When Michael Woodford was a young economics professor in the late eighties, he wrote a handful of seminal papers on a topic known as “sunspot” theory. The idea is that economies get stuck in a rut because of a breakdown in coordination. It seems that people will be productive only when those around them are also productive. Suppose, for example, that you live in a country of skilled, educated people where no one is doing much more than subsistence farming because the economy had recently tanked. (Think of an extreme version of the United States at the beginning of the Great Depression.) Even if you knew how to manufacture sophisticated products like computers, you wouldn’t do it. Why? Because no one would buy them. What good is a computer to a bunch of dirt farmers? For the same reason, none of your countrymen would manufacture anything either.
According to the theory, the only way out of this dilemma is to change everyone’s state of mind at once. The impetus could be anything, really—a new president, a change in the fortunes of a beloved sports team, even something as arbitrary as a spot on the sun. The key is that everyone has to believe that everyone else will suddenly start producing again. The expectation that the economy will improve becomes self-fulfilling.
Four years ago, the once-formidable economic department at Columbia University was stuck in a rut. Its stars were aging—Columbia had more tenured faculty members over 70 than under 50—and the few first-rate faculty still in their prime faced a constant pull from rival schools. Even junior faculty would jump ship at the first opportunity. Worse, Columbia was bottoming out at a time when economics was becoming a very hot field.
Columbia’s president, Lee Bollinger, came to the school in 2002 with the goal of putting the university on a par with the likes of Harvard and Yale. He knew that it was nearly impossible to be a top university without a first-rate economics department. Undergraduate majors were surging; American universities awarded almost 40 percent more economics degrees in 2004 than in 1999, while most other majors were either flat or declining. And these relatively well-compensated graduates—the average economics major earns more than $40,000 per year in his first job—were, in turn, helping boost their schools’ position in U.S. News and World Report, which considers alumni giving in its rankings. Meanwhile, economists were becoming more influential in public policy and even popular culture, a trend highlighted this year by the publication of the best seller Freakonomics, in which University of Chicago economist Steven Levitt applies the tools of his field to drug dealing, corruption, and violent crime.
Of course, Bollinger wasn’t the only university president to note the rising importance of economics. Salaries were rising across the field, and there was a run on the top scholars; NYU is rumored to have offered Harvard’s Andrei Schleifer a $500,000 salary in 2003.
Bollinger gave department chairman Donald Davis a mandate to restore the program to its past glory. But Davis faced a chicken-and-egg problem: Columbia couldn’t attract first-rate faculty because it didn’t have much first-rate faculty in the department already. And the university didn’t have first-rate faculty in the department because it couldn’t attract them in the first place. Davis couldn’t break the cycle by hiring one top economist a year for fifteen years, because no one was going to leave Harvard or Princeton for a second-rate department. But sunspot theory held a tantalizing alternative: He just might be able to break the cycle by trying to hire ten or fifteen star economists in a year or two—a game-changing move designed to alter people’s perceptions. If everyone expected everyone else to accept the offer, then the department they’d be joining wouldn’t be second-rate.
Bollinger was sympathetic and eventually agreed to fund an unprecedented thirteen new positions, a commitment of nearly $10 million. The only catch was that, since you can’t hire thirteen people at the same time, someone needed to be persuaded to go first. That’s when Don Davis thought of Michael Woodford.
There is a subtle art to recruiting from a position of weakness. You compile a list of all the people you’d love to hire, even if they might laugh in your face. You call these people up, tell them you’re conducting an exhaustive search in their area of expertise, and ask for recommendations. Then, toward the end of the conversation, you send out the “well, if you were interested” feeler, which of course was the main point of the call. “Because we were so much in a hole, it was almost a little embarrassing,” says Davis. “ ‘Gee, would you like to leave a top-five school for a school that really isn’t that strong?’ ”
Woodford, who received one of the early “if you were interested” calls, was a new kind of target for Columbia. The department had traditionally gone after high-profile economists like development guru Jeffrey Sachs or Nobel Prize winner Joseph Stiglitz. (Both are nominally at Columbia but have little day-to-day involvement with the department.) In 1998, Columbia had stuck with that model, going after Harvard’s Robert Barro, an economics star who writes regularly for BusinessWeek and the Wall Street Journal and occasionally opines on television. “Especially in a place like New York, there is a big temptation to go for assembling people who will be on Charlie Rose, get written up in The New Yorker,” says David Card, who’s credited with helping rejuvenate Berkeley’s economics department. “But that has nothing to do with younger people doing research”—the true measure of a top program.
In contrast to the likes of Barro, who spurned Columbia, Woodford is part of a dying breed of world-class economists almost anonymous outside the field. He was known to be a nurturing mentor at Princeton. That would make him a draw for future hires, who tend to value collaboration with prominent senior faculty above all else.
But taking a position at Columbia would have meant a significant drop in prestige from the top-ranked Princeton. Fortunately, prestige isn’t everything when it comes to recruiting.
Stephen Zeldes, one of Woodford’s good friends from grad school, heads the in-house economics department of Columbia’s Business School. He had been periodically nagging his friend about a possible move to Columbia for years. But, by early 2003, Zeldes realized he had an opportunity. In the world of academic recruiting—particularly the cutthroat business of hiring star economists—universities are constantly searching for advantages not necessarily related to professional considerations. And one of the biggest sources of leverage tends to be job prospects for a candidate’s spouse. As it happened, Woodford’s wife, Argia Sbordone, is also an economist and was up for tenure at Rutgers. Zeldes reckoned that if she didn’t get it—and the indications weren’t good—Woodford might be open to a move to New York.
In 2003, the tenure decision broke Zeldes’s way just as Davis secured his funding from the administration. On cue, Zeldes began evangelizing to Woodford about the transformative push the department was making, and about how, as the first high-profile economist to make the leap, he could play a huge part in shaping it. Zeldes also began poking around New York for places Woodford’s wife might land. He got a tip that the Federal Reserve Bank of New York might be interested.
Zeldes was right: Woodford was intrigued. At 47, he figured he had one more big move in him. He also felt he had only a few years to make it, since he would have been reluctant to uproot his 10-year-old daughter once she started high school. Columbia brought him to New York for a week that fall to present a paper and meet with prospective colleagues. Later that month, at a conference in Japan, Woodford spent several evenings with Vice-Chairman Dave Weinstein mulling the department’s future over sushi.
In effect, Davis and his team were trying to convince Woodford that an economics department could be jump-started the same way Woodford had argued an economy could: By making an unprecedented number of job offers within a short period of time, Columbia could attract people based on what the department could look like, not how it currently stacked up. Woodford, they insisted, would not end up a computer salesman in a community of dirt farmers.
Woodford is at heart a scientist, and to him, the rare opportunity to test his esoteric theory in the real world proved irresistible. “If you’re in a position to make a big push, I think that you can do something,” he told me as we sat in his well-appointed office on the tenth floor of Columbia’s public-affairs school. Incremental changes, by contrast, “make it very hard to get very far because of this coordination issue.” Over his shoulder was a whiteboard full of incomprehensible equations, as if to underscore the mathematical precision with which he’d worked it all out.
But before Woodford would fully agree to make himself a guinea pig in his own experiment, he wanted to test the department’s commitment to making him happy. Woodford negotiated for a 20 percent raise over his Princeton salary—putting him in excess of $250,000 for the nine-month academic year—and substantial command of the department’s in-house research center and its $250,000 budget. Even so, the deal almost fell apart when Woodford and his wife became displeased with the apartment the university offered them. (Most of Columbia’s faculty receive a university-owned apartment at a highly subsidized rate.) It took weeks of back-channel appeals to the university’s provost to finally land Woodford a spacious penthouse apartment on 110th and Broadway. “It’s one of the premier apartments at Columbia,” says Zeldes. “We were pleased that in the end the provost came through. It was at the last minute, with e-mails flurrying around.”Woodford finally accepted in April 2004. The following year, Columbia made fourteen offers to some of the top economists in the world. Even the wealthiest, most prestigious departments bat only .250 in these situations. But Columbia had twice that success rate: seven acceptances at the senior level. Moreover, Davis persuaded three sought-after junior faculty to choose Columbia over top-ranked schools.
Just as interesting as the head count, however, was the way in which Columbia scored. Davis made a point of targeting people who had reasons to want to work together—co-authors, people with similar interests, etc. Then, each time he made an offer, he would tell the candidate who else had received one and who else was likely to. All seven new hires had conversations with one another in which each suggested he was likely to go to Columbia if the other person did, too. “Toward the end, there was a lot of, ‘I’m thinking very strongly about coming; where are you thinking you are?’ ” recalls Davis. The theory seemed to be working.
Economists like to joke that there are always at least fifteen departments in the top ten. Be that as it may, the consensus is that Columbia’s recent hiring spree legitimately places it in that group. “They can fight with Berkeley and Yale for six, seven, and eight,” says Gene Grossman, Princeton’s outgoing chairman. Much of the buzz at this summer’s annual National Bureau of Economic Research conference in Cambridge, Massachusetts, was about the remarkable run Columbia had on the job market this year. “The appointments are excellent—just what they need to consolidate their leap forward,” says Daniel McFadden, the Berkeley economist who won the Nobel Prize in 2000.
Beyond the immediate buzz, the beauty of having so many top faculty is that they attract top graduate students, who in turn get top jobs at other schools. These professors then encourage their top undergrads to get their Ph.D.’s at Columbia, which increases the school’s cachet even more. Eventually, everyone wants to be associated with Columbia. “That’s the way it percolates,” says Robert Solow, a Nobel laureate from MIT.
Despite these advantages, cracking the top five is extremely difficult, if not impossible. “Once you get to number seven, it’s hard, hard slogging,” says McFadden’s colleague David Card. In the past three decades, Card points out, there has been almost no turnover in the standing of the MITs, Harvards, and Princetons of the world. One of the last major shifts in the top five was Columbia’s movement out of it in the late sixties.
But Davis believes the brutal logic of rankings gets turned on its head in the case of his department—that it may actually be easier to break into the top five the closer he gets to it. For at least a decade, many of the top economists in the world have wanted to work in New York—particularly those from nearby schools like Princeton (the fourth-ranked department in the country) and Yale (probably number seven). Many faculty at these schools either live in New York and commute to campus, or they live in Princeton and New Haven but have spouses who commute the other way. “That makes sense when you don’t have a good alternative in New York City,” allows Weinstein. “But [the commute] is much harder to sell to your family when you do have an alternative.” It’s a point not lost on Princeton. Grossman, who has already lost two top people to Columbia in the past two years, says he’s watched anxiously as the number of Princeton faculty members living in New York has risen to about 10 percent of the department. “I think that there actually are right now a lot of targets of opportunity because people have spouses who work in New York City,” says Weinstein.
The only danger for Columbia at this point is that a fluid system is, well, fluid. The way Woodford drew it up, sunspot theory works just as well in reverse. Could something akin to an eclipse cause everyone to decide at the same time that Columbia’s economics department was in a downward spiral?
Consider the case of a recent Nobel Prize winner from the University of Chicago who has been actively pursued by Columbia. He is a brilliant researcher and, despite his age (he’s 61), continues to be one of the most prolific economists around. But, as one senior economist at a top-five school puts it, “He is one of those guys best appreciated from a distance—personally, he is very much a menace.”
The prickly genius poses a dilemma: On the one hand, it’s hard to say no to a Nobel Prize winner still in his productive years. On the other hand, with someone who has a reputation for being particularly hard on younger economists—precisely the kind of people Columbia still needs to recruit and retain—“it could be like 1929 on Wall Street, where you’re watching assistant professors jump out the window,” says the senior economist. That next rebuilding project may be just around the corner.
Who They Hired
Columbia added seven renowned scholars to its economics department in just one year.
Who They Might Hire
The buying spree’s not over.
A Closer Look at Sunspot Theory
How it could rewrite the rules of recruiting.