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October 14, 1999

Canadian-Born Economist Wins Nobel Award


Robert 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.

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