On Ethics and Economics

Conversations with Kenneth J. Arrow

Kenneth J. Arrow, Kristen Renwick Monroe, Nicholas Monroe Lampros

• Publisher: Routledge
• Year: 2016
• ISBN:
  9781317197799
• Edition: 1
• Topic: Politique et relations internationales
• Subtopic: Politique

Part intellectual autobiography and part exposition of complex yet contemporary economic ideas, this lively conversation with renowned scholar and public intellectual Kenneth J. Arrow focuses on economics and politics in light of history, current events, and philosophy as well. Reminding readers that economics is about redistribution and thus about how we treat each other, Arrow shows that the intersection of economics and ethics is of concern not just to economists but for the public more broadly. With a foreword by Amartya Sen, this book highlights the belief that government can be a powerful force for good, and is particularly relevant in the current political climate and to the lay reader as well as the economist.

1
A LIFE IN ECONOMICS

Fall 2011

I was born in 1921 in New York City.¹ My parents were immigrants, although that statement is misleading because they were about two years old when they came.² Their English was different from other people’s only in the fact that it was better. My mother graduated high school. She was the youngest of a large family. She was the first, I believe, to complete high school.

My father came from a very poor family, poorer than my mother’s, but somehow he worked his way through college. He went to New York University School of Business. My mother had worked before marriage, secretarial work, but, as was normal then, did not work after marriage.

My father had a very up and down career. During the 1920s, he was working in a bank at some level of responsibility. The bank, however was in trouble during the Depression. He and most of the old officers were fired. For about seven years there was hand-to-mouth living. The Great Depression really hurt us. But my father finally did get a job as a manager of a middle-sized firm, a manufacturing firm making knit goods. His income was comfortable, but he had no accumulated wealth.

I was academically very good from an early age. Voracious reader, actually, probably before I went to school. I don’t remember exactly. My mother claimed that the first sign came very early. In those days, when people had a party, they would sing popular songs. We had a piano, and my mother played. The guests would sing from sheet music. It’s incredible; today, everybody listens. But those days, the popular music could be sung by ordinary people. Somehow at some very early age, like four, she’d hold up a sheet of music, and I would read the titles. How I did it, I still to this day don’t know.

In any case, in those days it was considered terrible to have a student working at a level below his ability. So people accelerated. “Skipping a grade” was the standard phrase. At one point, I went through four years of grades in two years. The school kept insisting I was under-challenged. So when I graduated high school, I was 14. Well, I was about to be 15. A lot of colleges wouldn’t admit you at that point. But of course, it didn’t matter because I couldn’t afford to go to any paying college. So I went to the College of the City of New York, which was then free. Not anymore.

It was created in 1847 for precisely this purpose. Some leading merchants of the town decided it was important to educate the poor. They were able to persuade the public, and the City College came into existence. It is still there. It was a very good educational institution, though the buildings were under-maintained. The teachers were variable, but some of them were very good. I’d gone to a special high school, by the way—Townsend Harris High School, run by City College—where the students went through in three years instead of four. We had longer days. The high school had been created somewhere around 1900, when City College felt the ordinary high schools weren’t getting students up to the level needed. My father had gone there. His teacher had told him about it. It turned out, according to the stories handed down, that this was a problem. You see, the local high school, there was no fare to get to school. But if you went to Townsend High, you had to pay a five cent fare. This was a significant drain on the family budget. My paternal grandfather was poor. Anyway, my father went to Townsend Harris, so he had the idea I should go to Townsend Harris, which was a very good idea. I developed in high school a great interest and skill in mathematics and became a mathematics major in college.

But I had very wide interests. I’ve always loved history. I kind of scattered my bets. The real problem I had when I was in college was what career to aim for. There was a lot of unemployment. You just had to read the papers and look at the newsreels—you’ve heard of newsreels, I hope. It’s an archaic form now, truly archaic but common then. Unemployment was all around you. Other people in the family were similarly affected. A lot of them were small business people who were just barely eking out a living. So I was thinking. I was debating. I was a cautious type, and I was worried about how I could make a living. I was good in mathematics, but what good was mathematics for a career? The idea of being a professor simply wasn’t on my mind, not even a bit. I came from a different world.

So I was debating with myself. One of the first things I thought of was to be a high school teacher in mathematics. As a result, I spent a fair fraction of my college taking education courses, which were required in order to qualify as a teacher. In fact, one of my training experiences didn’t lead anywhere but it was in itself very memorable.

I was a practice teacher; this was part of the program. I would go into a high school and sit in the class, observe the teacher, and every now and then, she’d let me give a lecture. But one of the things that turned up was this: it was interesting, about American philosophy of education. New York is still unique, I think, in having statewide examinations. All high school students have to take what is called a Regents’ Examination. The state has something called a Board of Regents, which is supposed to supervise all elementary and high school education. Or maybe it’s only high school. Anyway, they set statewide examinations in a lot of fields. Plane geometry, algebra, history, whatever. Now, the high schools did not like to have people take the examination and fail. So they had evolved a system. Plane geometry was one of the central exams. The student was to take two one-term courses, Plane Geometry I and Plane Geometry II, and then take the Regents Examination. Well, suppose the student failed Plane Geometry I. He or she is required to take it over again.

But those who failed it so badly that it was felt that they’d never pass the Regents were encouraged to go on with a special course, Plane Geometry II-X, with the understanding they would not take the Regents. This is what I thought was remarkable. They discovered over the years that some of the students in Plane Geometry II-X never-theless were okay. They were better than their performance indicated. So they permitted a selected number to engage in a special tutorial, a class that met once a week. If the teacher in that class permitted it, the student could take the Plane Geometry examination, even though he or she had agreed not to. It was that last step where, I think, no European country would have gone. It’s so distinctively American. And I was in charge of teaching this thing.

As a teaching experience, I’ve never had anything better. Let me tell you. I’m not a first-class teacher for various reasons. This was a success. First, motivation wasn’t an issue. You didn’t have any of the ordinary problems in teaching because the students were there voluntarily; they wanted it. They were very receptive, asked very good questions. Of course, I was giving tests along the way. I permitted about two-thirds of them to take the exam, and they all passed.

This had no bearing on my future career at all. When I graduated, I found that I couldn’t become a high school teacher of math because there was no qualifying examination. They would only give an examination when all the people who had passed the previous exam, which had been administered seven years earlier, got jobs. They were on the waiting list. Everybody wanted to be teaching. People who had passed seven years earlier were doing something else. But teaching was still a better job than they had.

So here I am in 1940 with no exam, with no prospects as a high school teacher of math. Essentially, I decided to go to graduate school because I had nothing else to do. [Laughter]

While in college, I was smart enough to know that you don’t put everything on one prospect. So what else? Well, I learned then about something called statistics, and it seemed like it had a practical application. Industry was hiring statisticians. It was not a big profession but there were some jobs. There was a course in the Math Department in Probability and Statistics. The teacher didn’t know much of anything. In fact, most of the mathematics professors were very good, but he was not. There was one calculus teacher named Bennington Gill, who was absolutely marvelous. People who took his course ten years later would still talk about how good Gill was.

This is in college now, City College. The statistics teacher did have an excellent reading list. Starting with the reading list, I really got fascinated with statistics and started reading—actually, original literature. You know, reading the journals and current developments. The other thing I was fascinated by was logic. And that leads to Tarski. I read. There was no real course in logic, but I read by myself. There were a few other students with similar interests there and we’d have conversations.

Let me get this clear. In 1939, war breaks out. That was another thing. Of course, we were all terrified about the prospect of imminent war. I’m Jewish. I can remember back in 1930. I was with my mother in a car, and she stopped—somebody else was coming. Well, they had a conversation, I guess. They were both worried because the Nazis had gotten, I don’t know, 30 percent of the seats, 25, 20 percent of the seats or something like that in the Reichstag election of 1930.³ The idea that in this day and age, an anti-Semitic party could be getting near to power was frightening. Hitler didn’t conceal what his views were and what he was going to do.

Then, of course, the Nazis came to power and all their programs followed. I can remember a very depressing day in 1939 when the Soviet Union and the Germans signed an agreement—I think it was on my birthday or the day after—because I thought this meant war, which did break out nine days later.⁴ I thought of myself as a pacifist and believed that war was terrible. There were a lot of anti-war views then. My mother had always thought the idea of going to war was horrible, even though World War I had not been that striking for Americans. My father had been in the army, but he never got shipped overseas. I had a very anti-war attitude. On the other hand, there was Hitler. Then I first thought, “Well, you can’t do anything about it. We should keep out of the war.”

I can remember the election of 1940. My mother was a very strong Roosevelt lover. I remember there was a speech he gave over the radio in which he said, “Mothers and fathers of America, I tell you. Your children will not fight in foreign wars.” My mother turned to me and said, “See? He said that.” I said, “He’s a liar.” I was right but I was wrong on the basic issue. Roosevelt was right about the war. But he was lying.

So, back to my story. Alfred Tarski⁵ was a Polish logician. Very famous. I mean I’d already heard of him. (His papers were beyond my ability.) But he got trapped. He came for a conference in New York and got caught with the outbreak of the war. So City College, the Philosophy Department had a vacancy. They had money, so they hired him for a year. He didn’t speak any English. He said he would start teaching in February in the second term. He studied English apparently at that time. In his first couple of lectures, we couldn’t understand what he was talking about. So we used to have little conferences afterwards to try to put together his lectures. We realized it was a question of how he stressed things more than anything else. His English actually was perfectly all right once you understood what he was saying. Anyway, it was a course on a subject called Calculus of Relations, which was rather technical. His was certainly one of the finest minds I have ever encountered.

In fact, I did well in his course. In the summer of 1940, he asked me to proofread for him. A book of his had been written in Polish, I guess, originally, but it was a German version which was now being translated into English. He wanted me to proofread it. Of course, he obviously didn’t feel capable of proofreading in English.

It was to be translated by a German refugee, who I therefore met. I met him again later under interesting circumstances. His name was Olaf Helmer.⁶ Tarski had a very good sense of language and he kept on asking me, “Is this a correct translation.” Not so much.” “Is it correct?” But “Is this the way you would say it?”

Helmer’s English was pretty stilted, and Tarski could tell even though he’d just learned English himself. Tarski was very sensitive to the nuance. I was really quite impressed with his feel for the language. So we reworded it a little bit.

I wanted to study statistics. Now, statistics was not a recognized subject, in the sense there was no Department of Statistics anywhere. You couldn’t get a PhD in statistics. So I enrolled as a PhD candidate in mathematics because it was the closest thing to what we now think of as statistics, and I would take the statistics courses. There were not very many in the Unites States. The most important theoretical statistician was a man named Harold Hotelling.⁷ He was my sponsor in a great many ways. My sponsor in graduate school.

Now we’re talking graduate school because I graduated in 1940. That summer I had a job. I got it by pure chance, which turned out to be interesting. I was looking for something that might help me financially. I thought that a department store might need a clerk. They weren’t hiring, it turned out but there was an insurance company across the street. I figured that my mathematics and statistics should be of some use in insurance. I walked in and, as it turned out, they hired me as a clerk calculating premiums on some novel kind of policy. I really learned a lot about the practical aspects of the insurance business in that place.

I think I’m receptive. I had entertained the thought of a third career choice. A high school teacher in math was looking pretty dead at that moment. But there was the statistics graduate degree. And there was the possibility of becoming an actuary, a life insurance actuary, which was somewhat related to statistics. To be an actuary, you had to take examinations. Actuaries were licensed by a private organization. I think it was called the American Society of Actuaries, or something like that.

They gave examinations, which were very hard. So I studied those. I took a couple of them but I never got very far down the road. I wanted to study statistics, and I figured, “Well, what PhD program would I go for?” Mathematics seemed closest. When I actually got to attending Columbia in the fall of 1940, I found out Hotelling⁸ was a Professor of Economics. He also had a funny career. He was interested in journalism at some point. He got a master’s degree in journalism. But he then went on to study for a PhD in mathematics at Princeton and worked on some very abstract sort of things for his dissertation. Somehow, after he finished it, he got involved in statistics. He came to Stanford, to the Food Research Institute, which is no longer in existence. Their first director wanted a broad approach. I don’t know how exactly the connection was made.

But Hotelling developed new statistical methods. Columbia University had had one economist who was using statistical methods. The fellow had to be institutionalized. He had some mental break-down. They decided to try to get another person like this. Hotelling had shown an interest in economics and had written one very good paper in economics. So they hired him. But his real campaign was to create a Department of Statistics. Not economics, but statistics. He wrote a number of papers, one very famous, and all of us students were all pushing for his ideas, of course. You create statistics as a separate discipline with contributions to psychology or to economics, and there are special problems in each one. So there should be a statistician in these departments. There should be a department that just taught statistics. There was a heading in the catalogue called Statistics. There was a course called Statistics 101 but there was no department associated with it. Hotelling is in the Economics Department. It turned out he had a course in Economics, in Mathematical Economics, which was completely out of kilter with the rest of the Economics Department. But it was an anarchic place where essentially professors decided what they wanted to teach. It was very poorly run at the time. There was no central thing.

It wasn’t as stratified or organized as most places. Columbia’s was the exception. Most places were much better organized. So Hotelling gave a course in Mathematical Economics. I took it out of curiosity and I got really fascinated by it. But still I thought of myself primarily as a statistician. Hotelling taught courses, he and other people, including another very famous statistician named Abraham Wald.⁹ I was taking math courses as part of meeting my math requirements. I went to Hotelling to tell him that I wanted to continue to study but I needed financial support. (My father had borrowed money to pay for my first year’s tuition. Since it was Columbia, I could live at home.) I asked him if he would write a letter of recommendation for a scholarship or fellowship in mathematics.

Hotelling said he had no influence in the Mathematics Department but he was sure he could be helpful with the Economics Department. I had already impressed him because of a solution I had found for a very minor problem in economic theory that he was interested in.

So I switched my PhD field from mathematics to economics. When people asked me, “How did I get in economics?” I was bought. They get shocked. I say, “Well, you’re economists. Are you surprised that I would pick something for my financial advantage?” [Laughter] It’s very practical to look for where you fit in or where you could get a job as well.

Okay. At that point, I switched my field from mathematics to economics, applied for admission to the Economics Department and for a scholarship, and I got a scholarship to cover my tuition, and a few hundred dollars extra. That was a significant amount then. Of course, prices are much higher now. But academic costs have gone up far more than anything else. Tuition was 400 dollars a year. The money my father had to borrow was 400 dollars, which today would be 40,000. Anyway, I got this scholarship. This was now 1941.

The next year, when I was really in the Economics Department was l941–42. Now I studied economics. I learned that a good part of the department was quite anti-theoretical. I was a theorist. Mathematical methods in economics and formal statistical methods were not standard anywhere, but much of the department was even more anti-theoretical than most other places. Harvard or Princeton or Chicago were much more standard, as I learned later. They differed from each other but they were much closer to each other than to Columbia. Part of the situation at Columbia was the presence of a professor there who had been there for a long while. He’d been at Berkeley before that. He was named Wesley Mitchell, and he was opposed to all theory.¹⁰ In his view, the only way to study economics was to collect a lot of data. Of course, as a statistician, I thought you should collect a lot of data but then you have to do something with it.

You need theory to exemplify it, to illuminate it. So I figured as long as I’m studying economics in this department, I’ll take a course with Mitchell. He gave an annual course in what was then called Business Cycles. You know depressions and recessions. Well, it turned out he was on leave that year.

He had created an organization called The National Bureau of Economic Research, which still exists, although its functions are rather different than they used to be. It was a private organization for the purpose essentially of research, especially data collecting. Indeed, some extremely important series to our national statistics derive from work done at the National Bureau.

Mitchell’s deputy at the Bureau had gotten a PhD at Columbia about 1932 and was then a professor at Rutgers. His name was Arthur Frank Burns.¹¹ He later became Nixon’s economic advisor and later head of the Federal Reserve System. Burns, whom I’d never heard of, was going to take over Mitchell’s course. I was a little disappointed but some older students told me, “You don’t know how lucky you are. Mitchell’s the dullest speaker in the world, and Burns is very lively.”

I was coming from this formal statistical point of view and with some economic theory. So we had a lot of discussions. I want to say he was one of those brilliant people whose research accomplishments didn’t measure up to their abilities. I mean fundamentally his ideas led nowhere. In terms of accomplished in economics, he would not rank high. That’s one thing I’ve learned over the years. On the whole, intelligence is correlated with accomplishment but there are an awful lot of exceptions. Some very brilliant students never amounted to anything in terms of what work they produced, and there are some students who just b...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• Foreword: The Triumphs of Kenneth Arrow
• Introduction: Chance Favors
• 1 A Life in Economics
• 2 On Ethics and Economics
• 3 The Global Economic Meltdown of 2008
• 4 Information As an Economic Commodity
• Afterword: April, 2016
• Appendix: The Complete Works of Kenneth J. Arrow
• Index