He argued that free markets, left to themselves, do not always deliver the
optimal good to society, and that when employment stagnated, as it did disastrously
in the Great Depression, government has to step in.
It would be hard to invent a figure better suited to fire youthful imaginations.
A School of Commerce classmate of mine was Robert Kavesh, now
a professor emeritus of economics at NYU, who not long ago told the BBC
that economics students in the late 1940s were on a mission: "What really
bound us together was the sense that economics was undergoing a transition
and we were there at the frontier. Anyone who was studying economics
at that time was determined that there would never be another major
depression. The depression of the 1930s had led to World War Two, and
so there we were imbued with the sense that we couldn't let this disaster
occur again. It was hard to find anyone who was not strongly influenced
by the Democratic Party and John Maynard Keynes and his idea about the
very strong role that government could and should play in dominating economic
affairs."
Though Bob and most of my classmates were ardent Keynesians, I
wasn't. I'd read the General Theory twice—it is an extraordinary book. But
Keynes's mathematical innovations and structural analyses were what fascinated
me, not his ideas on economic policy. I still had the sideman psychology:
I preferred to focus on technical challenges and did not have a
macro view. Economic policy didn't interest me.
Bob and I both loved classical music. Between classes, we'd hang out in
Washington Square Park watching the girls, and when things got slow, we'd
hum Mozart piano concerti to each other and ask, "What number was
that?" Though I no longer played professionally, music was still the center
3 0
CITY KlD
of my social life—I sang in the glee club, played clarinet in the orchestra,
and cofounded a club called the Symphonic Society, which would gather
once a week to listen to records or to talks by guests.
But my primary obsession was math. Professors like diligent students,
and my eagerness to apply myself must have been obvious. My first paid
job as an economist came during the summer of my junior year. My statistics
professor, Geoffrey Moore, who later became commissioner of labor
statistics under President Nixon, called me in and told me to go over to
Brown Brothers Harriman and see a partner named J. Eugene Banks. Brown
Brothers Harriman was among New York's oldest, largest, most prestigious
investment banks—W. Averell Harriman, the legendary statesman, had
been a general partner before going to work for FDR. Prescott Bush, father
of George H. W. Bush and grandfather of George W. Bush, served there as
a partner both before and after his tenure in the U.S. Senate. The firm was
literally on Wall Street right near the stock exchange, and the morning I
went to see Mr. Banks was the first time I'd ever set foot in such a place.
Walking into those offices, with their gilded ceilings and rolltop desks and
thick carpets, was like entering the inner sanctum of venerable wealth—it
was an awesome feeling for a kid from Washington Heights.
Gene Banks was a slender, friendly, soft-spoken guy in his late thirties
whose job was to track the economy for the firm. He explained matter-offactly
that he wanted a weekly seasonal adjustment for the U.S. Federal Reserve's
statistical series on department-store sales—basically a more refined
version of the monthly adjusted numbers the government was putting out.
Today, in a very few minutes with just a few typed computer instructions,
I could construct the set of data he required. But in 1947 such statistics had
to be painstakingly built by layering sets of statistics on top of one another,
using pencil and paper, slide rules, and desktop adding machines.
Banks didn't give detailed instructions, which was fine with me. I went
to the School of Commerce library and looked at textbooks and articles in
professional journals to find out how one would go about constructing a
weekly seasonal adjustment. Then I assembled the component data and set
to work, checking in with Banks only occasionally. The amount of hand
calculation and hand chart-drawing required was enormous, but I kept at
it for the next two months. Banks was very pleased with the result, and I
31
THE AGE OF TURBULENCE
learned a great deal, not only about how seasonal adjustments are supposed
to work, but also about how to organize data to come to a conclusion.
Graduating the following spring was a formality. I'd already decided to
stay at NYU and accepted a scholarship to study for a master's degree at
night. But I still had to find a job to make ends meet. I had two offers: one
from an ad agency and one from the National Industrial Conference Board,
where one of my professors was chief economist. Even though the advertising
job paid a lot better—$60 a week versus $45 a week—I opted for the
Conference Board, figuring I'd learn more. The Conference Board was a
private institute underwritten by major corporations. It had been founded
in 1916 as an advocacy group, but in the 1920s its focus shifted to doing
thorough, disciplined research, based on the theory that the availability of
objective knowledge might help businessmen and union leaders find common
ground. Its constituency included more than two hundred companies,
including General Electric, International Harvester, Brown Brothers Harriman,
and Youngstown Sheet & Tube. The board had long been the best private
source of business research; for instance, its economists developed the
consumer price index in 1913, and it was the first organization to study
workplace safety and to look at women in the labor force. In some instances
its information was better than the government's. During the Depression, the
board had been the original source of data on the extent of unemployment.
When I arrived in 1948, it was a vibrant place, with a big floor of offices
on Park Avenue near Grand Central Station. There were dozens of researchers
seated in rows of desks and a bustling chart room where designers,
perched on high stools at drafting tables, created elaborate presentations
and charts. For me, the library was the big event. I discovered that the Conference
Board had amassed a treasure trove of data on every major industry
in America dating back half a century and more. There were also shelves
upon shelves of books that explained how the industries actually operated.
The collection covered the entire spectrum of the economy, from mining
to retailing, textiles to steel, advertising to foreign trade. There was a hefty
volume entitled Cotton Counts Its Customers, for example: an annual survey
by the National Cotton Council that explained in great detail what was
then the world's dominant cotton industry. It could tell you everything you
wanted to know about types and grades of cotton, how they were used, and
32
CITY KlD
what counted as state of the art in equipment, processes, and production
rates among the makers.
There was no room to work in the library's crowded stacks, so I would
lug armloads of materials to my desk. Usually I'd have to blow the dust off
the books. The chief economist would assign the research projects, and in
just a few months people began to tab me as a guy who knew all the data.
In a sense, that was true. It became my passion to master all of the knowledge
on those shelves. I read about the robber barons; I spent hours over
the census of population of 1890; I studied railroad freight-car loadings of
that era, trends in short staple cotton prices for the decades after the Civil
War, and myriad other details of the vast American economy. It wasn't
drudgery—far from it. Instead of reading Gone with the Wind, I was happy
to immerse myself in "Copper Ore Deposits in Chile."
Almost from the start, I began publishing articles in Business Record,
the Conference Board's monthly journal. The first, about trends in small
manufacturers' profits, was based on a brand-new statistical series from the
Federal Trade Commission and the Securities and Exchange Commission.
After wringing every detail from the data, I declared, with all the enthusiasm
of youth, "Since small business may act as a barometer of cyclical
movements, a survey of both the immediate and long-term trends in small
corporate manufacturing is of particular interest."
Over the next few years, my work gained momentum. Somebody
picked up on one of my articles and wrote about it in the New York Times,
and even mentioned my name. I finished my master's degree at NYU and
continued publishing in a steady stream—articles on housing starts, the
new-car market, consumer credit, and other current subjects. I was gaining
confidence in my ability to take in data and make them tell a story. And
while I was far from comfortable trying to comprehend the economy as a
whole—leave that to the Keynesians—I understood more and more about
its parts and how they connected.
I
I
first visited Levittown during the Christmas season of 1950. Of course,
I'd read about the young couples leaving the city to start families and live
the American dream of owning a house in the suburbs. The only places I'd
33
THE AGE OF TURBULENCE
ever lived had been apartments in Manhattan, and what astonished me about
Levittown was the tranquillity. The houses were small, but each had a front
and back yard with grass, the streets were wide, and there were no tall buildings.
You could buy one of these houses for $8,000. It seemed like Nirvana.
I'd been invited to dinner by Tilford Gaines, a college friend who was
now an assistant vice president of the Federal Reserve Bank of New York.
He and his wife, Ruth, and their little daughter, Pam, had just moved out
there. A colleague of his was also there, a twenty-three-year-old Princeton
graduate who had just started work at the New York Fed—a six-foot seven-
inch behemoth named Paul Volcker.
An image from that evening remains etched in my brain: we're sitting
and joking in the cozy living room in front of the fire (the house had an
actual working fireplace). Optimism was the dominant feeling, not just
that night but for that period in general. America was riding high. The U.S.
economy dominated the world—it didn't have any competition. American
auto-assembly plants were the envy of every nation. (I'd driven out to Levittown
in my new blue Plymouth, paid for out of my earnings from research.)
Our textile and steel companies never worried about imports, as
there weren't any to speak of. Coming out of World War II, our labor force
had the best supervisors and the most highly skilled workers. And because
of the GI Bill, the level of education was rising rapidly.
Yet that December, we were also just beginning to recognize a terrible
new danger. Nuclear confrontation had seemed very abstract as a threat
eighteen months before, when the Soviet Union had detonated its first
atomic bomb. But as the cold war began to make itself felt at home, the
peril seemed more concrete. Alger Hiss had been convicted of perjury in a
spying scandal, and Joseph McCarthy had made his famous I-have-here-inmy-
hand-a-list-of-two-hundred-and-five-known-Communists speech. U.S.
forces had been fighting a "police action" in Korea. That had triggered a rush
by the Pentagon to rebuild army divisions and fighter and bomber wings
that had been drawn down after World War II. We all wondered where it
would lead.
I had enrolled in a Ph.D. program at Columbia University that fall, juggling
coursework with my Conference Board research. (Even then, you
34
CITY KlD
generally needed a Ph.D. if you wanted to advance as an economist.) My
faculty adviser was Arthur Burns, who in addition to being a full professor
was also a senior researcher at the National Bureau of Economic Research,
then in New York. It remains the largest independent economics-research
organization in America. Back then it was best known for having worked
with the government in the 1930s to set up what are called the national
income accounts—the mammoth accounting system that gave Washington
its first accurate picture of the gross national product. When America mobilized
for the war, the system helped planners set goals for military production
and gauge how much rationing would be needed on the home
front to support the war effort. The NBER is also the authority on the ups
and downs of the business cycle; its analysts to this day determine the official
beginning and ending dates of recessions.
Arthur Burns was an avuncular, pipe-smoking scholar. He had a profound
impact on business-cycle research—his 1946 book, written with
Wesley Clair Mitchell, was the seminal analysis of U.S. business cycles from
1854 to 1938. His devotion to empirical evidence and deductive logic put
him at odds with the economics mainstream.
Burns loved to provoke disagreements among his graduate students.
One day, in a class about inflation's corrosive effect on national wealth, he
went around the room asking, "What causes inflation?" None of us could
give him an answer. Professor Burns puffed on his pipe, then took it out of
his mouth and declared, "Excess government spending causes inflation^'
It was a different mentor who enabled me to see that I might someday
attempt to understand and forecast the economy as a whole. In 1951 I
signed up for a course in mathematical statistics, a technical discipline based
on the notion that the inner workings and interrelationships of a major
economy can be investigated, measured, modeled, and analyzed mathematically.
Today this discipline is called econometrics, but then the field was just
an assemblage of general concepts, too new to have a textbook or even a
