Martin Feldstein, a star economist, peren- nial candidate for the Nobel Prize, and chairman of the Council of Economic Advisers under President Reagan, was not looking for a research assistant, but when a freshman sent him a critique he
had written while he was at high school, Feldstein became
curious and interested.
“He was just a freshman and I don’t know why he picked
me,” Feldstein, the the George F Baker Professor of Economics at Harvard and among the first few people to grasp
the breadth of Raj Chetty’s genius, recalled while chatting
with India Abroad from Britain.
“When I read his review I said to myself, ‘This is brilliant,
I must make him an offer.’ It could have been a critique of
the work of Robert Fogel, the Nobel Laureate in economics,
recognized worldwide as an economic historian and scientist,” Feldstein, who has degrees from Harvard and Oxford
Soon Feldstein, who has served as the chief executive offi-
cer of the prestigious National Bureau of Economic
“To do so would not be a very good use of his time,
I concluded,” he added. “So I told him, ‘I will con-
tinue to pay you, but what you will do is to read a lot
of journals and then you and I will discuss what you
Chetty was a sophomore at Harvard when he
came up with the theory that higher interest rates
sometimes lead to higher investment, according to
The American Magazine, which said, ‘It was a coun-
Usually, companies invest less when interest rates
rise because higher interest rates increase the cost
of capital. But Chetty startled academia with his
theory that some companies, in fact, invest more
because they want to get revenue-generating proj-
ects off the ground sooner, rather than later, so they
can pay down that costly capital more quickly.
Feldstein, who loved Chetty’s discovery, encouraged his prized assistant to pursue his ideas.
‘A professor likes nothing better than to have a
brilliant research assistant,’ he said in an interview
some years ago, ‘I realized Raj was quite unusual.
His sophistication and ability to work through
problems were higher than even the best under-
graduates at Harvard.’
“You recall rightly that I had pointed out that in
economics most people don’t do experiments,”
Feldstein told India Abroad. “They are happy to
take the data as they find it. At times they conduct
experiments in a class room. But these are not real-time
experiments. They don’t create novel experiments to under-
stand the way the world works.”
Raj was very different, and his approach to economic
problems and situations was “quite novel,” Feldstein added.
Feldstein, now 74, was about 38 when he received the
John Bates Clark Medal (popularly known as the Baby
Nobel) while his star student Raj Chetty won it aged 33
some weeks ago. But none of Chetty’s awards surprise
Feldstein. He has been expecting his star student to soar for
a long time.
‘Many economists are brilliant
mathematicians, few combine
the two the way Raj does’
Martin Feldstein was about 38 when he received the John Bates Clark
Medal, popularly known as the Baby Nobel, while his star student Raj Chetty
won it aged 33 a few weeks ago.
taxes affect shopping behavior — that people actually shopped less when they recognized the full cost
of what they were doing,” Feldstein said.
“Many economists are brilliant mathematicians,”
he continued. “Some are very good with data. Few
combine the two the way Raj does.”
Chetty is drawn to the psychological underpin-
nings of economic theory, experts have pointed out,
adding it is one of the things that makes him a pio-
Feldstein and Chetty are in continual touch. “Even
when he was at Berkeley, we kept in touch and met
several times a year,” Feldstein recalls. “He would
bring his laptop when we met and show me the data
and diagrams and discuss what he was working on.
I was always eager to learn his progress.”
Chetty worked on his PhD at Harvard under
Feldstein’s supervision, but as per Harvard tradition
he could not immediately start working at Harvard.
“We have a very strict rule that Harvard PhDs
cannot be hired immediately,” Feldstein explained.
“We believe people should have experience in other
departments. If we don’t follow this rule, every
member of our department could say, ‘This is a bril-
liant student, let us hire him.’”
Chetty spent five years teaching at UC Berkeley
and was offered tenure at Harvard in 2007 at the
age of 28, the same age as department superstar
Lawrence H Summers, secretary of the Treasury in
the Clinton administration.
He said it took him a year to weigh various
options before deciding on Harvard where he would
be joined by his wife Sundari who would be conducting
stem cell research as a post-doctoral fellow.
‘I had thought about coming back to Harvard for some
time, as one always has an attachment to the place where he
went to school,’ Chetty had said in an interview then. ‘In
addition to its outstanding faculty, Harvard’s main attrac-
tions for me are its outstanding students and the central
presence of Cambridge in the economics profession.’
“He had offers from Princeton, Yale and many other
excellent universities,” Feldstein said. “But he decided on
COURTES Y: RAJ CHE TT Y
Raj Chetty’s approach to economic problems and situations is ‘quite
novel,’ according to Professor Martin Feldstein, left.
After leaving Harvard with a PhD, Chetty, who had taken
up a job at UC, Berkeley, created an experiment to see if
separately labeling the sales tax on an item would affect
shopper behavior. He persuaded a large grocery chain to
allow him to post tags next to 750 of its products for three
weeks, showing how much the item cost with sales tax.
The experiment caught the media’s attention; one news
report mentioned that the chain did not allow Chetty to
post signs on its most popular items, afraid that sales
“It was a very unusual and ingenious way of showing how
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