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Musing Macro
Opinion | Emmanuel Farhi: A brilliant economist gone too soon
His untimely death has deprived the world of an outstanding thinker full of promise
John Maynard Keynes, possibly the most influential macroeconomist of the 20th century, famously said, “The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed, the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually slaves of some defunct economist.” This might sound a bit self-serving, but it is undoubtedly true that economic ideas have lasting influence on leaders and public policy, and hence the destinies of nations. Keynes also said, “[Ultimately], it is ideas, not vested interests, which are dangerous for good or evil.” Of course, not every economist produces ideas that move the world, and not every Nobel-winning economist has had an abiding influence on economic policies.
However, every once in a decade or two, a bright star rises on the horizon and dazzles the profession with sheer brilliance. The currency and tools of such an economist are the powers of analysis and articulation. If he or she makes a contribution to the very foundations of the field, that is extraordinary. But it is rare when the contribution is both to the theory and practice, and to academia and policymaking, and is such that it can be presented to an audience of Nobel laureates as well as viewers of a TV channel.
One such rare economist was Emmanuel Farhi, whose tragic and unexpected death was reported last week. He was just 41 years old, and a professor at Harvard University, having earned degrees from Massachusetts Institute of Technology and some topmost institutions in France. At 16, he won the first prize in a national physics competition. Two years later, he topped the entrance exam for France’s elite engineering school, École Polytechnique. But he chose to pursue mathematics and economics at École Normal Supérieure in Paris, which incidentally is alma mater to Thomas Piketty and also to Nobel winner Esther Duflo. Just four years after his PhD, Farhi was appointed an adviser to the French prime minister. He received several awards, like the best European economist under 40 (2010), and the prestigious Malinvaud Prize (2011). In 2014, the International Monetary Fund (IMF) named him among the top 25 economists under 45 in the world.
The news of his death came as a shock. Condolences and tributes poured in, including from French President Emmanuel Macron, chairperson of the European Central Bank Christine Lagarde, and IMF chief economist Gita Gopinath. Gopinath, who is from the Harvard faculty and was also a co-author of Farhi, said she had lost a very dear and generous friend.
The tragedy was made more poignant by Farhi’s relative youth. His most glorious contributions were perhaps yet to come. He made some foundational contributions to a variety of fields, like public finance, international macro and monetary systems, fiscal policy, exchange rates, prudential policy, bounded rationality, decision theory, productivity and international trade. But, as his former student and co-author David Baqaee said, it is not the breadth of his research domain, but rather the depth that is most remarkable. He was unafraid to take on the most challenging and basic questions in economics, long given up as settled or left to philosophers and sociologists to answer.
Let me mention just three to offer a flavour of Farhi’s expanse of scholarship. He challenged the notion of the “liquidity trap”, made famous by Keynes during the Great Depression. Keynes had said monetary policy would be ineffective in spurring investment during deep recessions. Farhi said that in the modern context, especially after the crisis of 2008-09, we have a “safety trap”. The world is facing a shortage of safe assets such as US Treasury bonds. And yields cannot go any lower, since zero is an effective lower bound. How do you deal with this? With the unorthodox monetary policy of creating new “safe assets”; i.e. central banks buying AAA-rated corporate bonds. The European Central Bank is already doing so. The second example is of the impossible trinity in macroeconomics, which says you cannot simultaneously control interest and exchange rates if your capital account is open. Farhi’s insight was that partial capital controls are a solution for open economies fighting an onslaught of inflows and battling volatility in exchange rates—a practical guide to countries like India. A third example is Farhi’s boldness in taking on an old debate called the “Cambridge capital controversy”. This was a critique by Joan Robinson of Robert Solow, Paul Samuelson (both Nobel winners) and others that you can’t describe an entire economy’s aggregate production function in terms of “capital stock”; buildings and machinery cannot be aggregated into one number. This debate fizzled out in the 1960s, but Farhi’s work has reopened it, examining it rigorously from the very foundations. Space is too limited to describe the array and expanse of Farhi’s work. To top it all, most of his significant work is co-authored, which speaks of a generosity rare in modern times, and in fields where the stakes for personal glory and rewards are so high.
Economics may be a dismal science, modelling selfish behaviour of utility-maximizing individuals. But every now and then, it produces bright stars like Farhi. When Keynes spoke about economists with influence long after they are gone, he meant people like Emmanuel Farhi.
Ajit Ranade is an economist and a senior fellow at The Takshashila Institution, an independent centre for research and education in public policy.
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First Published:27 Jul 2020, 09:00 PM IST
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