Simon Wren-Lewis is Professor of Economic Policy at the Blavatnik School of Government, University of Oxford. He began his career in H.M.Treasury as an economist and then moved to the National Institute of Economic and Social Research, where he was the Head of Macroeconomic Research. Since becoming an academic Simon has advised the Bank of England, the Office for Budget Responsibility and H.M.Treasury on a large number of economic issues. In this interview, we have touched on a wide range of topics from his unique route into academia, to his favourite books, spoiler alert – one of them is The General Theory by John Maynard Keynes. It has been a pleasure to interview Simon and we hope you enjoy reading about his journey.
Q: What is your dinner party monologue for when someone says “and what do you do?”
A: I say I’m an economist or a macroeconomist, and after 10 seconds of silence I change the subject.
Q: Could you tell us about where you grew up; were you a rural or city dweller?
A: Until I went to university I lived in London. Most of that time I lived in a beautiful house my parents couldn’t really afford to rent on the river Thames in Chiswick, on a road called Chiswick Mall. Occasionally the river would flood and instead of cars, you could watch people canoeing up and down the road.
Q: What subject(s) did you excel at in school, and which did you find most challenging?
A: I’m not sure I excelled at anything, but I did find studying French very difficult. It is one of my many regrets that I find it very hard to learn another language.
Q: Can you recall any reoccurring comments from your school reports?
A: I’ve scrubbed any memories from my brain.
Q: Did you ever have a eureka moment where you thought, “this is the subject I want to study”?
A: At school, I always wanted to be a scientist of some kind, perhaps because I read too much science fiction. Looking back it is strange that I never thought of being a social scientist at school because I was very interested in political and economic affairs.
Q: Can you remember the point at which you fell in love with your subject?
A: Not until much later, when I started working.
Regarding your undergraduate studies:
Q: Which University did you study at, and was it your first choice?
A: Cambridge. It was my first choice, but I think my school was surprised I got in. I suspect the reason was not my exam performance, but the fact that I had such wide interests outside my subject, which impressed the people interviewing me. Maybe they liked the fact that I was not the archetypal maths undergraduate.
Q: What undergraduate degree did you study for at University, and in hindsight would you select the same subject again?
A: I did one year of maths. That year was enough to tell me that I was never going to be able to be very good at this subject without a lot of work, and there were too many other interesting things to do at college. In particular, I joined the university branch of the United Nations association, which enabled me to travel to Sweden and Kenya that year. It became obvious that I should change from maths to economics, something a few mathematicians always did each year. In hindsight, I have no regrets. For economics, it makes sense to do as much maths as you can.
Q: Can you remember a University lecturer who really inspired you?
A: Among mathematicians, there was John Conway, perhaps best known for inventing the ‘Game of Life’, which in those pre-computer days I remember playing with counters and cardboard. There were a lot of interesting people in the economics faculty at the time, but they were hopelessly divided between conventional neoclassical economists, some Marxists and a group called Neo-Ricardians who followed the works of Sraffa and Joan Robinson. This last group seemed to me at the time very cool and revolutionary, which meant I failed to learn much conventional economics in my second year.
The economist who kind of saved me was Mervyn King, who much later became Governor of the Bank of England. He gave a class in advanced economic theory, which I attended with Tony Venables, who is now also at Oxford. I think I expressed my distrust of neoclassical economics in our first tutorial, and he was very sensible. Rather than attempt to argue with me, he said have a look at this paper by Ken Arrow on the economics of health, and see if you still think neoclassical economics is all rubbish. His strategy worked. The only problem was that I had only a year to learn three years of conventional economics.
Regarding your postgraduate studies:
Q: What motivated you to further pursue academia?
A: I didn’t. I was so fed up with the discord in the economics faculty at Cambridge that I said I never want to be an academic, and instead, I wanted to do something useful. I applied to join the government economic service, and I was lucky enough to not only get in but also get my first choice which was working at the Treasury. I spent the next seven years as an economist there, although that did include a year doing a full-time masters degree at Birkbeck College at London University.
It was during that time that I think I fell in love with the subject. I could see that economics was not just about academics playing games, but also real decisions influencing ordinary lives in crucial ways. But I could also see that both the politicians and the economists advising them didn’t have a firm grasp of how to tackle the problems they faced. It was the time of big debates between Keynesians and Monetarists, and although it was obvious to me that monetarism was too simplistic, it was also obvious that Keynesian ideas were deficient in many ways. At Birkbeck, I got my first contact with the ideas of New Classical economists, who were in the process of revolutionising the way my subject was done by insisting all macroeconomic relationships were formally derived from microeconomic optimisation, the so-called microfoundations project.
When I returned from my masters at Birkbeck the Labour government had been replaced by the Conservatives under Margaret Thatcher, who intended to try out Monetarism in the UK. Treasury forecasts suggested it would result in a recession, but their political masters did not believe it would happen because the Treasury model was Keynesian rather than Monetarist. The model proved right. It was an eventful two years. First I was asked to undertake a study to be published in my name on the relationship between UK money and prices, and after that my job was looking at the economic effects of the 1981 budget. That budget was notorious because the government undertook a fiscal contraction in the middle of a recession, which led 364 academic economists to write a letter of no confidence in the government’s economic policy. I would have signed if I had been allowed to.
As part of the deal for the Treasury paying for my masters at Birkbeck, I agreed to return to the Treasury for at least 2 years. I left the Treasury to join the National Institute of Economic and Social Research (NIESR) the day the two years were up.
Working as a research fellow at the NIESR was a bit like an academic job where instead of teaching you did macroeconomic forecasting. During my time there I built the first version of their world model NIGEM, and I’m pleased to say later versions are still used by many organisations around the world. In the final two years, I was in overall charge of macroeconomic research, leading a team of around 10 economists doing research that included developing the Institute’s UK and world models. Together with colleagues, I published a number of papers on various macro topics, most of which could be described as applied macroeconomics.
During my time at the Institute perhaps the thing I’m most proud of was working on the appropriate value of the exchange rate at which the UK should join the Exchange Rate Mechanism of the European Monetary System, which was the precursor to the Euro. Along with colleagues, we used both models and additional work on equilibrium exchange rates to suggest that the proposed entry rate, of 2.95 DM/£, was much too high, and if maintained would result in a UK recession. It was by far the most thorough and well-researched study at the time, but unfortunately, our advice was ignored by the government. The UK entered at 2.95 DM/£ in 1990, the UK economy was soon in recession as the government was forced to raise interest rates to sustain that exchange rate, and we were eventually forced out by the market in 1992.
Q: So when did you become an academic?
A: After I had spent almost nine years at the Institute, I decided that I wanted, after all, to become an academic. My expertise was in building macroeconomic models, and I wanted to build a new model with a state of the art theoretical structure. I could not do that on my own – it needed a three-person team to handle the theory, econometrics and solution software. Strathclyde University in Glasgow was prepared to offer me both a Chair and research money to bring two colleagues from NIESR to develop a research proposal for building this new model. My colleagues took a big risk, as it was by no means clear that we would get this research money. I’m very grateful to them, and I hope they do not regret it.
Fortunately, we did get the research money, for initially four years and then for a further four.
Q: How would you describe the model you built to a novice?
A: The model, called COMPACT, was not designed to do macroeconomic forecasting. My time at the Institute had convinced me that forecasting was a mug’s game. Forecasting with a model is little better than guesswork. That ‘little better’ makes it worth doing, but it means that nearly all the time you are wrong. Instead, COMPACT was designed to produce policy advice. Advice such as what impact would higher interest rates or lower taxes have on the economy. In the UK at the time there were a few other models around, but the distinguishing thing about COMPACT was that it was much more theoretically grounded than most other models.
In a way, this was following the way that academics were going in the US, with the development of the microfounded models I mentioned earlier. The difference was that I felt it was still important to estimate the model using the best econometric techniques, rather than calibrate the model as microfoundation modellers were then doing, and allow the data to have some influence on the structure of the model.
It was a great eight years, at Strathclyde for 5 years and then at Exeter University. Our work was very successful in the UK, in the sense that we published articles and our work was rated outstanding by other academics. However, the growing consensus in the academic sector in the US, which leads the way in economics, was that this kind of model building, which allowed the data to have some say in adapting the model, was old fashioned and everyone should be building microfounded models. After 8 years it became clear we could not buck this trend, and so work on COMPACT stopped.
Q: If you had your time as a student again, what would you do, if anything, differently?
A: I have often wondered what would have happened if I had been an undergraduate at a less dysfunctional place than Cambridge. Perhaps I would have followed a more conventional academic career. I’m sure I would have eventually become involved in policy issues, but I think it is easier to establish your academic credentials first and then do policy work, rather than the other way around. I think it would be very difficult for someone to do what I did nowadays. But if I had done that, I would not have met my wonderful wife at Cambridge and then had two great children, so maybe not such a good idea after all.
Q: Tell us about your research work over the last fifteen years.
A: At Exeter University I began working with Campbell Leith in looking at monetary and fiscal policy interactions using microfounded models. Later I also started working with Tatiana Kirsanova when she came to Exeter. We helped develop and confirm many important results. If I had to single out one, I would say it is that it is impossible to talk about the impact of fiscal policy without specifying the monetary policy regime, but also that successful monetary policy requires the appropriate fiscal regime.
We also used our analysis to look at issues involving government debt, and how it should be controlled. In 2007 the three of us wrote a paper looking at alternative fiscal rules, which ended by arguing for independent fiscal institutions, often called fiscal councils, to monitor what the government was doing. When I presented the paper a year later in London, I was intrigued that two analysts at the Conservative Party were in the audience. Shortly afterwards that party (then in opposition) proposed setting up a UK fiscal council, called the Office for Budget Responsibility (OBR), citing our work. When they gained office in 2010, creating it was one of their first actions in government.
Alongside that work, I also continued the work I had done earlier on equilibrium exchange rates and wrote one of the background studies for the UK government’s five tests for adopting the Euro in 2003, building yet another model to do so. I also advised the Bank of England on the development of two of their macroeconomic models, the second of which was an interesting attempt to combine microfounded models with the more traditional macromodelling techniques that I had used in building COMPACT. Later at Oxford, I wrote with others a paper on flu pandemics using COMPACT, a paper on macroeconomic methodology, and a paper with Lars Calmfors looking at fiscal councils around the world.
Q: What do you believe is your single most important piece of research?
A: I was asked this in my interview for the Chair at Strathclyde. It was a trick question, because if you just mention one work that makes you look too narrow. For me, important means potentially having an impact on economic policy and people’s lives, and I’ve already mentioned the work I did before we went into the ERM, or before the OBR was formed.
But putting those aside, the academic article that springs to my mind was work I did with colleagues using COMPACT, which developed what we called a method of theoretical deconstruction as a way of understanding large complex models in terms of simpler textbook models. This method should be a standard part of the development of any large econometric model.
Q: Within your area of study, what breakthroughs are on the horizon?
A: For the last few decades macroeconomics has been all about the development of microfounded models. That work will, of course, continue because there is a huge amount still to be done: for example integrating the financial sector and developing more realistic models of private consumption. But for me, the really big question is whether this microfoundations hegemony will continue, or whether alternative ways of doing macroeconomics begin to earn greater academic respectability. I’ve written in a very recent paper that models like COMPACT should have more academic recognition.
Q: Let your imagination take over for a minute and tell us what you hope your successors will be researching in 2116?
A: One of the odd things at present is that while the rest of economics is doing much more empirical work and less theory, that has not happened in macro. I hope in ten years time we will see a lot more empirical, partial equilibrium analysis of individual or small systems of behavioural relationships.
Q: What do you feel your professional legacy will be?
A: I hope I will have had a brief but positive influence on others who might do great things for either economics or society.
Q: Are you working on any extra-curricular projects at the moment, such as: books, podcasts, websites, or speaking?
A: I am best known for my blog, mainly macro. It happened by accident almost, although I was looking for ways at expressing my disenchantment with the UK, US and Eurozone macroeconomic policy from 2010 onwards. A journalist once described the blog as a UK version of Paul Krugman’s New York Times blog. That is reasonable as Paul and I agree on many things, but I think my posts tend to be longer and not so non-economist friendly as his. Besides which he is a much better economist, of course.
What turned it from a hobby into something more serious was when I discovered that many economists in the UK Treasury, Bank of England and even the International Monetary Fund were reading it. Although I was surprised at first, I can see why. It fills a gap between academic articles which most people do not have time to read and journalism. It also helped that when I began the blog the really controversial macro issue was fiscal policy, and the work I had been doing meant I was better equipped than most to write about it.
Writing the blog really did make me see at least some academic economists in a different light. I was astonished when Nobel prize winners implied that temporary changes in government spending would have no effect when I knew based on modern theory that they were simply wrong. It is true that ideology is much less important in academic economics than it is in the economics you hear in the media and from policymakers, but it still exists and I think it is important to recognise that.
When it started nearly all my posts were about macroeconomics, but austerity, and then after that, the Conservative victory in 2015 and more austerity, Brexit in 2016 and finally Donald Trump, all meant that it has (again like Paul’s) become more political while still covering macro. I guess if you asked me what I spend most of my time thinking about nowadays it is the political economy. People writing outside their own field can sometimes fail badly, so I was very gratified to receive a prize for political economy writing last year. It seems to me that when you find that policy makers are ignoring what your discipline is saying, you need to think about why that is happening.
Advice and Tips
Q: If you could give your 18-year-old self one piece of advice, what would it be?
A: Work harder. But I wouldn’t have taken any notice.
Q: What advice would you give someone looking to start, or progress his or her career in your field?
A: Develop a skill or an area of expertise, and then network.
Q: Which book would you say has had the biggest impact on your life?
A: I think my answer would have to be The General Theory by Keynes. It shows how ideas can have a hugely beneficial impact on people’s lives.
Without it there would be no progress, because freethinking is how we have evolved as a species.
Q: Why do you think being a freethinker is important?
A: In your website, you write: “We believe truth should be formed on the basis of logic, reason and empiricism, rather than tradition, authority, revelation or dogma.” I couldn’t agree more. Without it, there would be no progress because freethinking is how we have evolved as a species. Tradition and authority are also important to many people but are just not my cup of tea.
Q: And finally, we are back at the dinner party. Someone offers you a drink, what do you ask for?
A: Orange juice. I like to keep a clear head.
If you’d like to find out more about Professor Simon Wren-Lewis you can check out his academic profile, personal blog, Twitter page and Wikipedia page.