Supply and Demand

How the dismal science morphed into freakonomics and made econ the College’s most popular major.

By the standards of 1980s movies, experts in the laws of supply and demand are humdrum bores mostly concerned with sweeping concepts such as voodoo economics. (Remember Ben Stein in Ferris Bueller’s Day Off, anyone? Anyone?)

But today, when White House budget directors are gushed over on blogs and economists are repeatedly recruited to explain a variety of domestic crises, the profession appears to be enjoying newfound appreciation.

What economists find interesting seems to be changing too. Far from abstract “widgets,” they’re focused on issues that have relevance to real-life situations, though they can involve subjects that seem surprisingly un-academic. Indeed, the pages of Freakonomics, the 2005 sensation that continues to spawn imitators, weigh in on the Ku Klux Klan, drug dealers who shack up with their moms and sumo wrestlers.

In step with the global trend, Dartmouth’s economics department, which is made up of 34 full- and part-time faculty members, embraces this specialized, applied approach to problem-solving without seeming to sacrifice any of the cost-curve-type fundamentals that have historically anchored an economics education.

And the system has fans—econ has been the College’s most popular major for more than a decade. Of the 1,054 members of the class of 2009, 172 (16 percent) made that choice. Government followed with 132 (13 percent). Next in line was psychology and brain sciences with 111 majors and biology with 86, according to the office of institutional research.

“Officially economics is the study of how scarce resources get allocated. But it’s really the study of how people behave, and that explains why it has such broad appeal,” says professor Bruce Sacerdote ’90, the department’s vice chair.

And the questions posed by his own discipline-blending research intrigue people who aren’t quantitatively inclined. One study examined whether a first-year student was likely to rush a fraternity if his roommate did (answer: yes). Another looked at the effect that taking in Hurricane Katrina student refugees had on schools’ math scores (mostly negative).

In Freakonomics Sacerdote chimed in on the nature/nurture debate with a study showing how children adopted by smart parents usually wind up more successful than they would have been had they stayed with their birth families.

“You study economics,” says Sacerdote, a former DAM board member, “to get to the root of the issue.”

Spending a lot of time on research at a small institution such as Dartmouth, where professor-student interactions are prized, can generate controversy of course. But, at least in the economics department, little seems to have been lost because of outside work, says recent major Soon Ho Lee ’02.

Due for specific praise in that respect, Lee says, is Jonathan Skinner, a healthcare-focused economist whose recent eye-opening paper about how better-educated people suffer less back pain seems to embody the profession’s pragmatic spirit.

Lee, a math and economics major, currently lives in Hong Kong, where in 2008 he launched the Asian office of Royal Capital Management, a hedge fund. He invests in undervalued securities, particularly in Japan.

“What I studied may not lend itself to what I do on a daily basis,” Lee says, “but it provides a good framework to understand markets.”

Similarly, professor Annamaria Lusardi, who has become a national expert on personal savings rates, defends outside research as a way of holding students’ attention. “If I were just a teacher I would be so incredibly boring,” jokes Lusardi, adding that there are also more tangible side effects.

In 2008, for example, she analyzed the savings habits of Dartmouth employees to find out why it might be tough to sock something away for the future. A lesson learned: “Employees are less likely to procrastinate,” her report says, “if they are given a plan,” such as having money automatically deducted and deposited into an investment account, Lusardi explains.

In October, on the strength of that research, Lusardi helped launch the national Financial Literacy Center, a partnership between Dartmouth, Penn’s Wharton school and the Rand Corp. The center’s goal is to encourage citizens, especially women, to understand how, say, compound interest works, so they can better manage their credit cards and avoid financial setbacks. “The world is changing. We are shifting the responsibility from the government to the people,” Lusardi says. “But we are giving people more tools that don’t have to do with home equity lines of credit, credit cards and stock buying.”

Lusardi, who has advised the Social Security Administration, is among a crop of economics professors being called upon by government leaders for their expertise. Perhaps the best-known example in Dartmouth’s econ department is David “Danny” Blanchflower, a wage expert whose three-year turn on the Monetary Policy Committee at the Bank of England ended last summer. During his appointment, which largely predated the Great Recession, Blanchflower pushed for governments to offer subsidies to employers to entice them to hire younger workers, who are disproportionately hurt by downturns, he says. He brought a similar up-to-the minute relevancy to Econ 76: “The Financial Crisis of the Noughties,” which he created last spring to help make sense of the continuing economic downturn.

Washington has come knocking in Hanover as well. Assistant professor Jay Shambaugh, who has written extensively about exchange rates, is currently a member of the White House’s Council of Economic Advisers, a position he will hold at least through the summer, he says. Fellow department member Andrew Samwick, also director of the College’s Rockefeller Center, served as the council’s chief economist under president George W. Bush.

Just as professors seem to be increasingly playing policy-maker, so do former economics majors, according to Sacerdote, who estimates that about 15 percent of graduates now opt to work at places such as the World Bank or MIT’s Poverty Action Lab. That share is up notably from when Sacerdote began teaching in 1998, he explains.

John Bellows ’04, for one, completed a Ph.D. in economics at Berkeley before landing at the Treasury Department, where he does “a lot of thinking about jobs programs and what the government can do to stimulate job growth,” he says. For Bellows, who early on mulled a Chinese language major, a senior project on development economics in India followed by a five-month stint in Delhi—working for the World Health Organization—cemented his interest in the public sector.

Similarly Celia Kujala ’07, who works at the Federal Reserve Bank of New York, cites the pull of current events as a reason for becoming a government worker since completing a Fulbright fellowship to study the health outcomes of education in Helsinki. It flowed logically from work she did in Econ 80: “Advanced Topics in Econometrix,” taught by professor Doug Staiger, whose core interests are health and education. Though Kujala can see towers that are home to investment banks from her office in lower Manhattan, the arduous lifestyle associated with that kind of business held little attraction. “The Excel spreadsheets, the long hours…and there’s not a lot of input you can provide, considering all those hours worked,” she says.

But it’s not like getting through the major is a cakewalk—as was evident during a visit last fall to a packed microeconomics class (Econ 21) in Silsby.

“It’s okay if you get lost today,” began Maura Doyle, a senior lecturer, as she began a whir of chalkboard scribbling and a discussion of Marshallian and Hicksian demand functions that relied on a dizzying alphabet soup of variables. But Doyle’s 32 students seemed to take the caveat in stride, abstaining from raising their hands when Doyle asked for questions. They may not have been bluffing. Students seem smarter or at least better prepared by high school economics classes than they used to be, according to many economics professors. That’s largely why the College feels it can require calculus for Econ 21—a change that was implemented in the mid-1990s.

This may put Dartmouth ahead of its competitors. In comparison, for a course similar to Econ 21 that Doyle taught at Tufts, algebra skills alone sufficed, she says, adding, “I hate teaching without calculus because you lose the intuition.”

Still, figuring out exactly where Dartmouth stands—or any other school for that matter—is notoriously difficult. There have been few official attempts to rank undergraduate economics departments through the years, and some of the criteria employed, such as papers published by faculty members, can put teaching-focused Dartmouth at a disadvantage.

To wit: Dartmouth has the 29th best department in the country, out of about 75 schools evaluated by Christian Zimmerman, an economist from the University of Connecticut. Zimmerman’s rating system, which he says is not an absolute authority, is based on how much research a department generates, the quality of the journals that research appears in and the frequency with which that work is cited by others.

In contrast, Harvard took the top spot and Princeton was No. 4. Cornell came in at 37. But, Zimmerman cautions, the rankings depend on how many professors are actually registered with the RePec Author Service, from which his data is derived. At Dartmouth that means only 14 members (40 percent) of the faculty.

Besides, rankings can be relative. “We would be very happy to be at Dartmouth’s spot,” Zimmerman says about UConn’s No. 59 ranking.

Similarly it can be tough to do an apples-to-apples comparison by faculty. Dartmouth’s year-round calendar means more teachers are off in the fall, winter and spring than at other semester-based schools.

In terms of student-faculty ratios, the department seems to measure up. Dartmouth’s economics department has a 5-to-1 ratio, compared with Harvard at 6-to-1. (For what it’s worth, the economics major is even more popular in Cambridge, attracting about 19 percent of this year’s senior class.) But Princeton, which is home to Nobel Prize-winning economist Paul Krugman, has roughly a 2-to-1 student-to-faculty ratio, according to statistics supplied by administrators. There, economics majors make up about 11 percent of the senior class.

Though Dartmouth may be holding its own against Ivy League rivals, it took some effort to get there, and if there’s one person still teaching who moved the department in that direction, it’s probably Al Gustman, who arrived at Dartmouth in 1969 when he was 25. Although the College had about 1,000 fewer students then, or three-quarters of what it has today, the economics department was comparatively tiny, with just 13 faculty members, or about a third of its current size, Gustman recalls.

After pressing the administration for years to stem the brain drain that was sending young star professors to Michigan, UCLA and Harvard, Gustman finally got a sympathetic ear in the 1980s in the McLaughlin administration, which upped its salary offers to make the school’s hiring more competitive.

Another powerful recruiting tool, Gustman says, came in the form of the National Bureau of Economic Research (NBER), the Cambridge-based not-for-profit that determines when the country is in a recession. The group is also a sort of launching pad for economics research, where papers are published on their way to top-tier journals.

In the late 1970s Martin Feldstein, a Harvard professor, became NBER’s president. He then invited many Dartmouth professors whom he had known when they were students at Harvard to submit papers. In turn, these papers, which are pored over by government leaders of all stripes, helped elevate the College’s national profile while at the same time putting faculty members in touch with a large crop of talent.

Years later some of that talent, swayed by promises of a burgeoning department, Gustman says, ended up relocating to Hanover. In fact, just six full-time professors published research with NBER in 1989, but that number had jumped to 20 in 2009. In comparison, Cornell had 17 professors with the distinction in 2009, though Harvard, with 108, led the pack. “Dartmouth grew up and decided to get serious about being an Ivy League institution,” Gustman says. “It had been behaving like an Amherst or Williams.”

The timing of the department’s makeover coincided with changes in the way finance was being taught, from institutional models, trendy in the 1970s, to more individual cost-and-benefit analyses, which in many ways presaged the current splintering. Simultaneously, computers got a lot more powerful and accessible, which allowed economists to crunch huge sets of data with relative ease.

Plus the faculty’s efforts to expand the department were helped by the fact that Wall Street was booming. This boosted student interest in the curriculum, says Gustman, who points out that the number of Dartmouth economic majors has grown steadily since.

Yet popularity, which has also been spurred by the department’s wide-net approach to social issues, might have a price. Despite the fact that the 2,724 Dartmouth students who enrolled in economics classes last year had 108 courses to choose among, there weren’t always enough seats to go around—a problem in classes such as Econ 28: “Public Economics,” which many majors need to take.

Steven Venti, the department’s chair, acknowledges the problem, saying he’s working to hire more faculty and, more importantly, retain current teachers; two professors have defected to Harvard and one to UCLA in the last five years, he adds.

With Dartmouth’s current fiscal crisis it has been “hard to hire and harder to retain,” says Venti, who has taught in Hanover since 1982.

If a boom on Wall Street once fueled interest in economics, one might think the inverse could be true—that a collapse of major banks there and a plunge in the stock markets would turn people away. So far that doesn’t seem to be the case, with the number of majors graduating this year expected to be around the same as last year, according to the department. And even those such as Mary Mei ’04, who just graduated into a tough job market from Harvard Business School with hopes of working in finance, don’t seem to regret what they studied.

“Economics teaches you how to think in a certain way about a problem and how you might solve it logically,” she says. “And it’s relevant to the overall world, about what drives it day to day, in a way that exceeds other subjects.

“You can build a career around it,” Mei adds, “but it’s also good for those who don’t know what they want do.”

C.J. Hughes, a journalist based in New York City, is a regular contributor to DAM. He majored in English.


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