Elinor Ostrom and Anna Schwartz, Two Great Economists Pass

Economics has lost two of its greatest female economists in the past month.  Elinor Ostrom was a brilliant economist who published some of her best works on one of the most difficult subjects of our times: water.  Common resources such as water are always challenges to individuals, and these challenges are often met by furthering private property rights.  However, aspects of water make it very difficult to differentiate and privatize.  Of all the people that have written on this subject, hers might be the best solution.  She has written on it extensively throughout her career, but my favorite article is "Legal and Political Conditions of Water Resource Development" with her husband, Vincent Ostrom.

(photo: Embassy of Sweden in the United States)

Her most cited book is Governing the Commons.  Her last article was published the day that she died, "Green from the Grass Roots."  She is an important person within the Institutional school of economics.  She won the Nobel Prize in economics in 2009, and was the first and so far only woman to be honored.

If you were to ask ten economists to recommend ten books to undergraduate economics students, A Monetary History of the United States, 1867-1960 might appear on all ten lists.  It is one of the most important books ever published in the subject.  Anna Jacobson Schwartz wrote that book along with Milton Friedman, who went on to become a Nobel laureate and famous, but said that Dr. Schwartz actually did much of the empirical heavy lifting.  That is also easy to infer by her other major works.  She also notably co-wrote Growth and Fluctuations in the British Economy, 1790-1850, and Monetary Statistics of the United States.  She has been associated with the National Bureau of Economic Research since 1941 (!).  Her last article was published days before her death earlier this week, "Foreign-Exchange Intervention and the Fundamental Trilemma of International Finance: Notes for Currency Wars" on current monetary problems.  She is clearly one of the greatest monetary economists of all time.

Every economics department that I've ever seen has many more male professors and students than female.  This is not a terrible outcome, but it is not ideal.  Although we have just lost Ostrom and Schwartz there are currently more notable female economists than ever before.  Claudia Goldin is one of the best economists on the subject of inequality.  Stephanie Schmitt-Grohe is a terrific monetary economist.  Esther Duflo is a groundbreaking economist on development and microeconomic techniques.  Christina Romer is one of the best economic historians of all time.  Her contribution to our understanding of the Great Depression is as important as Friedman/Schwartz and Benjamin Bernanke.  Carmen Reinhart wrote the best popular economics book last year, This Time is Different: Eight Centuries of Financial Folly along with Kenneth Rogoff.  There are so many great female economists now that I can't list them all, but it still hurts to lose these two.

The Recession That Never Ended

The United States has been out of recession since June 2009 according to the National Bureau of Economic Research (NBER).  Many Americans have not been helped by this recent economic growth as unemployment has remained above 9%, and long term unemployment has become a lingering and concerning problem.  Many pundits have been speculating that we may be double dipping back into recession, while others including Harvard's Kenneth Rogoff are contending that we never really exited the first one.

There is more than one way to skin a cat, and hundreds of different ways to mark growth or lack thereof.  The most common and official way to mark a recession is two continuous quarters of negative economic growth, with the recession ending as soon as positive growth is sustained.  Another way to measure a poor economy is the return to pre-recession employment levels.  We are still a long way from recovery by that standard.

This graph is from the website, Calculated Risk.  I think it paints a frightening picture of how far off from pre-recession levels that we still are at.  This employment contraction is enormously deep and enormously longer in duration.  If we do enter another sustained period of GDP negative growth, it will be historically merged with the recession that we just got out of in terms of return to peak employment.  Henry Farber wrote, "It is clear that the dynamics of unemployment in the Great Recession are fundamentally different from unemployment dynamics in earlier recessions."

One thing that I also take from this recession is that while modern monetary policies can be shown to have fewer recessions than previous monetary policies, their duration is getting longer.  The three longest contractions in employment are also the three most recent.  All of them pale in comparison to the unemployment problems of the 1930's.  It took them over a decade to return to the <5% rate that they had before 1929, and even then it was largely because of the armed services drafting individuals.  That can still be considered the outlier of all outliers in terms of post industrial revolution economic history.  There is one possible commonality.  If we do go into a second recession, our employment contraction will last over both of them, just as in the Great Depression and the recession of 1937 had two distinct recessions, but unemployment never returned.  The sad fact is that the 1930's unemployment had a better (if still unsatisfactory) bump in employment between 1933 and 1937 than we have had between 2009 and today (which perhaps says something about the New Deal versus the Stimulus).

This data points to a good research topic: why are modern contractions in employment lasting longer?  Is this simply a natural trade-off for monetary and/or fiscal policymakers?  Has the U.S. labor market become less flexible or resilient to or during contractions?  Is it a simple coincidence?

Christina Romer wrote a couple papers in the 1990's that dealt with recessions in terms of peak to trough.  She was dealing with a historical industrial index peak to trough.  One of them is "Changes in Business Cycles: Evidence and Explanations" (gated) which appeared in The Journal of Economic Perspectives in Spring 1999.  These studies show the effects that macroeconomic policies have had on contractions.  They have become less frequent, but longer in duration.  Recessions before macroeconomic policy making went into effect (1930's) were shorter with the only very long one (longer than 60 months peak to trough) happening in 1887.  This problem of prolonged employment contractions seems (particularly) to be getting worse.  Her studies can and should be updated to include this most recent and abnormal recession.  If macroeconomic policies are to be continued, we should attempt to alter them for these length problems, especially with regard to employment.

All of these numbers are incredibly depressing, but it is always important to remember that we've gotten out of every recession in the past and we will see sunnier days again!