Getting There First

• Author: Prakash Loungani
• Position: Assistant to the Director of the IMF's External Relations Department
• Pages: 4-7

An economist's lifelong study of the effects of taxes and social insurance

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Martin Feldstein graduated in 1961 with a bachelor's degree from Harvard College and secured admission to Harvard Medical School. But, desiring to see a bit of the world, he headed instead to Oxford University and asked the medical school to defer his admission by a year. He asked for two more deferments before deciding he wasn't going to medical school after all: "It took me three years to work up the courage," Feldstein says, "but I finally had to tell them I was going to be an economist."

Good call. One doesn't know what contributions Feldstein would have made to medicine had he traveled down that road, but his contributions have made all the difference to many fields within economics.

Feldstein ended up staying six years at Oxford, attracted "by the sense that you were at the frontiers of economic research, with data and techniques that nobody had used before." But he allows that economics may not have been the only lure at Oxford. "I also got married in England, to an American." His wife, Kathleen, later got a Ph.D. in economics from MIT. "Getting that degree was an act of self-defense on her part," Feldstein says with a smile. "With all the technical talk swirling around her, she felt she had to arm herself." While not partners in academic work, the two collaborate on op-ed pieces for the Boston Globe.

Some of Feldstein's academic work from his Oxford days helped launch the new field of health economics. His doctoral thesis dealt with ways in which hospital costs could be reduced in a government-run health system. His focus on efficiency in provision of health care was very much against the spirit of those times-expressed memorably in an influential book by Archie Cochrane as "all medical care that's effective should be free for all"-but is mainstream today.

Some of Feldstein's other work at Oxford laid the foundations for his bigger claim to fame: his many contributions to the fields of public finance and macroeconomics. Here, Feldstein made breakthroughs in understanding the effects of social insurance programs, such as Social Security and unemployment insurance (UI), and revitalized the study of the effects of taxation. Summarizing the impact of Feldstein's work, Jonathan Gruber, an MIT economist and a treasury official in the Clinton administration, told the New York Times quite simply: "Marty showed that taxes matter."

By 1968, his intellectual achievements had won him tenure in Harvard's economics department at the age of 29 and, in 1977, the John Bates Clark award, given to the economist under the age of 40 who has made the most significant contributions to the discipline. That same year, he became president of the National Bureau of Economic Research (NBER), an economic think tank based in Cambridge, Massachusetts, that has flourished under his stewardship. Michael Bordo, an economic historian at Rutgers, told F&D: "Marty transformed the NBER into an umbrella organization of the highest caliber, one that could oversee empirical research without getting in the way of it. He pulled it off so well that people underestimate the skill involved."

Outside of a two-year stint in Washington in the 1980s as chair of the U.S. Council of Economic Advisers (CEA), Feldstein has been rooted in Cambridge, dividing his time between Harvard and the NBER. At "the Bureau"-as the NBER is generally referred to among economists- Feldstein's office is too cluttered with books and papers to offer a hospitable environment for an interview; instead he shepherds visitors into a small adjacent conference room whose walls are festooned with political cartoons lampooning him from his days as CEA chair.

The duck will move

Economists often get tongue-tied when asked to explain their award-winning contributions in lay-Page 5man's terms. Not Feldstein. The essence of much of his work is captured, he says, in words once uttered by the late U.S. Senator Russell Long. Feldstein was testifying before the U.S. Senate Finance Committee in 1978 on his controversial view that a cut in the capital gains tax would raise the revenues collected from the tax. He explained that...