Greg Mankiw today links to a profile of Stanley Fischer (age 69), with the note “Stan was my PhD dissertation adviser”.
As governor of Israel’s central bank, Fischer is credited with saving Israel from the worst of the 2008 global recession, by devaluing sharply the Israeli Shekel:
If [Federal Reserve Chairman Ben] Bernanke halved the value of the dollar relative to, say, the Chinese yuan, that would dramatically increase U.S. exports and probably economic growth, too, but it would also wreak havoc with the global financial system. Every dollar-denominated asset in the world, including all manner of bonds, would plummet in value.
It’s less risky for small countries. There aren’t massive piles of shekels lying around in other countries the way there are with dollars and euros, and Fischer took advantage of that fact. On May 30, 2008, a dollar was worth about 3.2 shekels. On March 6, 2009, it was worth 4.2 shekels. In less than a year, Fischer had reduced the value of the shekel by about 25 percent — a massive devaluation.
It worked. Exports soared, and 2008’s trade deficit of $2 billion became 2009’s trade surplus of $5 billion. While other countries fell deeper into recession, Israel brushed its shoulders off.
Dylan Matthews, “Stan Fischer saved Israel’s economy. Can he save America’s?“, Wonkblog, 15 February 2013.
Fischer will soon replace Bernanke as head of the US central bank (known as “the Fed”). Many expect great things from Fischer, but at least one of his former students is not impressed:
Fischer was my professor for monetary economics, and his was one of the three signatures on my dissertation. He was a nice man and an impressive teacher, but I did not care for his course, which I thought was just typical MIT mathematical masturbation.
I think that Fischer’s influence on the economics profession was large and detrimental. A ridiculously high proportion of macroeconomics professors are descendants in some way of Fischer. He was their thesis adviser, or their adviser’s adviser, or their adviser’s adviser’s adviser, etc. The net result is a macroeconomics discipline dominated by mathematical technique, with relatively little thought about the real workings of the economy or whether measured national statistics actually correspond to theoretical macroeconomic variables.
Arnold Kling, “Profile of Stanley Fischer“, AskBlog, 17 February 2013.
Fischer’s performance as head of Israel’s central bank does not impress me. A chart that accompanies Mattews’ profile reveals that the fall in growth rates from peak to trough in Israel, following the onset of the 2008 Great Recession, was precisely the same in Israel as it was in the United States – about 7 percentage points. The difference is that Israel fell from 7% growth, and the US from a more anaemic 2.5% rate of growth. Israel’s recovery has been slower than that of the US, relative to each country’s pre-crisis rates of growth. (See the chart reproduced below.)