Assaf Razin: Biographical Notes


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Given that we were a very small group of first- born children in the Kibbutz, the Kibbutz could not afford to establish a separate high school just for the few of us. We moved to the boarding school in the adjacent Kibbutz, Kibbutz Amir. There the three Kibbutzim which belonged to the Marxist stream of the country wide movement that Kibbutz Shamir belonged to formed for the regional high school. The curriculum included history, literature, biology, chemistry and little math. There were no exams. Typically, we used to work in the Kibbutz’ agriculture for 2- 3 hours a day. A healthy majority of the entire generation of children who attended this High School class did not ever attended college, because they did not have reached the college admission

standards. It is therefore an amazing coincidence that I became eventually a professor of economics. The lack of incentives in the Kibbutz to put effort in education and readings reminds me of what Doris Kearns Goodwin wrote about the young Abraham Lincoln: ”In the pioneer world of rural Kentucky and Indiana, where physical labor was essential for survival and mental exertion was rarely considered a legitimate form of work, Lincoln’s book hunger was regarded as odd and indolent. Nor was the community understands the thoughts and emotions stirred by his reading; there were a few to talk to about the most important and deeply experienced activities of his mind”. The coincidence has to do with the way I had to end the military service. I was drafted in 1958, before I was 18, and went to my military service in a combative unit as was expected of any young member of the Kibbutz. I managed to go through basic and NCO (non commissioned officer) training, in preparation of going to officer training. Then a tragedy struck me at a very young age. During the NCO training course, however, I was badly injured (from friendly fire, due in large measure of sloppiness in the enforcement of safety rules in the army at this time). I had been hospitalized for more than a year, in the Tel Hashomer hospital, unable to walk. Thus, after lying in bed for the

months in the hospital I realised that I will not be able to follow the traditional track of every Kibbutz young person: serve the best you could in the military service, preferably in combative units, and soon afterwards return to the Kibbutz agriculture. The whole idea was that you are not supposed to take any job outside the Kibbutz. There was no industry or professional service jobs in the Kibbutz at the time. It is hard to believe that now days Kibbutz Shamir owns the majority shares of one successful public company (listed on NASDAQ) which produces eye lenses, and another public company which produces textile substitutes. (Shamir Optical company's R& D department, which carries out R& D for lens makers, is considered one of the best in the

world. Shamir Optical also makes half- finished lenses for laboratories. It started more than 20 years ago in consultation with Koby Rubinstein and Shmuel Vigder from the Technion who numerically solved a not- too- easy problem of finding the lenses surface with prescribed variable optical characteristics. ) From my hospital bed I had therefore to rethink my future. I realized that my future must be quite different from the typical career pattern of almost all of the Kibbutz members. The Kibbutz High School system I graduated from was outside the state schools system, with a completely different curriculum, and without the state wide matriculation exam, a key requirement to attend college. (In fact there were no exams at all in the Kibbutz High School.) Therefore, I did not have even the minimal pre- requisites for attending College. I had to study for the rather demanding

matriculation exam that was required in Israel from my hospital bed. I did my studies by high-school correspondence with the British Educational Council. The British Council as we called it was one of the

good institutions that the British Empire brought to former colonies. I passed the six matriculation exams,

but with mediocre grades only. It took a full year, or two, for me to rebuild up my physical stamina and to be able to walk. I then applied to the Hebrew University, and moved to Jerusalem. Remarkably I am the only person from my high school class (except one, Hillel Efrat) who went to study at a University! The act of leaving the Kibbutz was traumatic for my parents. My father’s standing as a founding member of the collectivist idealistic community was shattered. He had his problems with this egalitarian- pressuring community before because he was one of the few intellectuals in a community was the slogan- like principle

“first of all hands (not brains)”; meaning the first priority is a work in the agricultural, income- generating,

sector of the kibbutz. But now it was almost the last nail in the coffin, so to speak, because his first born

child has left and will not continue his own main agenda in life— living in the kibbutz. Forty years later

came out a new Israeli movie (shown in the 2006 Sundance Festival) which have shown a glimpse into the difficulty of being a different persona (in the case of my father it meant intellectually oriented; in the movie it was mental instability) in an egalitarian society. Sweet Mud is a powerful coming- of- age drama about Dvir, a 12- year- old boy on a kibbutz in the 1970s with a psychologically unstable mother, and how the seemingly progressive kibbutz lifestyle is unable to deal with her illness and Dvir's dedication to her. The film addresses the conflict between individual freedom and collective constraints as defined by the kibbutz ethics, a conflict which Shaul understands well from his days at Kibbutz Kissufim in the Negev. I do not believe in a movie type of “John Wayne individualism” where people pull themselves up by their own bootstraps, as is written in fairy tales. The coincidence that made me, eventually, a successful man of the economics science, had to do with the remarkable opportunities that modern global world offers to so many , and increased number of people, of many backgrounds. Imagine in my case what would have been my career without the benefits I received from winning a fellowship from the University of Chicago, so far away from Kibbutz Shamir where I grew up and lived up to the age of 25 years old ?
From the Hebrew University to the University of Chicago
I am the only member of my high school class that was able to go to a university. I recently met Uzi Tsur,

a classmate from Shamir (indeed the first born child of the Kibbutz! Later on he became the architect of the

very successful business of the kibbutz). He reminded me that he was frustrated by the fact that I was

finishing doing home works in school much before anybody in my class. I was thinking that even if it was

true, so few home works were assigned, no exam ever were performed that this is not an evidence for good

scholarship. I did remain a member of the Kibbutz, after my army service and long hospitalization, when I attended college in Israel. The nature of my college specialization had to be a coordinated collective decision by the Kibbutz and myself. We reached an acceptable compromise that I will be specializing in agriculture, which

I pursued at the Faculty of Agriculture of the Hebrew University. But during my second year in college I became fascinated with economics. As my good friend Elhanan Helpman said: “You always talk about social problems when you are young. With economics, one can attempt to think in a systematic and somewhat formal way about social problems.” I felt exactly like this. But I realized that I have to study economics as rigorously as I could. I became also majored in economics. I then commuted every day from Rehovoth to the Tel Aviv branch of the Economics Department of the Hebrew University, which later on became the Department of Economics of Tel Aviv University. I still remember my great teacher in Introductory Economics, Yoram Ben- Porath (the President of the Hebrew University killed at a young age in a traffic accident near Eilat). At the same time in Rehovoth, I became a student of Yair Mundlak, who was influential in my decision at a later stage to apply to graduate studies at the University of Chicago. In the Rehovoth class I was one of the few to pursue an academic career. But, some of my classmate became very successful in the private business sector (one of them, Israel (Lally) Makov, has been the former CEO of Teva pharmaceuticals, a largest Israeli multinational).

At this stage important stage of my life I married Shula Hachlilli (from Kibbutz Ein Hachoresh). We returned to Kibbutz Shamir. We have been together ever since and we have by now “tones” of common memories and a few very good friends.

I had a position as a senior economist in the regional office of the Ministry of Agriculture. We had our first

child Ofer (better pronounced in English as Ofair). He lived a relatively short life and died at the young age

of 30 from a progressive form of multiple sclerosis. This remarkable person was able to go through the

military service, as an officer, and the very demanding academic education while fighting day by day a

progressive form of Multiple Sclerosis that eventually led to his untimely death. He was awarded a Ph. D. in

economics from the Department of Economics in Georgetown University in 1996. (Susan Collins, his

adviser, is a well known international economics professor, currently the Dean of the School of Public

Policy, in the University of Michigan.)

My parents refused to swallow the “bitter pill” of my leaving the Kibbutz and going to a premier school

in the USA. They looked at it like a defection. Their idée fixe is the superiority of life in a Kibbutz system, over the capitalistic world around them. They were brought up to despise the American system. . They were also under tremendous pressure by their peer group in the Kibbutz. My leaving the Kibbutz undermined their standing in the Kibbutz. In a communal system like the Kibbutz , where there are no financial rewards to individuals, respect from your peers is the most important reward; “punishment” of being pushed out from the consensus is devastating. My parents stopped any meaningful contacts with Shula, my wife, Ofair, my 6 month son, and me for a few years. Our close relations were gradually restored after 4 years, when we returned to Israel. The tension around our leaving the Kibbutz was very visibly painful to my mother, obviously. If it were to be her choice she would have not severed the relationship in the first case. But my father was torn between two conflicting forces, his standing among his colleagues in the Kibbutz (and the ability to function in the Kibbutz if a member deviates from the consensus) and his private feeling towards us. The break in our relationship has never completely mended. I grew up in the generation of the most acclaimed Israeli novelists Amos Oz and Abraham B. Yehoshua (born a bit before me, in the 1930's; I also read with great interest a young

novelist, Amir Guttfroind), whom I greatly admire. They, like me, experienced the height of the kibbutz movement, the post- World War II immigration to Israel and the heady years that followed Israel's creation. They wrote critically about the suffocating environment of the “reut “(meaning: kinship)” system, were individual aspirations were sanctioned. The founding ethos were dedication to the group, whether the kibbutz, the military, or the labor movement. From my parents’ perspective, when I planned to move up to graduate studies in economics at the University of Chicago I was departing from the ethos. It was a bitter pill for them to swallow. Because, they were disappointed that I did not follow their ideology based way of life. It was also a setback to them since it reduced their stature among their peer group in the Kibbutz. In the absence of any pecuniary Incentives in the Kibbutz system, the respect and trust among you peers, a substitute to pecuniary

incentives, was highly important. I begun graduate school in the University of Chicago in the Fall of 1966, with my wife and our 6 month old son, ofair. Our plan was to live on a relatively small fellowship from the University of Chicago (about $1, 500. 00 a quarter, in 1966 dollars), and no other source of support.

The year 1967, my first year as a graduate student at the University of Chicago, was tough for me —trying to establish good record and pass the demanding “core exam” (the device used for screening first- year graduate students at the University of Chicago at the time) by the end of the year. End of the year came with an unexpected war in Israel. Luckily it was short and I could go back to prepare for the Core Exam; the main screening device used in Chicago at the end of the first year.
(The Six Day War was fought in 1967 between Israel on one side and Egypt, Jordan and Syria on the other side. From its beginning to the end, the war lasted 132 hours and 30 minutes (less than 6 days). But the duration was shorter on 2 of the 3 fronts: on the Egyptian side only 4 days, and on the Jordanian side only 3 days. It was only on the Syrian side that the war had lasted the whole 6 days. In Israel and the West the war is called the

Six Day War. In the Arab world, it is known as the June War, or simply as "the Setback." Never has a conflict so short, unforeseen and largely unwanted by both sides so transformed the world. The Yom Kippur War in 1973, the wars in Lebanon in 1982 and 2006,, the Camp David accord with Egypt in 1981, the Camp David Accords with the Palestinians in 1993, and the one that had not been reached in 2000, the controversy over Jerusalem and Jewish settlements in the West Bank, the Palestinian- initiated turmoil (“intifada”), in 1987 and in 2000, and the rise of Palestinian terror: all are part of the outcome of those six days of the intense Arab- Israeli fighting in the summer of 1967.)

As a reminder, a few words about the University of Chicago. The University has been an intellectual center in

economics. Since 1969, when the Nobel Prize in economic sciences was first awarded, twenty- two recipients of that prize have been faculty, students, or researchers in the Department of Economics, Law School, or Graduate School of Business (GSB) at the University of Chicago, including Milton Friedman and George Stigler. Four Nobel laureates are currently members of the department: Gary S. Becker, Robert W

Fogel, Robert E. Lucas, Jr., and James J. Heckman. In addition, four of the six recipients of the American

Economic Association's Walker Medal were members of the faculty (J. M. Clark, F. H. Knight, Jacob Viner,

and T. W. Schultz). The John Bates Clark Medal, awarded for the most promising US economist under the

age of 41, has been awarded to five Chicago economists: Milton Friedman, Gary S. Becker, James J. Heckman, Steven Levitt, and Kevin M. Murphy. Since World War II, the department has had, relative to its size, a larger number of faculty than any other serving as presidents of the American Economic Association.

In 1966 Chicago was a completely new for me, in way of life, social interactions, leaving as a family with a young infant, etc. The tallest buildings in Chicago, which is now known for its special high- rise architecture, in the 1960s, before Sears Tower and McCormick Tower changed the city’s landscape, were only few buildings: Marina City and Prudential Building, in the Chicago Loop. The South Shore, where I rented my first apartment in Chicago, immediately after I arrived there on August 1966, looked like a neighborhood the has undergone a radical demographic change, with old 4- 5 story buildings. I did stay in the South Shore during the record winter snow storm of 1967, and had trouble to commute to the University. The better time in Chicago is between May and September, when Chicagoans do their best to forget the harsh winters and the tornado

season in the Summer. Then, the lakefront comes alive with free concerts, events and activities. I moved to the University of Chicago graduate student housing, in the “Fairfex” building on Hyde Park-- on the 51 st street and Dorchester street in the Summer of 1967. There, my oldest son, Ofer, went to kindergarden in Mount Sinai

Temple, 53rd Street and Lake Shore Drive in Hyde Park. My second son, Ronny, was born in the Michael Rees hospital on 2929 S Ellis Ave, near the Lake Shore Drive.
In the Fall of 1966 I am in a new stage of my life as a graduate student in the University of Chicago. At the

University things were much different, as one may expects. I found, as many people did before me, that the interactions among bright and motivated classmates in a graduate school is extremely important for transforming an ordinary economist into a scholar, who is able to carry out state- of- the- arts research. Many of my classmates at the University of Chicago later became well known academic economists. Among them: Michael Mussa (former chief economist of the IMF), Rudiger Dornbusch (one of the most important international economist of his generation; died at a relatively young age), Jacob Frenkel (a former chief economist of the IMF and a former Governor of the Bank of Israel), Rachel McCulloch (Brandeis University), Doug Purvis (who died a few years ago, in a ski accident), and Claudia Goldin (Harvard University).

University of Chicago was at that time one of the leading institutions in the world. For a young student in economics, these years provided heady interactions with the giants of the profession:_ Milton Friedman, Robert Mundell, Hirofumi Uzawa, and George Stigler. The experience also instilled in me a first rooted ness in the academic world and the state of the art research issues, that served me well throughout my academic career. I had an opportunity to indulge in my love of theory and my engagement in the live policy questions affecting social welfare. Members of the Chicago faculty: Hiro Uzawa, Harry Johnson, Bob Mundell (Noble prize winner), Al Harberger, Zvi Griliches, Milton Friedman (Nobel Prize Winner), Frank Knight, T. W. Schultz (Nobel Prize Winner), Robert Fogel (Nobel Prize Winner), George Stigler (Nobel Prize Winner), Lloyd Metzler, and Henry Theil. However the Nobel Prize in economics did not existed yet when I started graduate school in Chicago at the end of 1966. As for Milton Friedman, who died in 2006, at an old age of 94, his politics may have generated public controversy, but his scientific contributions yielded a consensus of admiration among his professional colleagues. When students today are taught about the determinants of consumer spending, the history of monetary policy, or the relationship between inflation and unemployment, they owe much to the intellectual legacy of Milton Friedman. I still remember the graduate economics course he gave in 1967 that was later the basis of Friedman’s AEA presidential address, in which he he demonstrated how short-termish is the inflation- output tradeoff if market participants internalize future inflation and wage expectations into the wagw and price contracts. I felt that I am witnessing a breakthrough in economics thinking of this much debated issue. By the way of an anecdote, Milton Friedman visited Israel in the late 1970s , and had a meeting with Rabby Shlomo Lorenz, the head of the Knesset finance committee. The Rabby asked Milton Friedman whether he can compactly give the essence of the economics paradigm in one sentence as Rabby Hillel did 2000 years ago.

[Around 2,000 years ago a non- Jew told Hillel, a famous Jewish teacher, that he would convert to Judaism if Hillel could teach him the whole of the Torah in the time he could balance on one leg. Hillel replied… "What is hateful to yourself, do not do to your neighbor. That is the whole Torah; the rest is just commentary. Go and study it." ]

Like Rabbi Hillel, Milton Friedman can explain what you need to know about economics while standing on one foot; the rest is commentary. Indeed, Milton friedman replied to Rabbi Lorenz with what he is always famous for saying: "there is no such thing as a free lunch; the rest is comentary."
Zvi Griliches, without a single year in high school enrolled as a freshman in the Faculty of Humanities in the Hebrew University, at the end of Israel War of independence. Born in Lithuania, Griliches was a holocaust survivor who lost his parents in the Dachau concentration camp. Following the liberation of the camp in 1945, Griliches was sent to a British internment camp where he taught himself to read English. After the war Griliches spent two years in Munich, joining a Zionist youth group, Hashomer Hatzair, and ultimately sailing by illegal ship to Palestine, where he was captured by the British and interned on Cyprus for seven months. He

arrived in Palestine in September 1947 and served briefly in the pre- state Israeli army. He quickly learned Hebrew, worked on a kibbutz, and prepared himself for the Bagrut, the national high school equivalency exam. "I spent about six months trying to catch up on the 10 years of school that I had missed," he explained. He enrolled for a year in the Hebrew University of Jerusalem as a student in history. Griliches' sister and uncle also survived the war, and emigrated to the United States. Zvi received a fellowship as an undergraduate student in agriculture in Berkeley, which did not require high school credentials. Shortly after entering the Hebrew University Zvi, was accepted to Berkeley, to study agricultural economics, what he called “useful economics”. Zvi graduated from Berkeley. A nice story about this straight A student is this. When Zvi's adviser at Berkley gave him the only B grade in Zvi's entire record (as I said, he was a straight A student), Zvi came to the office to raise an issue, because it may downgrade his applications to graduate schools. The adviser replied that that this B grade is good: “Well, this would make your record appear more human like". Indeed, after a re-check and second thought the grade was restored to an A. Zvi entered the graduate program in economics at the University of Chicago in 1954, and from there on it was a meteoric rise. He completed his Ph. D. in 1957 (the legendary hybrid corn work, which catapulted him into fame), and joined the faculty at Chicago, soon becoming one of the leading applied econometricians in the US. He did very well in graduate studies at the

University of Chicago where he wrote an amazing dissertation on the “Diffusion of Hybrid Corn Technology”. He almost immediately became an academic super star, and was awarded the John Bates Clark Medal in 1965, at the age of 35 (significantly, the John Bates Clark Medal is given every two years to the best economist under the age of 40; Paul Samuelson, Milton Friedman, James Heckman, Paul Krugman and others received the medal. It served as a predictor of winning Noble in economics a few decades later. Some of us in the profession were critical of the Nobel- prize committee for not awarding him the prize.) Zvi died prematurely; never awarded the Nobel prize.
Zvi and I had two things in common: we both were handicapped by the lack of formal schooling before college, and we both turned into the economics profession through college- level agriculture. I did it because this was the only university field that the Kibbutz ok-ed; he did it because Berkley admitted also students without formal high school degree.
In a looser sense, the term " Chicago School" was associated with a methodology which is relatively averse to general equilibrium reasoning in favor of more economics intuition obtained from partial equilibrium analysis. The " Chicago School" has had various phases with quite different characteristics. In the 1960s it was dominated by the monetarist approach. During my student period of 1966- 69, the adherence to neo- classical economics meant that you should be critical of the Keynesian economics’ ad- hockery. Evidently, the Keynesian approach to crises that are triggered in the financial sector (to be distinguished from business cycles that are associated with technology shocks) has been vindicated in the 2008- 2010 global crisis. But other aspects of the Keynesian model were successfully challenged at the time I attended the University of Chicago. Importantly, the Chicago approach emphasized the role of expectations’ dynamics in macroeconomics. I was especially fascinated by Milton Friedman’s course “money and national income” (he always disliked the term, coined by Bent Hansen, “macroeconomics”), where he taught us the remarkable ideas of what later

became his 1968 AEA presidential address on the expectations- augmenting Phillips Curve. In his survey, Malcolm Rutherford describes the leadership position Milton Friedman took in Chicago like this: “The key to the development and eventual dominance of the ‘Chicago View’” in the post World War II period was the uniting of Milton Friedman, George Stigler, and Kenneth Wallis on the Chicago faculty. Friedman took the leadership in promoting the Chicago View, particularly in his price theory course, his work on macroeconomic and monetary economics, and his methodological viewpoint. Friedman’s main targets were Keynesian economics, the work of those associated with Cowles [a pre- eminent theory group that produced some of the best theory work in the 1950s], and the imperfect competition theories. Unlike Frank Knight [the best research persona in the first Chicago School], both Friedman and Stigler undertook considerable amounts of empirical work. The empirical orientation of Friedman and Stigler can be seen especially strongly in their early connections with the National Bureau of Economic Research [known as the NBER, with whom I have been associated since the early 1980s]. Friedman’s contact with the NBER began in 1937 when took over Simon Kuznets’ study of professional income. Later, at Arthur Burns’ urging, he took on the study of the monetary aspects of the business cycle which resulted in Friedman and Schwartz’s Monetary History (1963). The Nobel prize winner, Bob Lucas, who entered Chicago 6 years ahead of me, describes his experience, as follows. "Friedman's class was not devoted to training us in technical nuts and bolts of economics. He assumed that we had already been through this, or would do so later, and focused instead on the use of economic theory in thinking about substantive questions of all kinds. He focused directly and intently on the one student he was engaged with at the moment, never playing to the gallery."

Hirofumi Uzawa, the distinguished economic growth theory scholar (whom Kenneth Arrow brought to

Stanford as a young Japanese mathematician with no background in economics) had the greatest influence on my research at the early stage. The summer after my first year as a graduate student was one of the most exciting. Hirofumi Uzawa received an NSF grant to bring around a dozen graduate students from around the country to work together on growth theory. Hirofumi Uzawa  is well known to macroeconomists for his seminal 

contribution to endogenous growth. In his article in the 1965 IER, productivity permanently increases as the result of persistent accumulation of human capital. Uzawa was thus a first mover in the new growth theory. The symbol H (for Human Capital, or for Hiro?) is today everywhere in models of economic dynamics. My Ph. D. dissertation has been an (and the first one) application to market economy of Hiro’s human capital optimal growth theory. Hiro (shortening Hirofumi) has  had many successful students and mentees. A  very incomplete list of the others would also include Dave Cass, Steve Goldman, Harl Ryder, Hajime Oniki, Bob Lucas, George Akerlof, Joe  Stiglitz, Miguel Sidrauski, Morris Teubal, myself, Guillermo Calvo, Bill Ethier, and Lenny Mirman. Hiro is widely recognized and revered  in Japan. He was elected to the very selective Japan Academy in 1989  at a remarkably young age. He was named as “A Person of Cultural Merit” in 1983 and elected to the Order of Culture in 1997.
I started to develop the paper at the 1967 summer camp. This summer camp, the  1967 MSSB-NSF sponsored Chicago seminar was led by Uzawa. The student group was: Burton, Calvo (Yale), Ethier (Rochester), Marvy (Texas), and Mirman (Rochester). Miguel Narayanan, Nissen, Onitsuka (Chicago), Rhee, Smith, Tsushima (Yale) and me.  There I interacted with  several bright young students that were working on cutting edge research projects Hiro got stranded in Japan. Uzawa  was absent most of the time since he begun his move from Chicago to Tokyo. He asked Miguel Sidrauski (his former student, and then the young star  from MIT, who died from cancer less than two years afterwards) to lead  the “Summer Camp”. We, the students,and Miguel, our leader, were highly interactive. It was an exciting first experience of an interaction within a research group.  I started to develop a paper on human capital and economic growth, following an influential paper by Hiro Uzawa, which  demonstrates how a centrally planned economy can efficiently affect growth through the allocation of the economy’s  resources between a sector that produces know how and other productive  sectors. In my paper which turned out to be my PhD Dissertation (1969),  I applied these ideas to a de- centralized, market- based, equilibrium model of an economy which accumulates human capital and physical capital. I noted that “economists have long noticed that people play an important role in the process of production, and in  return they are rewarded by an amount which constitutes the largest  fraction of income.” I guess I heard it from T. W. Schultz. In my model the accumulation of human capital is the driving force behind a persistent rate of increase in income per capita. This feature was dubbed in the 1980s as endogenous growth presented an term paper. The paper featured the effect of human capital accumulation on economic growth at a 1967 conference  The human capital-physical capital growth paradigm turned out to be important, because one stream of the Endogenous Growth Theory, decade and a half later,  in the mid-1980s,  grew out of another influential Chicago  “School”; although Imy contribution has not be acknowledged. Indeed, the endogenous growth model turned out to be almost identical to the Lucas` well cited paper on endogenous growth. Perhaps my contribution  which  appeared in print (REtud 1972) when the profession got a little  “tired”  of what seems to have been over-occupation in the theory of  economic growth after over a decade of significant developments in  this area. I was extremely successful in terms of visibility and citations  with another early endogenous growth paper of mine (in  which the endogenous population growth cum education is the driving  force for a permanent rise in income per capita because parents trade off “quality for Quantity” of their children in the growth model American Economic Review.  1975).There I met several bright young students that were working on cutting edge research projects: Lenny Mirman (Rochester), Bill Ethier (Rochester), Guillermo Calvo (Yale). Hiro got stranded in Japan. He asked Miguel Sidrauski (his former student, and then the young star from MIT, who died from cancer less than two years afterwards) to lead the “Summer Camp”. We, the students,and Miguel, our leader, were highly interactive. It was an exciting first experience of an interaction within a research group. (The particular style of Uzawa, which followed the great tradition of Robert Solow - simple and concrete models, was directed at answering well defined questions. Styles of the economics taught in most of the universities were quite different. Either the abstract general equilibrium models, for which Berkley was then noted, or the simpler partial equilibrium models for which Chicago (minus Uzawa) was famous.) Hiro is well known to macroeconomists for his seminal contribution to endogenous growth. In his article in the 1965 IER, productivity permanently increases as the result of permanent accumulation of human capital. Uzawa was thus a first mover in the new growth theory. The symbol H (for Human Capital, or for Hiro?) is today everywhere in models of economic dynamics. My Ph. D. dissertation has been an (and the first one) application to market economy of Hiro’s human capital optimal growth theory. Hiro (shortening Hirofumi) has had many successful students and mentees. Your MD interviewers are lucky to have been among those whom Hiro has influenced profoundly. A very incomplete list of the others would also include Dave Cass, Steve Goldman, Harl Ryder, Hajime Oniki, Bob Lucas, George Akerlof, Joe Stiglitz, Miguel Sidrauski, Morris Teubal, myself, Guillermo Calvo, Bill Ethier, and Lenny Mirman. Hiro is widely recognized and revered in Japan. He was elected to the very selective Japan Academy in 1989 at a remarkably young age. He was named “A Person of Cultural Merit” in 1983 and elected to the Order of Culture in 1997. Hiro has received significant international recognition. He was President of the Econometric Society. He is a Fellow of the Econometric Society, Member of the American Academy of Arts and Sciences, Foreign Honorary Member of the American Economic Association, and Foreign Associate of the U. S. National Academy of Sciences.
Rudiger (Rudi) Dornbusch, a classmate of mine, writes about these days in Chicago very succinctly, as he always did: ” There was the “oral tradition” and there were the “workshops,” the formidable feeling for students and faculty alike of a revolution in the making. The great issue of the day was just how the economy works and what role government must play, if any, and what role monetary policy must definitely not be allowed to play.”

Michael Mussa and Russ Boyer, Jacob Frenkel, Rachel Larsen (nowdays, Rachel McCulloch), Hugh McCulloch ( not to be confused with the 3 rd US treasury secretary who served under Abraham Lincoln), Rudi

Dornbusch, Ron Hanson, Doug Purvis were graduate students together at the University of Chicago from 1966 to 1971 (I stayed in Chicago from 1966- 1969). Much of the interaction of the international economics students took place in the International Economics Workshop; which was organized by Harry Johnson and Robert Mundell. These persons were the leading international economists in the world, at the time. The leading international economics model was the Mundell- Fleming model. [many years later, I contributed to transform the Mundell- Fleming view of international macroeconomics to micro- based inter- temporal view!] My classmate Russ Boyer told me that "the first time I heard Fleming’s name was from Jacob Frenkel in 1969 in the corridor outside the seminar room in which the workshop met each Monday. The name came up in the context of a discussion of Richard Cooper’s (1969) newly published volume of readings, International

Finance". In those days there were only very few readings books. They were indispensable in the classroom A

remarkable aspect of the volume, Jacob pointed out, was that it did not contain a single paper by Mundell. Being a well- informed student of international finance, Russ wondered about the glaring omission of Mundell’s magnum opus, “Capital Mobility and Stabilization Policy Under Fixed and Flexible Exchange Rates” (published in 1963). To his surprise Cooper had found an alternative for that publication in the form of a paper by Fleming (published in 1962). The hallmark feature of the Mundell- Fleming model (the name was coined by Rudi Dornbusch; the model could also be called Fleming- Mundel model) is that it incorporated into a Keynesian open economy model capital mobility. Most of my work later in the area elaborated on the role of capital mobility in the globalization era. However, Mundell research direction has been reversed after he made the contribution to the Mundell- Fleming model. He almost never came back to deal with the capital mobility issue. So I realize now that I have not benefited as much from the International economics seminar which was regarded as a launching track for the rest of my colleagues research career. Few economists are aware of the extent of Mundell’s reversal with respect to capital mobility. Russ Boyer observes: "In his capital mobility paper, Mundell writes that the assumption of perfect capital mobility has the merit of posing a stereotype toward which international financial relations seem to be heading”. That view set the research agenda in international finance for at least 30 years. In stark contrast, Mundell’s own research moved in just the opposite direction; he assumed thereafter that the economy under analysis was in a situation of zero capital mobility." Such an assumption is made in his analysis of growth and the balance of payments, which laid the groundwork for the monetary approach to the balance of payments. In fact the defining feature of the international economics seminar, according to Harry Johnson, was this approach, which essentially is due to the

classical treatment of fixed exchange rate without capital mobility by Hume. What about the political right wing leaning among the University of Chicago faculty? I have been all my life left off center in

my political philosophy. I was obviously not keen of mixing right wing ideology and economics science. Here is what Rudi Dornbusch remembers: “Even though the ideology was patently free market economics, politics was really not to be seen. I might be contradicted by those who note that during the 1968 campus riots, the department continued lectures as if the outside world had not stopped. I remember vividly demonstrators entering Friedman’s class only to be told that they were interfering with the freedom and choice to learn; moreover, not having registered they were not even free to stay quietly. In hindsight amazingly, the protesters left and our insular clique went on experiencing the quantity theory of money.”

As I was leaving Chicago I met Stan Fischer. Snippets of Stan Fischer and me:

First, go back to 1969. We both got our PhD: Stan from MIT and me from Chicago. We met when he was coming to Chicago for a post doc and I was going to Minnesota, my first academic job. We talked about two things we had in common: Israel, whom he aspired to be part of while I was growing up there and going to return to; and Miguel Sidrausky, his teacher at MIT, and my adviser in a summer camp at Chicago for US universities graduate students. I felt immediately that I met a person to my liking, from whom I can learn a lot. And I did.

Second. I remember the Israel economic turmoil in the 1960s. I was voicing my concerns about Israel hyperinflation and bank stocks crash, in public; after I resigned from a government post. Stan came, with Herb Stein, to do more constructive advice; and they succeed. Inflation got crashed when the political constellation (the establishment of a unity government) permitted.

Third. I in the early 1980s was invited by my classmate, Rudi Dornbusch, Stan’s best collaborator and friend, to give a seminar in MIT. I was presenting my work (with Elhanan Helpman) on international trade under uncertainty. The scheduled date happened to fall on a Jewish holiday. He sent me a note in advance to remind me that I should be sensitive to the fact that some faculty members who were invited to the seminar are of Jewish decent, ; and they be uneasy about the seminar taking place during the holiday. I did change the seminar date and I thanked Stan for alerting me for the sensitivity of the issue; I am a secular Jew and am not observing Jewish holiday in a religious manner. Two years later when Rudi invited me to the seminar, to talk about the intertemporal approach to the current account, I did not repeat the blunder. I am thankful for Stan’s advice. It had helped me to conduct myself a little better.

Fourth, the 1990s. Stan is now the DMD of the IMF. I was a summer consultant there working with my friend Gian Maria Milesi Ferretti on current account reversals (notwithstanding the 4-word name, this is just one person; not two, not three). Then came the 1997 Asian Crisis and Stan is literally in the eye of the storm. I remember him cool, always analytical, when listening to my purely academic arguments. Actually I was happy that he did not find them irrelevant.

Fifth, circa 2004, Stan is a new governor of the Bank of Israel. To say that It was a pleasant surprise to us in Israel was definitely an understatement. He left a financially rewarding job in the Citi group to come to help a small, rather remote, country, which was, at the time, in the midst of the Intifada number 2: suicide bombing occurring in the streets of Tel Aviv, or Jerusalem. But, virtually after landing from the plane, Stan gave the governor inauguration address to the nation, in Hebrew. And he excels in his job. Stan has been definitely a role model for me.

During the formative years at the University of Chicago in the late 1960s, I asked myself why I had gone

into economics. The answer, I gave to myself, was essentially very similar to the one the 2006 economics Noble Prize winner Ned Phelps gave: “Without being aware, I think I was being indoctrinated into what was called Vitalism, the idea that what makes life worth living, the good life, consists of accepting challenges, solving problems, discovery, personal growth, personal change. My reading of philosopher David Hume taught him “the importance of imagination in understanding things”, while Henri Bergson’s Creative Evolution argued for free will against determinism; and the Greek heroic epics, Cervantes’s Don Quixote and Ralph Waldo Emerson argued for self- reliance.”
Ronny, my son (and now the father of my grand children) was born during our last few month in Chicago. He received a Ph. D. degree in economics from Princeton University and then moved to become an assistant professor of economics at NYU. In 2005 he joined the economics department of LSE in London as a tenured faculty member. As of now he is a full-fledged Professor there. I am so proud of his devotion to scholarship and the way he is mustering meaningful political economics problems at the cutting edge of economic research. In our profession, as well as in others, we tend to have an established way of doing things. Often the academic establishment is hostile to new approaches. There are two major ways open for freshly minted graduates from a Ph. D program. One way is to choose topics and approaches in line with the current fashion. Accordingly, the safest route to publish (something that healthy share of the economists cannot ever do) is to do a minor extension of a published work written by an established leader. At a latter stage, when a number of publications

are already secured, an attempt sometimes is made to deviate from such leader- follower track. But many times an attempt at original work at a late stage is not working well. A second way is to stick to a research agenda independent of the current fashion. I was always attempted to follow this approach. Ronny’s first three publications in leading journals (Econometrica, The Journal of the European Economic Association, The Journal of Economic Theory and the American Economic Review) deal with genuinely game-theoretic fundamental political- economic issues.

In the beginning, I have had a somewhat rocky road when attempting to do what I believed to be a meaningful research on not-yet--researched issues, as opposed to attempt research projects on well-researched topics, with methods that were in fashion at the time but the value added of the research effort was small.

Issues of human capital and growth were the subjects of my first academic work. An influential paper by Hiro Uzawa demonstrated how a centrally planned economy can efficiently affect growth through the allocation of the economy’s resources between a sector that produces know how and other productive sectors. In my doctoral thesis I applied these ideas to a de- centralized, market- based, equilibrium model of an economy which accumulates human capital and physical capital. I noted that “economists have long noticed that people play an important role in the process of production, and in return they are rewarded by an amount which constitutes the largest fraction of income.” I guess I heard it from T. W. Schultz. In my model the accumulation of human capital is the driving force behind a permanent rate of increase in income per capita. This feature was dubbed in the 1980s as endogenous growth. My job- market paper went through three rounds of reviews in the leading journal, the American Economic Review. The third revision was however rejected by the editor. (I believe that growth economics was much beyond his area of expertise. For more than a decade, he served as the managing editor of the American Economic Review; which, perhaps, made him a bit prejudging and intolerant to new ideas). I decided to divide my Ph. D. Dissertation into two papers, and published them in less visible

journals than the AER. One short piece went to the Review of Economic Studies. Unfortunately, the more integrative piece among the two went to Metroeconomica (a respectable outlet for research in economic theory at the time, which unfortunately sunk into complete obscurity afterwards). These papers turned out to be important, because one stream of the Endogenous Growth Theory in the 1980s grew out of another Chicago “school” that Hiro Uzawa started, and I extended in my Dissertation. But I felt that I did not get the right credit for this fundamental contribution. Two years later, however, I was extremely successful with another early endogenous growth paper of mine (in which the endogenous population growth cum education is the driving force for a permanent rise in income per capita because parents trade off “quality for Quantity” of their children in the growth model). It was published by the American Economic Review (although with a different editor), and was recognized as the first paper in a “big industry” of papers that followed. I learned first- hand how frustrating and rewarding at the same time is the publication process in our profession, especially for young economists, as we definitely were at the time. Life may be full of disappointments, but , it's also full of surprises.
Another example of the less- than- perfect outcome at a young age, falling short in the short run, but eventually turning into a long lasting scientific contribution is this. In 1975 Elhanan Helpman and I a research project about international trade under conditions of uncertainty. At this point in time there were several papers showing the basic propositions about specialization by a country according to the principle of comparative advantage in the presence of international trade that have been known since David Ricardo, break down in the presence of technological and demand uncertainty. Applying cutting edge ideas from finance, Elhanan Helpman and I were able to show how you can restore the basic propositions of trade and industry specialization in the presence of financial markets that enable risk sharing between countries, and which were completely ignored in the trade literature. The editor of the Journal of Political Economy (who belonged to a generation that one diagram could be used to make an economic argument, rejected our paper on the ground that the Journal is not interested in modeling per se; and what remains when the argument is stripped down worth only a note. But, when we received the letter from the editor we already wrote several important extensions and applications. Thus we decided to write a fully fledged book, which came out 3 years later, and made some impact. The editor happened to be Harry Johnson. At the time he had almost a "monopoly" on accepting or rejecting papers in international economics across all important Journals. Ironically, although Harry was then one of the most cited in the profession, he has not not much cited since he died.) This is is essentially a good example of distortions in the publication process arising from some “market power” . In this case it is the "market" of submitted papers. The "power" comes from Journal editing. Economists often tend to criticize market power in when they play the role of policy advisers but pot when such a distortion involves themselves. The paper eventually appeared in the Review of Economic Studies. But by the time the paper appeared we already developed many more ideas that warranted a book. This book would not have been written if the journal publication process were to be smooth. The book turned out to be a gem. It is very rewarding to see that now days, when the real business cycle approach spread into international finance, that the basic notions that we analyzed in our book are resurfacing in the research of new Ph. D dissertations. However, it is a bit frustrating that many times the young economists never heard of the Helpman- Razin work because they do not read the literature carefully, except what they were exposed to in the graduate school. An anecdote comes to mind. In the book we developed the first truly dynamic general- equilibrium model of the stock markets. The book apeared in 1978. Very few read the entire book and therefore missed the last chapter. Three years later

Bob Lucas independently developed a similar model in the journal Econometrica. It attracted tremendous

attention by the profession and the young guys in the profession referred to the stock market model as the

“Lucas Tree Model”); although a similar model appeared earlier in our book. Today, many international

economists are trying to construct dynamic models of international capital flows. Because capital flows can

in principle move in and out of a given country at the same time, there is a distinction between net capital

flows and gross capital flows. Without uncertainty, domestic and foreign financial assets are perfect

substitutes and therefore only net capital flows can be flashed out in the model. The existence of uncertainty permits two- way capital flows. Ours, was the first dynamic model that coherently generated capital flows; a preoccupation of current researchers.

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