Arnold Harberger, a UChicago economist and one of the world’s leading authorities on economic development, casts a long shadow, both in his own consulting and research and through the work of his students who are in key positions around the world.
“From the very beginning I have gravitated toward what I call ‘real world economics,’” said Harberger, the Gustavus F. and Ann M. Swift Distinguished Service Professor Emertius. Harberger, who turns 90 on July 27, 2014, continues a full schedule of research and teaching and maintains strong connections with the United States Agency for International Development (USAI).
Those connections began in 1955 when the organization was named the International Cooperation Administration and led him to work in Chile. He subsequently did work around the world, including extensive time in Indonesia from 1997 to 2000 and Russia, from 2000 to 2004.
Harberger, who was elected to the National Academy of Sciences and President of the American Economics Association, also has much to be proud of when it comes to the success of his students. They include two Nobel prize winners; two winners of the John Bates Clark Medal, given to outstanding young economists under the age of 40; three presidents and five distinguished fellows of the American Economics Association; former presidents of Panama and El Salvador; and more than 45 cabinet ministers and more than 15 heads of their countries’ central banks.
Arriving at economics through a fluency in Spanish
Harberger, born in New Jersey, entered Johns Hopkins University in 1941 and among other things studied Spanish. He was drafted in 1943 and served as a linguist in Spanish for the US Army. He was stationed in Illinois at the end of the war and enrolled at the University’s graduate program in International Relations in 1946 and then went on to receive a PhD in Economics in 1950. After serving on the Johns Hopkins faculty and working as a consultant in Washington, D.C., Harberger returned to The University of Chicago in 1953 as a faculty member.
Theodore Schultz, chair of Economics, guided the young professor to do work in International Development. That work has taken Harberger around the world, to serve as a consultant in Argentina, Mexico, Brazil, Chile, India, China, Indonesia, Malawi and elsewhere. His project in Argentina bore the label AIDLA1- the first Latin American project under AID’s new name. Schultz launched Harberger on that journey by inviting him to come to Chile, where he helped in a project to train young students who came back to UChicago in a series of exchanges. “He said our influence would come not from trying to persuade government officials, but by producing top-quality research,” Harberger said.
Harberger, who had been stationed stateside during the war, had only been out of the country once before. “I was fascinated by the culture and the history of Chile.”
The University of Chicago teamed with the Catholic University of Chile for a project that lasted for seven years, ending in 1964. The collaboration continued, however, and the University developed subsequent partnerships to train economists elsewhere in Latin America.
The need was real, Harberger said, as few countries had trained economists and as a result, countries suffered under high tariffs and other impediments to trade. “Because of the tariffs, a used Ford that would cost $500 in the US cost $5,000 in Chile,” he said.
Harberger travelled frequently to Chile to work on the project and at its conclusion, the faculty of the Catholic University had 13 full-time economics professors, most of them trained at UChicago. The University of Chile also ramped up its economics education with UChicago help. Their work laid the foundation for economic growth in Chile, which has the most successful performance over the last 25 years of any Latin American economy.
A scholar with an impressive following
Back in Chicago, Harberger, who everyone called “Al” or “Alito”, became a well-respected professor and chaired the Economics department from 1964-71 and from 1975-80.
Lester Telser, PhD’56, professor emeritus in economics, attended Harberger’s public finance workshop as a student and remembers it as an “open, heated, and helpful discussion from all the participants.”
Harberger was Telser’s dissertation advisor as he was for Robert E. Lucas, PhD’64, the John Dewey Distinguished Service Professor in Economics.
“Arnold Harberger was a real quantitative economist. The quest for solid quantitative answers to important questions drove his classes and his research,” Lucas said.
“The single area where he has had the most impact is cost-benefit analysis. I still carry around my notes form his class and refer to them,” said John Nash, PhD’82, lead economist for the World Bank’s Latin America and the Caribbean region.
“Developing countries don’t have lots of money and need to get the most return they can on investments,” Nash said. Harberger, along with UChicago economist Larry Sjaastad, AB’57, AM’58, PhD’61, developed tools to understand costs and benefits that became known as the Harberger Triangles. The method analyzes distortions in the economy, including those arising from monopoly, trade barriers and taxation. The work has led to better economic decisions and improved the standard of living for people around the world, Nash said.
As his Chilean students developed their own careers in academia and government, the Chilean nation went through a difficult transition between democracy, military government, and finally in 1990, democracy again. Those University of Chicago graduates, known as the “Chicago Boys” developed economic policies that guided the country through the transition and remain in use today. These policies have encouraged trade, price stability, investment (both foreign and domestic) and economic growth.
“Since the kick-off of the Chilean economic transformation in the mid-70s -lead by a group of Harberger's former students, per capita GDP of Chile has strongly increased, reaching, in recent years, a level ten times higher than at the beginning of the process,” said Francisco Rosende, AM’83, Professor of Economics at the Catholic University of Chile. “And poverty indicators have dramatically fallen from around 40 percent of population, depending of the metric used, to around 10 percent.
“Certainly, the toolkit obtained in Harberger’s courses (Public Finance, Economic Development, and Project Evaluation) served well in elucidating how to fix the Chilean economy,” he added.
Drawn by the prospect of living in a milder climate and working with another set of students from Latin America, Harberger accepted a joint appointment at the University of California, Los Angeles in 1984. He continued to serve on the University of Chicago faculty until 1991, when he joined UChicago’s emeritus professor ranks.
From 2006 to 2010, he was USAID’s Chief Economic Advisor, and visited developing countries as well as spending time in Washington, DC.
He stays in touch with many of his former students, who now number in the hundreds. He said he admires their courage for speaking up for effective economic policies even when their suggestions are unpopular. “You have to face obstacles from entrenched political forces and interest groups on the way to occasional victories. It takes a certain enthusiasm and spirit, and that’s what these students have,” he said.