October 14, 1999
Canadian-Born Economist Wins Nobel Award
By DIANA B. HENRIQUES
obert A. Mundell of Columbia University, an eccentric
Canadian-born economist who helped frame the supply-side economic
theories that strongly influenced the Reagan administration, was
awarded the Nobel Memorial Prize in Economic Science on Wednesday.
Mundell, 66, was recognized by the Royal Swedish Academy of
Sciences not for his influence on what came to be called
Reaganomics, but for his contributions to international economics,
as the first theorist to demonstrate how the international flow of
capital could affect an individual country's ability to manage its
own economy through interest-rate changes and tax and budget
policies.
His discovery may seem commonplace today, when tidal waves of
money surge around the globe at the click of a computer mouse as
professional currency speculators like George Soros cruise from
dollars to lira to yen and back again.
But in the early 1960s, when Mundell was developing his
prize-winning theories, most nations except for Canada and the
United States heavily regulated the flow of capital across their
borders and government officials typically tinkered with their own
economies without much attention to global currency movements.
"He was way ahead of his time in recognizing that capital
mobility had profound effects on the functioning of a country's
economy," said Peter Kenen, an economist at Princeton University.
Mundell was in London for a conference on Wednesday when he
learned he had won the prize and the $1 million cash award that
accompanies it. He did not return calls left at his hotel, but many
economists said Wednesday that he had long been considered a
leading contender for the profession's top honor.
Although a longtime resident of the United States, Mundell grew
up in a small town in Ontario and earned his undergraduate degree
in economics at the University of British Columbia. Those Canadian
roots were critical to the development of his ideas, several
colleagues said.
"In Canada, he had his laboratory," said Rudi Dornbusch, a
professor of international economics at the Massachusetts Institute
of Technology who once studied under Mundell.
His experiments focused on the two tools that governments use to
affect their economic health: Monetary policy, which involves
changes in interest rates and the money supply, and fiscal policy,
the sum of a government's budget and tax decisions.
As a young doctoral student, Mundell observed that Canada's use
of monetary policy sometimes worked and sometimes didn't, depending
on what kind of currency exchange-rate policies were in place at
the time.
His conclusion, according to the citation released Wednesday by
the academy in Stockholm, was that "under a floating exchange
rate, monetary policy becomes powerful and fiscal policy powerless,
whereas the opposite is true when the exchange rate is fixed."
Mundell's work "was very precocious at the time," said Jadish
Bhagwhati, a colleague at Columbia. "In those days, you could
actually teach about closed economic models -- today it would be
ludicrous to do so."
A rumpled, broad-faced man who once wore his unruly white hair
down to his shoulders, Mundell was an early advocate of substantial
tax cuts as a stimulus to economic growth. When his views attracted
the attention of political conservatives in the late 1970s, he
found himself on the front lines of Washington policy battles
between those who feared the economic impact of huge deficits and
those who believed that tax cuts were just the tonic the economy
needed.
"His work really began to give intellectual firepower to the
supply-side tax cuts movement," said former Rep. Jack Kemp on
Wednesday. "By 1980, then-candidate Ronald Reagan had become
persuaded about what Robert Mundell was saying -- and the rest is
history."
Jude Winniski, a former editorial writer for The Wall Street
Journal who helped promote Mundell's views, was elated at the news
from Stockholm. On his Web site Wednesday, he predicted that the
honor will give Mundell "the standing to consolidate the
supply-side revolution he began."
Mundell has also contributed substantially to the emergence of a
common currency for Europe, said Kenneth Rogoff, a professor of
economics at Harvard. "He started people on the road to realizing
that it is very, very hard to go to a fixed exchange rate without a
common currency," Rogoff said.
More recently, Mundell has generated controversy by encouraging
a return to a system of fixed exchange rates, similar to the
arrangement established after World War II that called for the
value of world currencies to be tied to the U.S. dollar, which in
turn could be redeemed for gold. That system died in 1971, after
huge trade deficits had put piles of dollars into the hands of the
nation's trading partners, which threatened to redeem them for
gold.
One recent paper, published by the Center for Economic Policy
Studies at St. Vincent College in Latrobe, Pa., is entitled, "The
International Monetary System in the 21st Century: Could Gold Make
a Comeback?"
But if exchange rates and monetary policy conjure up an image of
a tedious ideologue, nothing could be further from reality, the
professor's colleagues and friends said.
"He is decidedly not a nerd," laughed Dornbusch.
Mundell earned his doctorate in economics in 1956 from MIT,
after spending a year at the London School of Economics. His
various faculty posts included at stint at the University of
Chicago, where from 1966 through 1970, he was an editor of the
prestigious Journal of Political Economy. The university's famous
economics department "was sort of like a mining town in those
days, with lots of hard drinking and long poker games," one friend
recalled.
He joined Columbia's faculty in 1974, establishing himself in a
rambling book-filled apartment in Morningside Heights. An avid
painter, he produced roughly 400 richly colored canvases in a
single 18-month period, said Winniski, who compared the professor's
bold abstract artistic style with "Van Gogh gone wild."
Colleagues and proteges have come to covet invitations to his
second home, "Santa Colomba," an ancient Tuscan villa in
Monteriggioni, near Siena, which he purchased from the Catholic
Church about 30 years ago and has been slowly restoring to its
Renaissance glory.
And a visit to the professor's home page at Columbia's Web site
reveals his latest fascination: his baby son Nicholas, his
photogenic offspring from a second marriage. He has three grown
children from an earlier marriage that ended in divorce in 1972.
