The Leamer Way: Real Economics

For three decades, UCLA economist Edward E. Leamer has told academic colleagues things they don’t want to hear. He has gotten into scrapes, taken some rhetorical blows and come back to tussle again. If Leamer had a personal song, it probably would be Frank Sinatra’s “My Way.”

Now Leamer, 57, as the director of UCLA’s nationally respected business forecasting group since last year, has a higher public profile. And he’s using it to bring his provocative views to an audience that extends beyond academia into the worlds of business and government.

Leamer broke from the pack of business-cycle analysts in December and was the first major U.S. forecaster to declare that the nation appeared headed for recession this year. Leamer and his forecasting group last month also became the first to predict a California recession.

Those forecasts, yet to be proved, are probably not the most controversial calls Leamer has made in his career. But, once again, he stands apart from his colleagues. And, once again, he doesn’t seem to care.

“He’s his own man,” said Nobel laureate economist James J. Heckman of the University of Chicago, who has known Leamer since the 1970s. Leamer, he said, “is friendly but cantankerous” and “one of the most original people in the business of economics.”

After years of challenging conventional wisdom and accepted practices in economic research, Leamer said, he has drawn a lesson: “One of the most important traits any academic can have is a thick skin.”

Leamer, since the beginning of his career, has needled fellow university economists to be more honest about the limits of what they can prove. He also has goaded researchers to marry their theories to what’s happening in the real world--and to stop relying on “blackboard economics” that ignores inconvenient facts.

Largely because Leamer has moved from one specialized area to another--from studying research methodologies to international economics to forecasting--even university economists have a hard time summing up his key discoveries. In a 1992 book on leading economists titled “New Horizons in Economic Thought,” a chapter devoted to Leamer suggested that his work should be evaluated by the way he has prodded other researchers to improve the way they assess data and thus the way they make conclusions.

Even economists friendly with Leamer say his commanding intellect and ability to puncture an argument or research paper with a cutting remark can make him an intimidating presence.

Daniel Trefler, a prominent international economist at the University of Toronto who studied under Leamer at UCLA, calls Leamer his “intellectual father.” Trefler also remembers that he and his fellow graduate students privately referred to the trim, direct-talking Leamer as “Honest Ed.”

Still, Trefler, now 42, said he made it a point to stay away from Leamer for a nearly a decade after earning his doctorate at UCLA. “Ed is such a dominant personality, both intellectually and personally, that I needed to get out from under his shadow.”

Plunging Into Obscure Research Territory

Raised in Binghamton, N.Y., the son of a university economist, Leamer is a prolific writer, the author of four books and more than 100 articles. His curriculum vitae, including work for the World Bank and the International Monetary Fund, runs on for 13 pages.

He’s not the only productive writer in his family: His older brother, Laurence Leamer, is a best-selling author. The jacket for Laurence’s next book, “The Kennedy Men 1901-1963,” is taped to the edge of a bookshelf in Ed Leamer’s cramped office at UCLA’s graduate school of management.

Early in his career, when Leamer was studying his profession’s research techniques, he concluded that most economists allow their subjectivity to slant their supposedly objective studies.

Leamer’s admirers noted that plunging into that obscure technical area of research was, professionally, a gutsy move. Leamer conducted much of his work while a junior professor at Harvard University, where he landed shortly after earning his doctorate in economics at the University of Michigan in 1970.

His work was associated with a school of research then considered so far on the fringe of economics that, Heckman said, “some of the senior people at Harvard wouldn’t even read Ed’s work.” Or, as Leamer recalls, “Nobody spoke to me.”

To this day, Leamer’s techniques are infrequently used, partly because they are difficult to apply. “But the field has moved Ed’s way,” Heckman said.

Still, after failing to win a permanent job at Harvard, Leamer accepted a tenured position in economics at UCLA in 1975. He has been with the school ever since.

At UCLA, Leamer grew increasingly interested in applying his research practices to the real world, so he turned to international economics. He pushed to bring empirical research--real-world facts--into what had been an almost purely theoretical field.

In that arena, “Ed was such a powerful influence that there are no more debates,” Trefler said. “He became the guru of empirical research in international trade.”

But on another front in the international economics field, Leamer had less success--and much more grief. He challenged international economists in the 1990s who espoused the majority view that global trade has done little to exacerbate the wage gap between America’s rich and poor.

Leamer wound up engaged in a heated debate with Princeton’s Paul Krugman, probably the nation’s most prominent international trade theorist.

The battle, which is almost legendary among academic economists, erupted after Leamer published a 1994 paper titled “Trade, Wages and Revolving Door Ideas.” In it, Leamer maintained that Krugman and other prominent international economists made arguments that misused or distorted established theories.

Krugman responded with a bruising and unusually personal 39-page paper in 1995 in which he mentioned Leamer by name eight times and made numerous digs at “theorists” who have “gone so far off track.”

Krugman declined to respond to several phone calls and e-mails seeking comment for this article.

If nothing else, that clash and Leamer’s research on the impact of international trade demonstrated his willingness to stick to his intellectual principles. Much of his work came while politicians were still debating the North American Free Trade Agreement, which took effect in 1994.

Leamer, who calls himself a tough-minded Republican, supported NAFTA, largely because he thought that blocking it would not be a realistic way to improve the fortunes of low-wage workers. Still, Leamer’s findings that NAFTA would undercut low-skilled workers’ wages were used by Democratic opponents of the pact.

Aside from contributing to the NAFTA debate, Leamer has spent most of his career outside the public spotlight and so has had some time to enjoy golf, tennis and his home in the Hollywood Hills. Leamer, who said he has divorced three times, lives there with wife Ama Neel, a manager in the health-care field.

With his appointment as director of the UCLA Anderson Forecast in July 2000, however, Leamer’s profile has risen. His economic predictions now are followed by business executives and government policymakers.

Leamer quickly made waves in his new role. At one of the first quarterly forecasting conferences held at UCLA after Leamer took over, he ridiculed the way mainstream forecasters do their jobs.

Ted Gibson, chief economist for the California Department of Finance and a subscriber to the UCLA forecast, said he initially was stunned.

Still, Gibson said, he soon was convinced that Leamer may have come up with a better way to spot major turns in the economy. “All of us who do forecasting for a living know we do a horrid job of calling turning points,” Gibson said. “He’s dared to be controversial, which is something a university professor probably should be.”

In Leamer’s view, most national forecasters--who generally work for banks, Wall Street brokerages or consulting firms--count on long-term historic trends to keep repeating. As a result, they keep projecting that traditional expansion and recession cycles will continue, with growth over time averaging about 3% a year.

One characteristic of that type of forecasting, Leamer said, is an overreliance on the index of leading economic indicators for determining economic trends. He considers the index a blunt “one-size- fits-all” indicator. Some of its components are accurate at certain stages of an economic cycle but are irrelevant at other points. So why not identify the stage the economy is in, and use the gauge that works best at that phase?

Using the ‘R’ Word to Convey Larger Message

Leamer said he expects the nation to enter a mild, brief recession this year. But he emphasized that no forecaster has the tools to pinpoint exactly when a recession might arrive. Neither, he said, can anyone precisely tell whether an economy will enter a mild recession or simply grow very slowly, as the majority of forecasters predict.

Friday’s initial estimate on the nation’s second-quarter gross domestic product did little to resolve the recession debate. The report put growth at a weaker-than-predicted 0.7%, the worst pace in eight years, but still not in recession territory.

Although Leamer sticks to his predictions for this year, he acknowledges that he has used the “r” word partly to drive home his larger message about the longer-term direction of the economy. That message is that the economy is going through a “lifestyle” change to a generally slower mode that could last perhaps five years or more.

As he sees it, the economy is shifting from an “Internet rush” period, when companies spent heavily on their Web sites and other technology, to a period of more modest corporate investment. Leamer said consumers also are likely to trim their spending.

Still, if the nation and state fall into recession this year, Leamer said, “I’m going to look like an incredibly accurate person--for the wrong reasons.”

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Edward E. Leamer

Born: May 24, 1944. Raised in Binghamton, N.Y.

Residence: Los Angeles (Hollywood Hills)

Education:

Bachelor’s in mathematics, Princeton University

Master’s in mathematics, University of Michigan

Doctorate in economics, University of Michigan.

Career highlights:

Harvard University, assistant professor and associate professor, 1970-1975

UCLA, professor of economics, management and statistics, since 1975

Director of UCLA Anderson Forecast, since July 2000.

Professional interests: Research methodologies, international economics, economic forecasting

Hobbies: Golf, tennis

Family: Married for 2 1/2 years to Ama Neel, a health-care management specialist and former nurse. Three adult children from previous marriages, and four grandchildren.

Quote: “We have a great mass of humanity that is paid extremely low wages. We’ve left two-thirds of humanity behind. We have to find some ways to integrate them into the system without causing catastrophic change for the one-third who already have high wages.”