In conversation with: William Nordhaus, president-elect of the American Economic Association

William Nordhaus, Sterling Professor of Economics, has had a distinguished career as a teacher, researcher, and administrator on campus, and also has been an engaged citizen and leader in the wider world. In January, his peers in economics elected him to be the president of the American Economic Association (AEA) in 2014-15.

A 1963 graduate of Yale College, Nordhaus returned to New Haven in 1967, after receiving his doctorate in economics from Massachusetts Institute of Technology, and he has taught at Yale since then. He was provost of the University from 1986 to 1988. He served the nation as a member of the President’s Council of Economic Advisers from 1977 to 1979, and is currently the deputy chair of the board of the Federal Reserve Bank of Boston.

YaleNews caught up with Nordhaus recently to ask him about the work of the AEA as his presidency approaches, his thoughts about the state of the profession, his insights on current key issues of public policy, and his views about Yale itself.

The American Economic Association was founded in 1885 to encourage economic research and discussion. What is the state of the profession and its role in studying the actual conditions of society after more than a century?

The AEA is the world’s leading professional society for economists. Its main purpose is to promote research and teaching, and it currently sponsors three of the top five economics journals in the field. One of the most important parts of the bylaws of the association is that, to encourage “perfect freedom of economic discussion,” the association will take no “partisan attitude.” This has allowed economists from the right (such as Milton Friedman) and the left (such as Paul Krugman) to work together constructively pushing out the frontiers of our economic knowledge.

What challenges and opportunities do you see for the discipline of economics in the years ahead, and how do you hope the AEA can address them?

Economics faces all the challenges that our human societies face. Perhaps the most daunting is to understand how the United States got into the deep recession, now six years running; and what monetary and fiscal steps can be taken to hasten the recovery and return to full employment. One interesting facet is that economics advises strongly against introducing economic austerity and budget cuts during a depression; indeed, such measures have clearly worsened the recession in the Eurozone. It is a sad commentary on economic understanding to see the federal government sharply cutting spending when the economy is struggling to recover.

This is just one of a vast array of topics that engage economists today.

You've done some fundamental work on the economics of climate change. What role have economists have played in informing the debate and policymaking around the issue? As an economist, what do you consider to be the key steps public officials should take on climate change?

Recessions and depressions have been parts of the economic landscape for decades. One of the newest subjects of economics is the study of the environment, and I have been particularly interested in the economics of climate change. Economists have played a pioneering role here, including inventing and developing the idea of a “carbon tax” on emissions of carbon dioxide as the most efficient tool for slowing global warming. Carbon taxes are the best tax on the horizon today. They can reduce the deficit, improve the environment, prevent inefficient regulations, and allow the United States to exercise leadership rather than followership for this critical global problem.

I am currently working on a book, to be published by Yale Press, that covers the economics and policies of global warming. Climate change has many risky outcomes for humans and the natural world, so I have called the book "The Climate Casino." We roll the dice here at our peril.

Before the U.S. war in Iraq began, you published a study projecting that its costs could be as high as $2 trillion. Ten years later, and with the war concluded, what's your sense of the war's costs, and what lessons should policymakers and citizens take from it?

Ah, that is a forecast that I wish had been wrong. While the final numbers are not in, $2 trillion is probably a conservative lower-bound estimate of the costs of the war in Iraq. This number cannot include the costs to many of the 1.5 million Americans who served in Iraq and came home to find themselves out of the labor market, without adequate health care, and sometimes with permanent disabilities. It is unimaginable in retrospect to understand how the country could have been so carried away in its enthusiasm for the war.

You are a member of the board of directors of the Federal Reserve Bank of Boston. The Fed is perhaps one of the federal institutions that most people know exist but they are not quite sure what it does and why it matters. What might you say to lay people about the bank, its work, and its value?

At the most fundamental level, the Federal Reserve controls “money.” This means that it influences interest rates, inflation, and has an important effect on employment and output. It was created just a century ago by Woodrow Wilson as part of the effort to bring competent technical expertise to the nation’s governance, and it has proved a major accomplishment. As an economist, I am particularly proud of the service of Fed Chair Ben Bernanke (a member of the AEA). He has brought not just courage and integrity but also brilliance in innovating monetary policy during the recession. The country is fortunate to have such talent steering monetary policy.

Economics has a long history at Yale, an eminent faculty, and strong popularity among students. What differentiates Yale economics from economics departments at our peers?

If there is one factor I would point to, it is the seriousness with which our senior faculty treats teaching Yale undergraduates. Our introductory and intermediate core courses are taught by our most distinguished scholars, and they do it with gusto. Without mentioning the names of other universities, it is sometimes said that the most a student can expect is to see his or her professor walking across the lawn.

You have known Yale as an undergraduate, as provost, and as a professor for four decades. An economist, Richard Levin, has been Yale’s president for the last 20 years. How do you think he’s done?

Simply put, Rick has been awesome (in the correct sense of that word). Through thick and thin, through bubble and bust, he has steered the University emphasizing the need for excellence in teaching and scholarship, and providing cover for faculty and students to “do their things.” The world of research universities is highly competitive, as Europe rebuilds from the destruction of World War II and Asian countries with vast government treasuries attempt to draw talent from America to start up their own national universities. The fact that Yale has continued to be among the top handful of universities in the world is a testament to the wise leadership of Rick Levin and his colleagues.

One last question. Does an economist have anything to contribute to the ongoing debate around town and around campus: Sally’s or Pepe’s?

A really tough question. Our favorite is Pepe’s, and don’t miss the clam pizza. Here is an interesting insight about the economics of immigration. People often forget that immigrants bring special skills with them. Our lives and palates are enormously enriched in this way. One of the unique features of New Haven life is the Italian tradition, and nowhere is it more enjoyable than at Pepe Pizzeria Napoletana. My mouth is watering!