Today is Walter W. Heller’s birthday. For those of us of a certain age, he was Mr. Economics in Minnesota. My 2012 column contains some reminiscences and a first crack at thinking about his place in macroeconomics more generally. I’m very happy that James Hillyer, a Ph.D student at Institute of the Americas, University College London, is delving deeply into Heller’s career for his doctoral dissertation.
Heller was a member of a generation of economists born 100 years ago who came of age during the Great Depression and fought in World War II. This experience, along with the postwar reconstruction of Europe and Japan and the postwar boom in the US, shaped their approach to economics, generally, and macroeconomics, in particular. In particular, their “neoclassical synthesis” combined models of equilibrium models of long-run growth with short-run models that hypothesized why economies didn’t stay on their long-run paths.
The past 40 years of macroeconomics has involved a lot of heat and some light and a move towards more sophisticated and, in my view, useful models. But whether they work with Dynamic Stochastic General Equilibrium (DSGE) models or something else, they all accept the combination of a long-run growth trend with an explanation of why an economy might deviate from that trend.
Kenneth Arrow, one of the first winners of the Nobel in economics, just turned 95 years old on August 21. He is one of the last members of this generation who is still around to help us understand why they took the approach that they did. I hope that scholars of economic thought ask him, and others who are still with us, why they went in this direction.