Robert Hall (economist)
Encyclopedia
Robert Ernest "Bob" Hall (1943) is an American economist
and a Robert and Carole McNeil Senior Fellow at Stanford University
's Hoover Institution
. He is generally considered a macroeconomist
, but he describes himself as an "applied economist".
Bob Hall received a BA in Economics at the University of California, Berkeley
and a PhD in Economics from MIT. He is a member of the Hoover Institution
, the National Academy of Sciences
, a fellow at both American Academy of Arts and Sciences
and the Econometric Society
, and a member of the NBER, where he is the program director of the business cycle dating committee. Hall will serve as President-elect of the American Economic Association
in 2009, and as President of AEA in 2010.
Economist
An economist is a professional in the social science discipline of economics. The individual may also study, develop, and apply theories and concepts from economics and write about economic policy...
and a Robert and Carole McNeil Senior Fellow at Stanford University
Stanford University
The Leland Stanford Junior University, commonly referred to as Stanford University or Stanford, is a private research university on an campus located near Palo Alto, California. It is situated in the northwestern Santa Clara Valley on the San Francisco Peninsula, approximately northwest of San...
's Hoover Institution
Hoover Institution
The Hoover Institution on War, Revolution and Peace is a public policy think tank and library founded in 1919 by then future U.S. president, Herbert Hoover, an early alumnus of Stanford....
. He is generally considered a macroeconomist
Macroeconomics
Macroeconomics is a branch of economics dealing with the performance, structure, behavior, and decision-making of the whole economy. This includes a national, regional, or global economy...
, but he describes himself as an "applied economist".
Bob Hall received a BA in Economics at the University of California, Berkeley
University of California, Berkeley
The University of California, Berkeley , is a teaching and research university established in 1868 and located in Berkeley, California, USA...
and a PhD in Economics from MIT. He is a member of the Hoover Institution
Hoover Institution
The Hoover Institution on War, Revolution and Peace is a public policy think tank and library founded in 1919 by then future U.S. president, Herbert Hoover, an early alumnus of Stanford....
, the National Academy of Sciences
United States National Academy of Sciences
The National Academy of Sciences is a corporation in the United States whose members serve pro bono as "advisers to the nation on science, engineering, and medicine." As a national academy, new members of the organization are elected annually by current members, based on their distinguished and...
, a fellow at both American Academy of Arts and Sciences
American Academy of Arts and Sciences
The American Academy of Arts and Sciences is an independent policy research center that conducts multidisciplinary studies of complex and emerging problems. The Academy’s elected members are leaders in the academic disciplines, the arts, business, and public affairs.James Bowdoin, John Adams, and...
and the Econometric Society
Econometric Society
The Econometric Society is an international society for the advancement of economic theory in its relation with statistics and mathematics. It was founded on December 29, 1930 at the Stalton Hotel in Cleveland, Ohio....
, and a member of the NBER, where he is the program director of the business cycle dating committee. Hall will serve as President-elect of the American Economic Association
American Economic Association
The American Economic Association, or AEA, is a learned society in the field of economics, headquartered in Nashville, Tennessee. It publishes one of the most prestigious academic journals in economics: the American Economic Review...
in 2009, and as President of AEA in 2010.
Ideas
Hall has a broad range of interest, including technology, competition, employment, policy and the such.- Hall is perhaps most famous for co-originating the flat taxFlat taxA flat tax is a tax system with a constant marginal tax rate. Typically the term flat tax is applied in the context of an individual or corporate income that will be taxed at one marginal rate...
with Alvin RabushkaAlvin RabushkaAlvin Rabushka is an American political scientist. He is a David and Joan Traitel Senior Fellow at the Hoover Institution at Stanford University, and member of the Mont Pelerin Society. He is best known for his work on taxation and transition economies...
. They co-authored a book with the same name. Hall and Rabuska often act as advisors to countries in Eastern Europe that wish to adopt the flat tax.
- In 1978, Hall changed the direction of research on consumptionConsumption (economics)Consumption is a common concept in economics, and gives rise to derived concepts such as consumer debt. Generally, consumption is defined in part by comparison to production. But the precise definition can vary because different schools of economists define production quite differently...
by showing that under rational expectationsRational expectationsRational expectations is a hypothesis in economics which states that agents' predictions of the future value of economically relevant variables are not systematically wrong in that all errors are random. An alternative formulation is that rational expectations are model-consistent expectations, in...
, consumption should be a martingaleMartingale (probability theory)In probability theory, a martingale is a model of a fair game where no knowledge of past events can help to predict future winnings. In particular, a martingale is a sequence of random variables for which, at a particular time in the realized sequence, the expectation of the next value in the...
. Prior to this time, influenced by Milton FriedmanMilton FriedmanMilton Friedman was an American economist, statistician, academic, and author who taught at the University of Chicago for more than three decades...
's permanent income hypothesisPermanent income hypothesisThe permanent income hypothesis is a theory of consumption that was developed by the American economist Milton Friedman. In its simplest form, the hypothesis states that the choices made by consumers regarding their consumption patterns are determined not by current income but by their longer-term...
under adaptive expectationsAdaptive expectationsIn economics, adaptive expectations means that people form their expectations about what will happen in the future based on what has happened in the past...
, economists had expected past income to affect current consumption by altering individuals' expectations about their permanent income. Instead, Hall's theory pointed to a relation between current consumption and expected future income, which implied that consumption should only change when there is surprising news about income. This, in turn, implies that changes in consumption should be unpredictable (which is called the 'martingaleMartingale (probability theory)In probability theory, a martingale is a model of a fair game where no knowledge of past events can help to predict future winnings. In particular, a martingale is a sequence of random variables for which, at a particular time in the realized sequence, the expectation of the next value in the...
' property in statisticsStatisticsStatistics is the study of the collection, organization, analysis, and interpretation of data. It deals with all aspects of this, including the planning of data collection in terms of the design of surveys and experiments....
). Hall surprised the macroeconomic profession by providing evidence that consumption was, in fact, unpredictable. Subsequent evidence has shown that consumption is more predictable than he claimed, but ever since Hall's paper most empirical research on consumption has taken the martingale case as the baseline and focused on what mechanisms could cause deviations from martingale consumption.
- In describing if marginal costMarginal costIn economics and finance, marginal cost is the change in total cost that arises when the quantity produced changes by one unit. That is, it is the cost of producing one more unit of a good...
is procyclicalProcyclicalProcyclical is a term used in economics to describe how an economic quantity is related to economic fluctuations. It is the opposite of countercyclical. However, it has more than one meaning.-Meaning in business cycle theory:...
, Hall argued that the key is knowing the productivity shocks in real business cycle theory are actually the result of monopoly power. Because monopolies can sell where their pricePrice-Definition:In ordinary usage, price is the quantity of payment or compensation given by one party to another in return for goods or services.In modern economies, prices are generally expressed in units of some form of currency...
exceeds marginal cost, they tend to have excess capacity. Thus, as demand increases, the excess capacity shrinks and marginal cost approaches price and in that way it is procyclical. This idea captures the distinction between real productivity and productivity growth; while there is greater productivity (less is being wasted), workers aren't becoming more productive.
- To explain sticky wagesSticky (economics)Sticky, in the social sciences and particularly economics, describes a situation in which a variable is resistant to change. Sticky prices are an important part of macroeconomic theory since they may be used to explain why markets might not reach equilibrium right away. Nominal wages are often said...
, Hall emphasizes the importance of costs born by the employer. Firms benefit when times are good but are penalized when times are slim (because wages are usually fixed) and they pay for searching for a good employee/employer match. Thus, employers are more risk averse in hiring and have less incentiveIncentiveIn economics and sociology, an incentive is any factor that enables or motivates a particular course of action, or counts as a reason for preferring one choice to the alternatives. It is an expectation that encourages people to behave in a certain way...
to engage in search. Hence employers simply do not hire in downtimes. This idea is reinforced because workers cannot collectively signal that they would work for less in downtimes, wages have a tendency to stick upwards.