of markets. I regret I lost the reference – it was in Business Week or Fortune, I think.

  2. October 24th, 2016 at 20:55 | #2

    I’m sorry to learn that Australian universities are so underfunded that memorial lectures have to be delivered in the open air or under simple corrugated iron roofs.

  3. Ken Debreu
    October 24th, 2016 at 21:55 | #3

    @hc

    Kodak famously went broke when it failed to anticipate digital photography. Focussing just on your own market, ignoring general equilibrium effects, has its drawbacks.

  4. October 24th, 2016 at 22:06 | #4

    Thanks John,

    I didn’t realise, until you told me, that Dad had had such an effect on you as far as encouraging you to join the public debate. Which you have ever since. Always prepared to argue your case forcefully and without fear or favour at the same time as being on the lookout for the possibility that you’re wrong. Dad would have approved.

  5. GrueBleen
    October 25th, 2016 at 02:21 | #5

    @Ken Debreu
    Your #3

    Unlike Gillette, which didn’t invent the electric razor but survived handily anyway, Kodak did invent the digital camera, back in 1975 (a chap named Steven Sasson, with an improved DSLR model in 1989), but couldn’t come to terms with it and filed for bankruptcy in 2012.

    This is of no importance, I know, but history should be preserved.

  6. hc
    October 25th, 2016 at 06:27 | #6

    @Ken Debreu Fair comment but it is unclear to me that studying GE provides much business insight into the role of innovations.

  7. Ken Debreu
    October 25th, 2016 at 08:16 | #7

    Fred Gruen was, by some considerable distance, the most charming Australian economist ever.

  8. derrida derider
    October 25th, 2016 at 08:25 | #8

    Well with a nom de blog like that (maybe it should be Gerard Arrow) of course you’re going to be arguing for GE. But I do second your thoughts about FG – a man admired by all who knew him.

    And John – I couldn’t attend your talk because of a last minute domestic emergency but I was sorry to miss it. Thanks for this post – I’ll listen to your talk with interest.

  9. Greg McKenzie
    October 25th, 2016 at 08:41 | #9

    Did you know that Adam Smith got his understanding of economics from his observations on agricultural practices in Scotland. That, and the theory he looted from the Freach Physiocrats,
    Made up the substence behind his epic work. Division of labour and specialisation owe their first recommendations to Smith’s observations on Scottish farming practices. Agricultural economics is, of course, the oldest branch of the study matter we now call Economics.

  10. October 25th, 2016 at 18:47 | #10

    @Greg McKenzie
    The other great contribution to science of Scottish agriculture was to geology. The young James Hutton, rusticated from Edinburgh university for getting a girl pregnant, observed the quantities of mud washed every year into drainage ditches on the family farm and then out to sea. So why, in the Aristotelian ong run, is there still any land? There must be cycles of sedimentation and uplift. He then went looking for stratified sedimentary rocks, and found them. Note that the problem.only arose if Hutton started from the Greek assumption if an ageless world, it’s not a major issue if it’s only 6,000 years old.

  11. John Goss
    October 25th, 2016 at 20:21 | #11

    You missed out the bit where you said Fred had the gravitas of the older academic, and you were disappointed that this was not something you had acquired. But I might have misheard you.

  12. John Quiggin
    October 26th, 2016 at 16:38 | #12

    @John Goss

    Thanks, John. I misremembered it as a reference to Fred’s inimitable style. But he also had the academic gravitas.

  13. Ernestine Gross
    October 27th, 2016 at 07:51 | #13

    hc :
    @Ken Debreu Fair comment but it is unclear to me that studying GE provides much business insight into the role of innovations.

    Of course it doesn’t if GE is studied only up to the Edgeworth Box diagram.

    Since you are interested in environmental economics, the Lindahl equilibrium (GE model) might be of interest to you because it provides an insight for business in the sense that future profitability of their enterprise may radically change if innovations in environmental economics enter public policy. (This item is particularly relevant, given JQ’s public engagement with the topic human enduced global warming – CO2 emissions primarily.)

    Similarly, an insight for business in the sense of the feedback effects of financial innovation on financial and business risk can be obtained by noting that the box in the Edgeworth-Box diagram disappears in the Radner GE model of a sequence of commodity and securities markets economy unless something else is introduced to get a lower bound.

    And so forth.

  14. Ernestine Gross
    October 27th, 2016 at 09:53 | #14

    The late Michael Halliday, an ex-colleague of mine at the MGSM, also started his academic career in agricultural economics. As a post-graduate he went into Marketing, examining the price formation process in the Sydney fruit and vegitable market. He discovered a “star formation”. Later on, econ theorists found that the star formation corresponds to a competitive equilibrium (in an exchange economy).

    I wonder whether Michael also had the benefit of FH Gruen’s influence because Michael’s integrity, both as an academic and a colleague was appreciate by those who valued these attributes.

  15. October 27th, 2016 at 11:02 | #15

    The Political (and Economic) Environment on Social Media A new Pew Research Center survey of U.S. adults finds that political debate and discussion is indeed a regular fact of digital life for many social media users, and some politically active users enjoy the heated discussions and opportunities for engagement that this mix of social media and politics facilitates. But a larger share expresses annoyance and aggravation at the tone and content of the political interactions they witness on these platforms…”
    http://assets.pewresearch.org/wp-content/uploads/sites/14/2016/10/24160747/PI_2016.10.25_Politics-and-Social-Media_FINAL.pdf

  16. hc
    October 27th, 2016 at 17:14 | #16

    I am obviously not opposed to thinking about interactions between markets but a lot of GE is arid theory that yields indeterminacies when you think about policy issues. I don’t for example, get much useful insight from: “Since you are interested in environmental economics, the Lindahl equilibrium (GE model) might be of interest to you because it provides an insight for business in the sense that future profitability of their enterprise may radically change if innovations in environmental economics enter public policy. …….
    Similarly, an insight for business in the sense of the feedback effects of financial innovation on financial and business risk can be obtained by noting that the box in the Edgeworth-Box diagram disappears in the Radner GE model of a sequence of commodity and securities markets economy unless something else is introduced to get a lower bound.” But I may have it wrong. Perhaps if the Kodak executives had been armed with this sort of insight they could better have dealt with the advent of digital photography.

  17. Ernestine Gross
    October 27th, 2016 at 19:17 | #17

    ” … a lot of GE is arid theory that yields indeterminacies when you think about policy issues.”

    Good points, hc. The methodology is ‘arid’ in the sense that it doesn’t inspire people to adopt one dogma or another. It is also the case that the methodology (including models which have a government sector) doesn’t prescribe policies (contrast this with the writings of eg M. Friedman and Baro.) Ha, the ‘indeterminancies when you think about policy issues’ is what one would expect from any theoretical framework that claims to be more than a model of a specific situation; the generality of the theoretical framework usually inspires people to realise that additional information is required for specific policy issues – empirical information to be specific.

    There is no requirement that everybody does the same thing, hence a theoretical framework may be arid for some and fruitful for others.

  18. Ernestine Gross
    October 28th, 2016 at 10:20 | #18

    hc, sorry I forgot to be specific about Kodak. According to some sources (Wiki and the Economist) Kodak had developed digital technology in the mid-1970s, ahead of its eventual Japanese rival. With the benefit of hindsight, Kodak’s management failed to do what contemporary corporate managers expect from ‘labour’ – be flexible, adjust. Kodak was restructured after filing for bankruptcy in the US. I have no idea how partial equilibrium theory would have helped here because there are many markets involved simultaneously and future markets are incomplete. In the absence of complete markets, corporate management, not unlike students when choosing a study program or a trade, have no alternative but make an assessment of likely ‘market conditions’ (say imagining a filtration of ‘states of nature’, sometimes called ‘event tree’, resulting in ‘state contingent planning’). Moreover, there are off-market factors such as the digital technology developed and owned by Kodak but not used in time – with the benefit of hindsight. Now, what about the employees who had developed the digital technology owned by Kodak but who lost their jobs? Business is risky, not only for the legal entity, the corporation, but also for every member of society. How would this fit into partial equilibrium? I don’t know.

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