Sunday, October 23, 2011

If it Ain't Broke, Don't Fix It!

For the most part I like engineers. In fact, some of my best friends are engineers. However, there's always the exception that "proves" the rule!

Back in 1978 I was appointed to a chair (full professorship) in what was then the Department of Econometrics & Operations Research at Monash University, in Australia. It's now the Department of Econometrics & Business Statistics. It was, and still is, a terrific department to be associated with. My colleagues and our students were wonderful. and I had nine productive years there.

I'd been at Monash for about 18 months or so when I was considered for the Chair. I'd left New Zealand partly to pursue an academic career - I'd come to the conclusion that I really wasn't cut out for central banking! But a large driver of my departure was the disgusting state that the N.Z. economy was in, thanks largely to decades of excessive protectionism and over-regulation. It was not a pleasant place to be!

The appointment process centered on a formal interview which, to North American eyes, seems rather strange. The interviewing committee involved close to fifteen people. It was chaired by the Vice Chancellor (read, President) of the university; most of the members were Deans of various faculties, or held Chairs in other departments in Faculty of Economics & Politics, where the Econometrics & O.R. Department was "housed". There were just a couple of representatives from the department itself!

They were taking a huge risk with me - I was far too young for the position. One or two of the committee members from other Faculties were understandably skeptical, and some of their questions were "probing", to say the least!

However, the interview turned in my favour came when the representative of the Faculty of Engineering came out with the following:
"So, the N.Z. economy really is in a mess, isn't it? I see that you were in charge of the econometric model at their central bank. What happened - did you have to leave because the model was all screwed up?"
My response:
"The model was doing just fine - it was the economy that was screwed!"
At that point our Dean, Don Cochrane, burst out laughing and (very uncharacteristically) thumped the table. Yes, that's the Don Cochrane of the Cochrane-Orcutt estimator, and he had a soft spot for the econometricians in his Faculty. So much for the engineer!

The N.Z. central bank (the Reserve Bank of New Zealand.) began constructing macroeconometric models in the late 1960's, and that side of their work still continues. There's no way that their models are, or ever have been, "broke".

However, I'm not sure I can be so positive about their economy!


© 2011, David E. Giles

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