James Tobin | |
|---|---|
 Tobin in 1962 | |
| Born | (1918-03-05)March 5, 1918 Champaign, Illinois, U.S. |
| Died | March 11, 2002(2002-03-11) (aged 84) New Haven, Connecticut, U.S. |
| Academic career | |
| Field | Macroeconomics |
| Institution | Yale University Cowles Commission |
| School or tradition | Neo-Keynesian economics |
| Alma mater | Harvard University |
| Doctoral advisor | Joseph Schumpeter |
| Doctoral students | William Brainard[1] Willem Buiter[2] Duncan K. Foley[3] Koichi Hamada[4] Edmund Phelps Janet Yellen[5] Hiroshi Yoshikawa[6] |
| Contributions | Portfolio theory Keynesian economics Tobin's q Tobit model Tobin Tax Mundell–Tobin effect |
| Awards | John Bates Clark Medal (1955) Nobel Prize in Economics (1981) |
| Information atIDEAS / RePEc | |
James Tobin (March 5, 1918 – March 11, 2002) was an Americaneconomist who served on theCouncil of Economic Advisers and consulted with theBoard of Governors of theFederal Reserve System, and taught atHarvard andYale Universities. He contributed to the development of key ideas in theKeynesian economics of his generation and advocatedgovernment intervention in particular to stabilize output and avoidrecessions. His academic work included pioneering contributions to the study ofinvestment, monetary andfiscal policy and financial markets. He also proposed aneconometric model forcensored dependent variables, the well-knowntobit model.
Along with fellowneo-Keynesian economistJames Meade in 1977,[7][8] Tobin proposednominal GDP targeting as amonetary policy rule in 1980.[9][10] Tobin received theNobel Memorial Prize in Economic Sciences in 1981 for "creative and extensive work on the analysis of financial markets and their relations to expenditure decisions, employment, production and prices."
Outside academia, Tobin was widely known for his suggestion of atax onforeign exchange transactions, now known as the "Tobin tax." This was designed to reducespeculation in the internationalcurrency markets, which he saw as dangerous and unproductive.
Tobin[11] was born on March 5, 1918, inChampaign, Illinois. His father was Louis Michael Tobin (b. 1879), a journalist working at theUniversity of Illinois at Urbana–Champaign. His father had fought inWorld War I, was a member of the firstGreek organization at Illinois (Delta Tau Delta fraternity Beta Upsilon chapter), and was credited as the inventor of "Homecoming." His mother, Margaret Edgerton Tobin (b. 1893), was a social worker. Tobin attended theUniversity Laboratory High School of Urbana, Illinois, alaboratory school in the University's campus.
In 1935, on his father's advice, Tobin took the entrance exams forHarvard University. Despite no special preparation for the exams, he passed and was admitted with a national scholarship from the university. During his studies he first readKeynes'The General Theory of Employment, Interest and Money, published in 1936. Tobin graduatedsumma cum laude in 1939 with a thesis centered on a critical analysis of Keynes' mechanism for introducing equilibriuminvoluntary unemployment. His first published article, in 1941, was based on this senior thesis.[12]
Tobin immediately started graduate studies, also at Harvard, earning hisAM degree in 1940. In 1941, he interrupted graduate studies to work for theOffice of Price Administration and Civilian Supply and theWar Production Board inWashington, D.C. The next year, after the United States enteredWorld War II, he enlisted in theUS Navy, spending the war as an officer ondestroyers including (among possibly others) theUSS Kearny (DD-432).[13] At the end of the war he returned to Harvard and resumed studies, receiving his Ph.D. in 1947 with a thesis on theconsumption function written under the supervision ofJoseph Schumpeter.[14] In 1947 Tobin was elected a Junior Fellow of Harvard'sSociety of Fellows, which allowed him the freedom and funding to spend the next three years studying and doing research.
In 1950 Tobin moved toYale University, where he remained for the rest of his career. He joined theCowles Foundation, which moved to Yale in 1955, also serving as its president between 1955–1961 and 1964–1965. His main research interest was to providemicrofoundations toKeynesian economics, with a special focus onmonetary economics. One of his frequent collaborators was his Yale colleagueWilliam Brainard. In 1957 Tobin was appointedSterling Professor of Economics at Yale.[15]
Besides teaching and research, Tobin was also strongly involved in the public life, writing on current economic issues and serving as an economic expert and policy consultant. During 1961–62, he served as a member ofJohn F. Kennedy'sCouncil of Economic Advisers, under the chairmanWalter Heller, then acted as a consultant between 1962 and 1968. Here, in close collaboration withArthur Okun,Robert Solow andKenneth Arrow, he helped design the Keynesian economic policy implemented by the Kennedy administration. Tobin also served for several terms as a member of the Board of Governors ofFederal Reserve System Academic Consultants and as a consultant of theUS Treasury Department.[16]
Tobin was awarded theJohn Bates Clark Medal in 1955 and, in 1981, theNobel Memorial Prize in Economics. He was a fellow of several professional associations, holding the position of president of theAmerican Economic Association in 1971. He was an elected member of theAmerican Academy of Arts and Sciences, theAmerican Philosophical Society, and the United StatesNational Academy of Sciences.[17][18][19]
In 1972 Tobin, along with fellow Yale economics professorWilliam Nordhaus, publishedIs Growth Obsolete?,[20] an article that introduced theMeasure of Economic Welfare as the first model for economicsustainability assessment, and economicsustainability measurement.
In 1982–1983, Tobin was Ford Visiting Research Professor of Economics at theUniversity of California, Berkeley.[21] In 1988 he formally retired from Yale, but continued to deliver some lectures asProfessor Emeritus and continued to write. He died on March 11, 2002, inNew Haven, Connecticut.
Tobin was a trustee ofEconomists for Peace and Security.[22]
James Tobin married Elizabeth Fay Ringo, a formerM.I.T. student of Paul Samuelson, on September 14, 1946. They had four children.
In August 2009 in aroundtable interview inProspectmagazine,Adair Turner supported the idea of new global taxes on financial transactions, warning that the "swollen" financial sector paying excessive salaries had grown too big for society. Lord Turner's suggestion that a "Tobin tax" – named after James Tobin – should be considered for financial transactions made headlines around the world.
Tobin'sTobit model of regression withcensored endogenous variables (Tobin 1958a) is a standard econometric technique. His"q" theory of investment (Tobin 1969), theBaumol–Tobin model of the transactions demand for money (Tobin 1956), and his model of liquidity preference as behavior toward risk (the asset demand for money) (Tobin 1958b) are all staples of economics textbooks.
In his 1958 article Tobin also led the way in showing how to deal with utility maximization under uncertainty with an infinite number of possible states. As Palda explains "One way to get out of the mess of figuring out asset prices using a model of maximizing the expected utility of investing in stocks is to make assumptions about either preferences or the probabilities of the different possible states of the world. Nobellist James Tobin (1958) took this line and discovered that in some cases you do not need to worry about the utility of income in thousands of states, and the attached probabilities, to solve the consumer's choice on how to spread income among states. When preferences contain only a linear and a squared term (a case of diminishing returns) or the probabilities of different stock returns follow a normal distribution (an equation that contains a linear and squared terms as parameters), a simple formulation of a person's investment choices becomes possible. Under Tobin's assumptions we can reformulate the person's decision problem as being one of trading off risk and expected return. Risk, or more precisely the variance of your investment portfolio creates spread in the returns you expect. People are willing to assume more risk only if compensated by a higher level of expected return. One can thus think of a tradeoff people are willing to make between risk and expected return. They invest in risky assets to the point at which their willingness to trade off risk and return is equal to the rate at which they able to trade them off. It is difficult to exaggerate how brilliant is the simplification of the investment problem that flows from these assumptions. Instead of worrying about the investor's optimization problem in potentially millions of possible states of the world, one need only worry about how the investor can trade off risk and return in the stock market."[23]
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| Preceded by | Laureate of the Nobel Memorial Prize in Economics 1981 | Succeeded by |
