Andrei Shleifer and Me: Harvard Class of 1982

Paras Bhayani of the Harvard Crimson:

Andrei Shleifer and J. Bradford DeLong : Published On 6/4/2007 8:59:39 AM: In the fall of 1978, two students from backgrounds that could not have been less similar moved into connecting rooms in Weld Hall. The first had been in the country only two years, having fled his native Russia at age 16. He had spent the time in America attending an inner-city public school in Rochester, N.Y., and arrived at Harvard with a still-shaky command of English. The second student, the son of two Harvard alumni, had attended a prestigious private school in Washington, D.C. He could read a book in less than 20 minutes and manage to retain everything.

Today, the first student, Andrei Shleifer ’82, is a Harvard professor, one of the most widely-cited economists in the world and a winner of the John Bates Clark Medal, the biennial award given to the top economist under the age of 40. His freshman suitemate, J. Bradford DeLong ’82, is now an economist at the University of California at Berkeley who has written several influential papers on economic history and a host of macroeconomic issues, and runs one of the most popular academic blogs on the Web.

In the years since Shleifer and DeLong first lived together in Weld Hall, they have collaborated on issues including trading and markets, the Great Depression, and the development of cities in America. But the two were working together years before they would ever publish anything in an economics journal. And their first steps on the path of academic stardom began on the east side of Harvard Yard.

A YEAR IN THE YARD After arriving in the U.S. in 1976, Shleifer turned to the popular television show Charlie’s Angels for his first lessons in English. When he moved into Weld in 1978, Shleifer says that he was totally unprepared for the rigorous academics that Harvard expected from him. “I was definitely not acclimated by the time I got here,” Shleifer says. “I did not do very well freshman year, especially in Expos.” He applied to Harvard only because a recruiter came to his school and handed him an application, and after being admitted, he entered the College intending to study math. “Math 55 permanently disabused me of the idea of becoming a mathematician,” Shleifer says. Though he would tough the class out and remain a math major, he says he became drawn to economics—-a subject he knew nothing of in high school—-after taking some introductory courses in the field.

DeLong, in contrast, breezed through his first year. Shleifer and DeLong’s freshman year roommate, Joseph Evall ’82, both say that DeLong was primed for Harvard, and that his reading ability left them in awe. “He would read a book with lightning speed-—far faster than any of the rest of us who were slogging through the material,” Evall says, “and he would retain 100 percent of what he read.” Shleifer says that after seeing this, he thought DeLong was “some kind of a super-human,” but he realized later that DeLong just “knew how to skip pages.” “Nobody ever told me about skipping pages,” Shleifer says.

[Skim! Not skip, skim!]

Even though DeLong would eventually choose social studies as his major, he joined Shleifer in Math 55—-a class the math department still calls “probably the most difficult undergraduate math class in the country.” DeLong’s secondary preparation came through for him again, and he credits this with impressing Shleifer favorably enough that they have continued to collaborate over the years. “I had had the first quarter of the course in high school the previous year,” DeLong said in a toast when Shleifer won the Clark Medal in 1999. “So for the first quarter of the year, conversations about math between me and Andrei would end with me remembering something from the previous year, saying ‘How about if we do it this way?’ and finding out that it worked.” DeLong added: “So Andrei’s first impression was that I was a true genius. This first impression has stuck with him—in spite of much evidence to the contrary—for 21 years, and has greatly enriched my life.”

ONE IN CAMBRIDGE, ONE TO CAL The two remained friends throughout their time at Harvard, taking classes together and arguing a great deal, though Shleifer says that DeLong “won every argument.” In his sophomore year, Shleifer made an appointment with Lawrence H. Summers—-who had managed to become an assistant professor at MIT while still studying for his PhD at Harvard-—to point out mistakes in a paper Summers had written. The two hit it off. Shleifer says he became a research assistant to Summers at the end of that year, staying with the future Secretary of the Treasury for the next three or four years. “He was much more influential than any classes,” Shleifer says. DeLong, meanwhile, says that he took extremely challenging classes in a broad range of fields, spanning everything from econometrics to Straussian philosophy. He also became close to then-Harvard professor William Lazonick, a business historian who now teaches at the University of Massachusetts at Lowell. Lazonick ended up advising DeLong, who is now noted for his work in economic history, on his thesis, which examined the industrial revolution through the lens of classical economic theory.

Shleifer and DeLong would actually write one paper on a similar topic—-the growth of cities before the industrial revolution-—which Shleifer credits to DeLong’s interest in and knowledge of history. After graduating from college, Shleifer chose MIT for graduate school while DeLong remained at Harvard. Summers moved to Harvard the next year, and the three would soon after collaborate on a series of papers on “noise trading”—-the buying and selling of stocks in the absence of new information that allows traders with information to make money.

THE ROARING NINETIES After Shleifer and DeLong completed their doctorates, each taught at a few different universities before joining Harvard and Berkeley, respectively. But pure research was not the only thing on either of their plates in the early 1990s—-each soon took up an important policymaking role, and Shleifer’s would soon land him in hot water. In 1991, Summers became chief economist at the World Bank. That same year, the Soviet Union collapsed and the Russian-American Shleifer-—under the auspices of the World Bank—became an adviser to the Russian government, eventually leading economic liberalization efforts through the Harvard Institute for International Development. The advisory role turned out to be ill-fated. Shleifer and his wife, hedge fund manager Nancy Zimmerman, made investments in the Russian economy even as he advised the government on economic reform. The conflict of interest would lead to a federal lawsuit against Shleifer, one of his associates, and Harvard, resulting in a $26 million fine against the University and $2 million penalties apiece for Shleifer and the associate. When the dust settled, the University stripped Shleifer of his endowed chair—-but not tenure—-and the furor contributed to the ouster of Summers from the Harvard presidency.

DeLong, who had also taken on a policy role in the early 1990s, contributed to many of the early economic initiatives of the Clinton administration, though he would also become sharply critical of at least one of his colleagues by the time he left Washington. Both Summers and DeLong had joined the Treasury Department when Bill Clinton took office in 1993, with DeLong working on budgetary issues and free trade. He also played a role in the unsuccessful effort at creating universal health care, laying much of the blame for the legislation’s demise at the feet of then-First Lady Hillary Clinton, who had led the effort. In one of the most famous posts on his blog, DeLong wrote that, based on his experience working with Clinton, “there is no reason to think that she would be anything but an abysmal president.” He adds that she “had neither the grasp of policy substance, the managerial skills, nor the political smarts” to lead the effort.

FORGING AHEAD With his legal troubles now permanently behind him and his year-long sabbatical over, Shleifer says he continues to concentrate on the things that are most important to him: students, colleagues, and research. This year, Shleifer has emerged on campus as a much-sought-after undergraduate instructor: he teamed up with Professor of Economics David I. Laibson ’88 to teach a course on psychology and economics, and also taught a small seminar on political economics as part of the economics department’s first ever junior tutorial program.

Meanwhile, DeLong, by way of the often-incendiary posts on his “semi-daily journal,” has become one of the nation’s most influential academic commentators. He writes widely on the media, politics, and economics, frequently excoriating investment strategist Don Luskin, who DeLong terms the “Stupidest Man Alive.” But the blog is just an extra-curricular activity--DeLong chairs Berkeley’s political economy major while keeping up with his teaching and research, even though he has written that universities should be rewarding blogging alongside more traditional academic pursuits. “They have both conducted research on a wide-range of economic issues that are of critical importance,” Maier Professor of Political Economy Benjamin M. Friedman ’66 says of DeLong and Shleifer. “They are exemplary economists and stars in the profession.”

—Staff writer Paras D. Bhayani can be reached at pbhayani@fas.harvard.edu.

This is, I think, not fair to Andrei. As I undertand it, the U.S. government would have been entitled to $120 million if the judge had found that hte government's theory of the case--that Harvard and Andrei Shleifer had filed a false claim in order to get money from the government--as opposed to the alternative theory of the case--that it was a bureaucratic screwup in a situation where HIID was hiring Andrei as a consultant to advise the Russian government while Andrei's wife was trying to deploy her fund investors' money in Russia. The government's willingness to settle for $30 makes me think that their lawyers thought their chances of persuading the judge that theirs was the most likely story were only 1/4.

I am, I think, not fair to Hillary Rodham Clinton. Her people say that if all she had done was 1993-1994 Health Care Reform, it might be fair to argue that she would be "abysmal." But she has done an awful lot more over the past fifteen years, and done almost all of it very successfully. It's the disaster of 1993-1994 that is the anomaly and the outlier, they say--and they have a point. She definitely has the political smarts and (on almost all issues) enough of a grasp of policy substance to distinguish truth-tellers from liars, which is the most important presidential qualification (one which George Bush definitely lacks, and the Republican candidates appear to lack). Managerial expertise is harder to gauge: there's nothing else quite like managing the Executive Branch.

And those most responsible for the current gap between what our health care system is and what it ought to be do not include Hillary Rodham Clinton. The real villains in 1993-1994 had names like Robert Dole, The HIAA, Newt Gingrich, and so forth.

Comments

[Gene O'Grady]

Among the real villains of 1993-94 I think the New Republic certainly deserves pride of place.

[Barkley Rosser]

Hmmm. When I first was reading this I was all set to apologize for my periodic poking at Brad for appearing to be trying to get himself a senior position in a Hillary presidency. Then I saw his followup. However, for what it is worth, I heard from Robert Putnam that when he met at Camp David with the Clintons and his entire cabinet to discuss social capital, the smartest person in the room was Hillary.

As for you and Andrei, well, all I can say is that I do have sympathy for people standing by their old friends, and, of course, he is definitely a very smart and productive guy...

[Nathan]

Woot. PEIS!

[Matt]

Brad, Shleifer ought to feel lucky he's not in the jail cell he deserves to be in. That's all there is to it. That the government goes easy on well-connected white collar crime, no matter that it's a piece of stealing millions from the US and Russia, is no excuess. Shleifer is a criminal no matter how much Larry Summers likes him. If he hadn't been a friend of yours you'd see it in a minute. Sometimes you're sadly blind to this sort of stuff.

[Sonia]

There are other ways to look at the failure of health reform in 1993-94. The economy was improving and the rate of growth of health costs had dropped dramatically. The extent to which individuals were disatisfied with their own care (as compared to views on the system) was probably considerably smaller than reform advocates believed. The public came to believe (probably) correctly that any effort to restrain costs was likely to lead to access difficulties if only in time. As it was the managed care constraints popular in the mid 1990s lead to a back lash against private managed care (rather than public managed care). Ms. Clinton's appointment to lead health reform was a mistake but the importance of her stumbles is easy to overstate and the consensus for andy spectic reform then or now also easy to overstate.

Since the early 1990s the primary loss of health insurance has been among lower income (who are less likely to vote). Immigrants are also among the more likely to be uninsured (even holding income constant). The constituency for health reform even today should not be overestimated. Scratch the surface and the public attitude may be reform is great as long as it doesn't have the appearance of interferring with (my) income or (my) ability to obtain any care on demand at very low out of pocket costs, nor raise (my) taxes by a meaningful amount.

[Karthic]

Prof.Delong,
"[Skim! Not skip, skim!]"
May I request a post with an elaboration of the technique, that instructs us in your method of "speed reading"?

[CapitalistImperialistPig]

I have always believed that Prof. DeLong is indeed a great man. It's nice to know that Harvard and he agree.

[CapitalistImperialistPig]

I realize this is an easy mistake for economists to make, but $30 and $30 million are different amounts.

[otto]

"The government's willingness to settle for $30 makes me think that their lawyers thought their chances of persuading the judge that theirs was the most likely story were only 1/4."

Could also reflect an unwillingness to fully go after Revered American Institution.

[dsquared]

Brad, defending a mate when he's in the wrong is always a sticky wicket, but to be honest it's probably counterproductive to keep raising this technical thing. The guts of the case are:

[Shleifer and his wife, hedge fund manager Nancy Zimmerman, made investments in the Russian economy even as he advised the government on economic reform]

Which is true. And there were loads of episodes in which clear conflicts of interest arose. It was a really nasty episode in which everyone thought they were going to get rich but actually got caught. It's better off in the past. Ken Lay did himself a whole load of no favours by insisting that everything was agreed with the accountants and put in the footnotes, even though it was.

[ralph]

double dsquared.

[S]

Bradley,

Sorry to call your (well-intentioned, I'm sure) bluff, but the key judgments in Andrei's case make it clear that his sins were anything but the result of a "bureaucratic screwup." While he and Harvard's lawyers may have been savvy enough to knock down the major elements of the government's case based on obscure legalisms, Andrei's own confessions during these proceeds would, I believe, lead most, reasonable outside observers to seriously question his integrity, along with that of Jonathan Hay. These men were paid large sums of money, given privileged information, and entrusted with providing objective privatization advice to the Russian government and the United States during a period of critical transition. Instead of respecting the gravity of the duty entrusted to them, both of these men chose to try and use their position of informational advantage to front-run investors in Russian securities markets, compromising the objectivity of their advice, wasting hard-earned American taxpayer money, jeopardizing Russia's chance to embrace free-market reform and fairly governed capital markets, and potentially hurting US national security. Very ironic behavior for Andrei, in particular, given his international academic reputation as an advocate of just rule of law and fair dealing as an essential foundation of national economic development.

I highly encourage all people reading this blog to skim one of the major summary judgments in this case still accessible online without a PACER account:

http://pacer.mad.uscourts.gov/dc/cgi-bin/recentops.pl?filename=woodlock/pdf/harvard+june+28.pdf .

The legal arguments that attorneys for Harvard, Hay, and Andrei raise here are astonishingly well thought out. Unfortunately, the same cannot really be said for the latter two individual's confessed actions in this case.

Thanks for a thought provoking post,
S

[S]

Bradley,

Sorry to call your (well-intentioned, I'm sure) bluff, but the key judgments in Andrei's case make it clear that his sins were anything but the result of a "bureaucratic screwup." While he and Harvard's lawyers may have been savvy enough to knock down the major elements of the government's case based on obscure legalisms, Andrei's own confessions during these proceeds would, I believe, lead most, reasonable outside observers to seriously question his integrity, along with that of Jonathan Hay. These men were paid large sums of money, given privileged information, and entrusted with providing objective privatization advice to the Russian government and the United States during a period of critical transition. Instead of respecting the gravity of the duty entrusted to them, both of these men chose to try and use their position of informational advantage to front-run investors in Russian securities markets, compromising the objectivity of their advice, wasting hard-earned American taxpayer money, jeopardizing Russia's chance to embrace free-market reform and fairly governed capital markets, and potentially hurting US national security. Very ironic behavior for Andrei, in particular, given his international academic reputation as an advocate of just rule of law and fair dealing as an essential foundation of national economic development.

I highly encourage all people reading this blog to skim one of the major summary judgments in this case still accessible online without a PACER account:

http://pacer.mad.uscourts.gov/dc/cgi-bin/recentops.pl?filename=woodlock/pdf/harvard+june+28.pdf .

The legal arguments that attorneys for Harvard, Hay, and Andrei raise here are astonishingly well thought out. Unfortunately, the same cannot really be said for the latter two individual's confessed actions in this case.

Thanks for a thought provoking post,
S