YALE PROFESSOR WINS NOBEL IN ECONOMICS

Author: By David Warsh Globe Staff

Date: Wednesday, October 14, 1981
Page: ?????
Section: RUN OF PAPER

James Tobin, 63, an avid Keynesian and "unsuccessful adviser" to the presidential campaign of George McGovern, was immediately hailed by peers as a kind of alternative to the conservative monetarist, Milton Friedman.

In winning the $180,000 prize yesterday, Tobin became the 10th American among 18 laureates to have received the Nobel in economics since it was established in 1969.

Tobin was among those who, starting in the late 1940s, added a description of the stocks of personal wealth and business balance sheets to the Keynesian world of flows of income and expenditure.

He was one of the foremost practitioners of the "new economics" of John Maynard Keynes, devised during the 1930s to counter the Great Depression. Keynesians propose relying more on tax and budget adjustments to manage the ecoonomy, while monetarists want to rely almost exclusively on controlling the supply of money and credit.

Tobin was cited by the Swedish Academy of Sciences, which awards the prize, for his analysis of "financial markets and their relations to decisions, employment, production and prices." The academy singled out his "portfolio selection theory" as his prize-winning contribution.

At his home in New Haven yesterday, Tobin described himself as "Suprised! Excited! Pleased!" In his classroom later, he described his major breakthrough as having devised a theoretical frame for the study of "not putting all your eggs in one basket."

In college departments, economists debated among themselves what the prize meant: Tobin had been a Kennedy adviser, an arch-Keynesian, "an unregenerate Democrat," as Paul Samuelson, an MIT economist, called him.

In recent months he has been especially critical of the Reagan Administration's mix of monetary and fiscal policies, calling tax cuts and tight money the worst of both worlds. Many economists were asking yesterday whether the award was some kind of a signal from Sweden to the world.

Tobin has been especially good at keeping track of the theorizing of Friedman, who is at the University of Chicago, over the years. If John Kenneth Galbraith was the public antagonist, Jim Tobin was the counterweight to Friedman inside the profession, associates said.

Often in the late 1950s and early 1960s, it was Tobin who dominated the defense of the Keynesian citadel - usually on narrow, technical issues - against the the monetarist counterattack that in turn was led by Friedman.

In Stockholm yesterday, the economist Assar Lindbeck told the Associated Press: "Tobin is a more eclectic, more common-sense economist than Friedman, with a more complex view of the world." He added, "He does not confine his analysis solely to money but considers the range of assets and debts."

Yet Tobin is also a "supply sider," at least in the sober, professional sense of the term. A framer of the Kennedy tax cut in 1964, an advocate of austere fiscal policy, Tobin with his fellow members of the Council of Economic Advisers under President John F. Kennedy foreshadowed many of the programs Reaganites now claim as their own.

His interest in the financial sector led him to a position of eminence in the investment world, largely throught his design of systems of judging portfolio management.

Along the way, Tobin also devised a concept called "Q" for which economists are still looking for applications. "Q" is a relatively straightforward idea of the market value of an asset divided by its replacement cost: In good times it is more than one, in bad times it is less than one. For the American economy as a whole, it is far less than one today, and has been for a decade.

Some graduate students at Yale wear sweatshirts emblazoned "Q."

Economists reacted joyously to the award. "It's no surprise. It's a very good choice. It's highly welcome," said Samuelson, America's first Nobel winner in economics.

Economists who read a political message in the Bank of Sweden's selection of Tobin may have read too much into it. The award was evidence of an apparent preference by the prize-givers for contributions to science rather than politics.

True, Tobin, a liberal, has been among the leading critics of Reaganomics. But he fits neatly in the line the committee has been following for a decade.

Previous Nobel prizes in economics have centered on the development of mathematical economics and econometric modeling, most of which took place under the auspices of the the Cowles Commission at the University of Chicago in the 1940s. Ragnar Frisch and Jan Tinbergen were instrumental in putting the
commission together; they shared the first economics prize in 1969. In subsequent years, it was given to Herbert Simons, Kenneth Arrow, Tjalling Koopmans, Lawrence Klein, all of whom did much of their work at Cowles, and to Friedman, Theodore Schultz and Samuelson, all of whom worked nearby and who were heavily influenced by Cowles.

The only Americans to win the prize who had no connection to Cowles were Simon Kuznets and Wassily Leontieff.

And Tobin? He is the man who was selected to head the Cowles Commission when it moved to Yale in 1955. He served as its director from 1955-61 and 1964-65.

Raised in Champaign, Ill., Tobin personifies the qualities know around Yale as "shoe," a '50s synonym for "keen." A summa cum laude graduate of Harvard College in 1939, he served in the Office of Price Administration and on a destroyer in the Mediterranean during the war. He went through Navy officer's training school with the author Herman Wouk, who gave him an incidental part in his novel "The Caine Mutiny."

Tobin received his PhD from Harvard in 1947 and was a junior fellow there for three years before accepting a professor's post at Yale in 1950.

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