The field of Economics has historically had a handful of distinct, geographically-based schools of thought. There’s the Freshwater School, a Midwestern/Rust Belt neoclassical approach that argues markets perform better when government stays out of the way. (The Chicago School of Economics aligns with Team freshwater.) And there’s the East Coast Saltwater School, which holds that Washington can wield interest rates and monetary policy as a force of good.
Wisconsin has never fit neatly into either one, but it has plenty of special distinctions of its own: The Department of Economics numbers some of the most powerful and influential economic minds in the United States among its graduates. Among its alumni are Jan Hatzius, the chief economist for the prominent New York-based investment banking firm Goldman Sachs, and Eric Rosengren, the president and CEO of the Boston Federal Reserve Bank.
Both men returned to campus earlier this fall to speak at the Department of Economics’ first annual American Economic Challenges Symposium, sharing their outlooks on the nation’s economy with a packed room of onlookers and administrators. Their good news: While overall growth has slowed, neither man expects a serious economic recession to hit in 2020, although both remain wary of possible impacts from the United States’ ongoing trade war with China.
Hatzius heads a team of economists at Goldman Sachs that produces tightly researched reports on the current state and predicted trajectory of economies around the world. Rosengren’s roles at the Boston Federal Reserve include helping set national monetary policy and interest rates, bank supervision and supporting the country’s payment systems. Both men had their world views honed at UW-Madison by Arthur Goldberger, the late UW economics professor who championed econometrics, an approach that uses data and statistical methods (think probability) to shine new light on economic theories. Goldberger worked with Lawrence Klein, the Nobel-winning father of econometrics, to develop one of the earliest macroeconomic models for the U.S. economy, using national income and product accounting data to generate forecasts.
“I still use my notes from Goldberger’s class today,” admits Rosengren.
Hatzius was a graduate student at the University of Freiburg when he learned of the exchange program between his school’s economics department and UW-Madison. He only spent a year here, leaving with a master’s degree, but it was a memorable one. (‘Rigorous, but a lot of fun” is how he describes it.) The evening that East and West Germany reunified in 1990, Hatzius was camped at the Essen Haus in downtown Madison, drinking beer from a large glass boot.
Hatzius was on campus in the early ‘90s, at a point at which the UW campus had just gone smoke-free. This proved something of a challenge for his academic mentor.
“Goldberger’s office was still filled with smoke,” Hatzius recalls. “Nobody dared tell him he couldn’t smoke.”
Rosengren, who earned his PhD in economics from UW in 1986, spent three years here. Prior to coming to Madison, he spent a year on a Thomas Watson fellowship in Australia. He ended it nearly penniless—which, coincidentally, was one of the reasons he ended up in Wisconsin.
“They were the only school to offer me a full four-year scholarship,” he laughs.
When he arrived, Rosengren had his sights set on becoming an economics professor. His experience at UW broadened his horizons, leading him to the Federal Reserve and a job that combines public policy and academic research.
Both men speak to audiences of thousands—bankers, journalists, investment traders and government officials—hanging on every word of their projections and pronouncements. With so much at stake, any controversial predictions, says Hatzius, must be extremely well-founded and based on ironclad data. Increased political polarization and a decentralized media landscape also complicate the equation.
“We are not in the business of influencing as much as predicting,” explains Hatzius. “You have to make it clear to all your readers that you’re not trying to be a cheerleader. You’re trying to figure out what’s going to happen.”
Rosengren, who has a pool of financial reporters who track and cover his public addresses, has also noticed the changes in the landscape.
“Communication is much more important to this job that it was 30 years ago,” says Rosengren. “[Former Fed Chair Allen] Greenspan prided himself on not being quotable. We’re trying to be significantly more transparent about what we know and what we don’t know.”
Even with a proactive and cautious approach, it isn’t easy.
“We are trying to predict the future,” Hatzius notes, wryly. “That’s an ambitious undertaking. It’s great when we’re right. It’s not so great when we aren’t.”