Nobel Prize Conversations

“I think economics is getting closer and closer to being a respectable science”

“I think economics is getting closer and closer to being a respectable science. Even when we were not the most respectable science, we still needed to keep pushing forward because the topic actually matters to the planet, to the humans on the planet, and to the animals on the planet.” Douglas Diamond is a strong advocate for economics as a scientific field. His passion for economics was sparked at a young age when he accidentally took an undergraduate course in the topic.

In this conversation, conducted in February 2023, Diamond reflects on the working environment at University of Chicago – a work place that has become his home after working there 30 years – and how he sees more and more women enter the field of economics, something he thinks is a very positive development. He also tells us about the “No” bell that he received from Richard Thaler – a tool to helps him say no as a newly awarded laureate.

The host of this podcast is nobelprize.org’s Adam Smith, joined by Clare Brilliant. This podcast was released on 4 May, 2023.

Below you find a transcript of the podcast interview. The transcript was created using speech recognition software. While it has been reviewed by human transcribers, it may contain errors. 

MUSIC

Douglas Diamond: “Because our business model is hiring young people  and turning them into famous scholars,  or hope they become famous scholars as they get older,  it’s a good place to do research.  But I think I got unusually lucky.  I got that environment when it was tiny. The field was tiny, and most of the questions were unanswered. Or if we had answers, they were completely incorrect answers.”

Adam Smith: The environment Douglas Diamond is describing it the University of Chicago, his home for over 30 years, where he tries to find theoretical explanations for real world phenomena. His passion for economics, as you’ll hear, developed early – sparked by an undergraduate course he took almost by chance. And that passion is still abundantly evident.

So welcome to this conversation in which Douglas Diamond talks about the young science of financial economics. And yes, in his mind, it is definitely a science. I hope you enjoy it.

MUSIC

Clare Brilliant: This is Nobel Prize Conversations. Our guest is Douglas Diamond, who received the 2022 economic sciences prize for developing theoretical models about the role of banks in financial crises – models that form the foundation of modern bank regulation. He shared the prize with Philip Dybvig and Ben Bernanke.

Your host is Adam Smith, Chief Scientific Officer at Nobel Prize Outreach. This podcast was produced in cooperation with Fundación Ramón Areces.

Douglas Diamond is the Merton H Miller Distinguished Service Professor of Finance at Chicago’s Booth School of Business. He talks to Adam about the joys of working among researchoholics and learning to say no with the help of a rather rude electronic assistant.

CLIP: No-bell

But first, he looks back on a memorable encounter during Nobel Week 2022.

Smith: Let me start by asking, what was your best moment in Stockholm?

Diamond: My favourite one was on the second to last morning when I spoke to, it was called the high school. I guess it’s like a junior college, the people who are like one year past our high school in the US. Speaking to them, they asked interesting questions. They seemed truly excited by the topics. It was Ben and myself speaking there. That was my favourite thing. I was relaxed. They were very appreciative. They were a bunch of interesting kids. That was my favourite. 

Smith: That’s lovely.

Diamond: That was, I think, the busiest week of my life. I don’t remember the week when I was born, but it’s certainly up there of those two. Several of my friends and colleagues who’d won in the past warned me about pacing and making sure you used every free minute to put one’s feet up and relax. 

Smith: That must be one of the blessings of being at the University of Chicago, that you’re surrounded by people who’ve been through this before so they can give you tips. 

Diamond: Yes, I have three colleagues currently who are non-emeritus on the faculty who won in the last decade. They gave me a lot of advice and warned me of potential pitfalls in this process.

Smith: Maybe you can’t reveal all the advice, but is there one piece that springs to mind? 

Diamond: Don’t overbook yourself. Both of them told me, just don’t put anything you don’t have to in your schedule for the next six months and wait until you get to Stockholm and you’ve returned from Stockholm, until you even think about it. I’ve still followed that advice. I’m still putting the finishing touches on the paper version of my prize lecture and my autobiography. When people ask me to do something, say get in touch with me in the month of March and I’ll think about it. 

Smith: Is it an enjoyable process writing your autobiography?

Diamond: It is. I hadn’t thought through all of these things. There are certain things I hadn’t tied together in my life until I sat down to put them in some kind of an order that made sense. I enjoyed that. I would have rather done it on a more leisurely basis. My mean time for writing a paper of any sort, start to finish, is around 15 to 18 months. I wrote two of them in a month and a half now. It’s a little off my normal pace. 

Smith: That’s a very interesting point about paper writing, because one would have thought that there was always the worry about being scooped and getting the information out there as fast as possible. To be so comparatively leisurely about it.

Diamond: I put a strong premium on getting things more or less right or as right as I can get them. Being the first person to get it 80 per cent right is not as good as being the second person to get it at least 80 per cent and getting to per cent right. For empirical work, if you just present the data, if you don’t analyse it quite right, people can still learn something. If you present a theory that actually doesn’t follow from the assumptions you say it does, you’re actually destroying knowledge rather than creating it. 

Smith: Yes, that’s a great responsibility. I did hear that Richard Taylor gave you a special bell.

Diamond: Yes, it’s called the “No” Bell. It’s still in my office. Whenever I think about saying yes to something, I take a look at it. I don’t have to push it as often as I did in the first few days. It basically says ”no” more than 100 different ways. ”No, no, no, no”, and things like that. ”What are you thinking about”. ”Forget about it”. It’s a little toy that he passed along. 

Smith: I think we’d dearly like to hear it. 

Diamond: Let me just look. Oh, I see it. Hold on.

Smith: It says ”no” with a big exclamation mark.

Diamond Yes. Then you push it. ”No.”  You can push it again. ”N-O.”  Lots of different ways of saying no.

Smith: Was that Richard Taylor’s voice? Has he recorded it for you?

Diamond: No, no. This is something that someone gave to him. I think Danny Kahneman maybe gave it to him. 

Smith: Fantastic. 

Diamond: He said he’s in California in the winter right now. I tried to return. He says, no, no. You’ll still need it a little more. Hold on to it. 

Smith: At least until the next round of announcement. 

Diamond: Yes. 

Smith: Yes. The art of declining firmly but politely. 

Diamond: Yes.

Smith: The University of Chicago has 33 laureates who are associated with the university in economics, out of just 92 people who’ve been awarded. That’s about a third of awarded laureates in economic sciences have associations with the university. One has to ask, what is it about that place? 

Diamond: The interesting thing is they’re sort of divided pretty equally between the Booth School of Business and the Department of Economics. Our cultures are a little different in the two areas. But the thing that both of us have is everybody takes the other faculty members’ research very seriously. There’s no notion that publishing papers is some kind of a game or accounting exercise. We’re all trying to do something that has an impact on the world in very different styles. We read the papers. We all go to workshops, our names for seminars, and listen carefully to the other people’s work and try to get it as clear and perfect as possible. Compared to other business schools, our senior faculty stay more or less as productive as our junior faculty. Often in many places, people slow down and get other interests besides doing scholarly research. We all are sort of researchaholics here and work very hard on it and get a lot of pleasure out of research when it goes well. I think that’s probably the most important thing that explains why so many people here have done research that had lasting impact. I don’t have a great model on how the prize committee for the economics prize chooses things, but it seems like lasting impact and other people either in the economics profession or in the real policy world using one’s work, that seems to be a common trend of the people who they’ve picked. That’s sort of very consistent with what we all try to do here. I’ve been here, this is my first job out of graduate school. I’ve been here since 1979. Of the people who got Nobel Prize since I was in economics, the only one who I haven’t had as a colleague was Milton Friedman. He just left when I came. When I started as an assistant professor in the business school, the people in the business school were very nice to me and gave me lots of help. But the economics department, particularly Bob Lucas, who won the economics prize, and Jose Shankman, who is a potential future winner, were very helpful to me. It was a broad community of economists.

Smith: It’s such a special thing to create an environment where people feel secure and collaborative and are really taking each other seriously. Is it a conscious effort to do that, or is it just self-sustaining? Once you have it, all you have to do is not lose it. It just magically renews itself.

Diamond: It does magically renew itself, as long as you realise how unusual and special it is. Within the Graduate School of Business, which was the name of this place before David Booth gave us some money and we renamed it, the finance group was basically run by Merton Miller and Gene Fama. When I came, there were three other senior faculty besides them and two junior faculty. It was a very small group when I joined. Both Fama and Miller were always in the office, did almost no outside consulting, just basically tried to train students, teach MBAs,  and do their scholarly research. That was a very good culture, which I sort of picked up and valued a lot. I’ve been here a long time. I try to make sure that that culture persists. The other part of our culture is we occasionally, every decade or so, we’ll make an outside offer to someone who already has tenure elsewhere. Most of our faculty here were hired when they were assistant professors, either right out of graduate school or a year or two later. The treatment effect of our culture is pretty big on most of us. It’s a fun place to work.

Smith: It sounds it, and a productive place, too. 

Brilliant: Douglas Diamond was born in 1953 and was raised in Chicago. He describes himself as an over-confident high school student, who took a course on capitalism and enjoyed it, but dismissed economics as a career and decided to study biology at Brown university.

Diamond: Economics seemed like it was pretty interesting, but seemed sort of easy. I thought maybe you could do more important things in the human genome and that kind of stuff. I got to college and took a molecular biology course and I didn’t like the course. Two weeks into the course, I realised this was not a great course. I hadn’t changed majors yet, but I decided to drop that course and then look for a course that met at more or less the same hour. I found an intermediate microeconomics course. I knew some economics. Since I’d had an introductory, I could take intermediate. I took that course. It was a truly amazing course from a Professor Brown, who had no relation to the University Brown, but Professor John Brown. It wasn’t mathematical, but it was super high level. There’s this part of, a very advanced part of economics that’s called Arrow-Debreu theory. It’s general equilibrium, where you think about uncertainty as a type of composite commodity of a lot of different goods that pay off in different states of the world. It’s one of the most advanced things. This was in this freshman course. I said, ”this economic stuff, it’s still pretty easy for me, but it seems a little less trivial than just like supply and demand”, which sort of seemed a bit obvious  after you’ve been around the market a little bit. I took that course. The second half of the course was a more mathematical course that used a lot of calculus and things and did some interesting applications of economics, like where different companies would locate in different parts of the world, location theory that was sort of linear programming almost. I said, OK, this economic stuff has more depth than I would have guessed. It seemed comparatively easy to me. I was comparatively good at it. Once I thought about it as me being comparatively good rather than it being comparatively simple, I decided it was a good major. Sometime in my sophomore year, I decided to switch the major.

Smith: What difference a good course makes and a good teacher.

Diamond: Yes, that was an amazing course.

Smith: This brings me to a clip I’d like to play you of Ben Bernanke speaking at the banquet for the Nobel Prize Award. 

CLIP with Ben Bernanke speaking: A perennial question is whether economics is really a science. It’s true, for example, that we economists can’t do large-scale experiments, although neither can evolutionary biologists or seismologists. However, one thing we surely have in common with physics, chemistry, and the rest is that ignorance or misapplication of basic principles can result in enormous damage.  In economics, that damage takes the form of financial crises and economic depressions.

Smith: Given what you just said about your courses at Brown, I guess there’s no question for you, economics is definitely a science. 

Diamond: It is, and particularly in the dimension that the quote from Ben just referred to, that one reason economics is important as a science is because humans actually use data from the economy  to make policy, government policy, business policy, personal decision policy. One needs some kind of a model to figure out what data should tell you about the world. One type of economics, economic theory, especially applied economic theory, which is the kind that I do, is to give people of all sorts, including government policy makers, a little paradigm when they see data to think about what might be happening. Sometimes they need multiple things that could be going on, so they can look at the comparative merits of each explanation in a given bit of data. Since people make decisions, we need some theories and models. They need to be, for things like policymakers in monetary policy or financial stabilization, the kind of stuff that I focus on. They need to be something you can sort of integrate quickly into your head without running something through the computer.  If you’re going to see a crisis like we saw in 2008, you need to say, what is this telling me? That’s important. The other thing that they talked about, how like seismologists, we can’t just have a bunch of earthquakes to see what would happen. We don’t really want to have a big depression to find out how you’d fight the next one. The other thing that economics needs to do and has been very successful in the last 30 years is figuring out, how do you use data to figure out what’s causing something else? Just think of a causal inference, the people who won one year ago.  All three of them had a huge impact on coming up with methods for economists and non-economists to look at data about the world and see, can we really say that this other feature that happened in the world is the cause of what happened? Or can we just say, no they just happened together for some kind of common reason. That’s, I think, why economics is potentially a science, is that we need to have a way to get views of the world that are distilled enough so that the human brain can use them in real time. I think economics is getting closer and closer to being a respectable science. Even when we were not the most respectable science, we still needed to keep pushing forward because the topic actually matters to the planet, to the humans on the planet, and to the animals on the planet.

Brilliant: One of the things that turned Douglas Diamond onto economics was the book The monetary history of the United States by Milton Friedman and Anna J Schwartz. Written in 1963, it argued that sound monetary policy is necessary for economic stability. The authors pointed to the consequences of the American Federal Reserve’s actions – and inaction – during the Great Depression as an example of why it’s important to have effective monetary policies in place.

Diamond: The wonderful thing about that book is it was written in the style of economic history, where they described what actually happened. They showed the actual data. They had transcripts of the meetings of members of the Federal Reserve when they were thinking about monetary policy. They described what actually happened. They showed the data, and then they gave their interpretation. No statistics in that book, no statistical analysis, just the data, and then their words, and their descriptions of what happened. It was very transparent. You could form your own view of what it meant, and you could see how their argument really seemed to fit the data. The beautiful thing is because they showed you the unanalysed data, you could put your thumb on the scale  wherever you wished.  That’s so rare. There’s not too much policy analysis that’s that descriptive of what happened and what the people were talking about when they made the decisions, what data they saw. Just a lot about human decision making and how a narrative that could be completely incorrect but sort of looked right could make people make bad decisions, how they could use it for persuading people who shouldn’t be persuaded because the persuader was incorrect.  It had the impression on me as a kid in college that policymaking was important, understanding these models, like what was causing what in the world was important, and that people disagreed to a huge, surprising extent about what was causal and what wasn’t, even in the 1970s when I was reading the book. 

Smith: When you were a graduate student at Yale, you and Phil Dybvig were both students of Stephen A. Ross. 

Diamond: Yes. 

Smith: You told me in the telephone interview how you met in his waiting room, because he had this strange policy of not making appointments with his students. You had to just sit outside his office waiting for him to do you the favour of opening the door and let you in.

Diamond: Yes. He was, in addition to being an amazing scholar and advisor, he also ran some business and consulting things. Some people would just leave town and go on the road and not be around for the students. Steve would try to do his business work in his office. He would always be around in case someone needed him in an emergency basis, or he was willing to talk. Steve would be in the office pretty much every day. Some days he wouldn’t have time to talk. Other days he’d have two or three minutes. Occasionally, if I or Phil or other students would have something interesting and urgent, you might talk to Steve for an hour. Steve would rarely read anything. You’d just have to go talk to him and write it on his blackboard and have him think about it in real time.  Thankfully, he was the quickest person in the economics profession, or certainly in the top two or three. I think I still might be in graduate school if it wasn’t for Steve, because I was sort of barking up the wrong tree in the method. I was trying to make things so general that they were unable to be solved by someone like me in the model. The math model was just too hard. Even if I’d solved it, it was too complicated for people to understand. He convinced me to simplify things until I could understand exactly what was going on. The math was like totally transparent. 

Smith: What did he see in you that made him take you on? 

Diamond: I’m not exactly sure. I had an agenda. I’d had some incomplete tries at trying to get models that had the ideas that I had. I think that was unusual to already have an agenda as a third year PhD student. My longest suit is thinking quickly and talking about it. I’m better in talking than I am in writing. He was good at both, but he was also quick and a talker. We could talk about ideas of what I was trying to do and what I thought the economic model might be before I wrote any equations down. He was quick enough that we could both picture the equations that would be there without actually writing them down. He was good at listening to what I wanted to try to do and then linking it to what was already out there. Actually, in the period after, I was the teaching assistant for the PhD course in macroeconomics that James Tobin taught. I managed to convince the top three or four students from that class to go become students of Steve Ross. They all did, and they’ve all become fairly famous economists and thanked me many times. 

Smith: I want to ask a little bit about the relationship with Phil Dybvig. Together in 1983, 40 years ago, you published this seminal paper on bank runs, which has been so influential. Something about your partnership leading to the Diamond-Dybvig model was very special. Let’s hear Phil Dybvig talking about you for a second.

CLIP with Phil Dybvig: Doug is an amazing guy. He’s a great co-author. We worked so hard to make the paper simple. But during the time we were writing it, it could be somewhat intense. It was never unpleasant. But one of us would say, well, we should assume this. The other one would say, no, that’ll be too complicated. We can never solve that. The other one would say, well, how about if we try that? And then I’d say, no, no, that’s going to throw away all the economics, and back and forth. I’m hoping that as a result for economists that they’ll find that to be a simple paper.

Smith: The paper did indeed get a very good reception. But what made it so productive to be working together? 

Diamond: We had similar training. We’re both students of Steve’s. We had very different approaches to doing research. Phil’s main research was in the prizing of financial assets and how money management would work. Mine was thinking about banks and private information and markets. We came with a different background but similar training and different skills. Like Steve, Phil is also very quick and very verbal. We talked about pretty much the whole model before we wrote any equations down. That’s not the way most people work. Most people write some equations down, stare at them for a while, try to figure out what it means. I’ve done that many times. But this issue of thinking, so we decided we’re going to write a paper about how the finance can be viewed differently when you do it via the lens of game theory than just competitive supply and demand economics. That’s how we started the project. We quickly decided that thinking about bank runs was the place to begin.

Brilliant: Adam, what is a bank run?

Smith: A bank run is when lots of people who have money deposited in a bank decide they want their money back at the same time and the bank doesn’t actually have the money available to give them. Happily enough most people only encounter bank runs in fiction. For instance in the film that tends to get shown at Christmas, It’s a Wonderful Life.

CLIP from It’s a wonderful life.

Smith: Suddenly if the bank can’t meet its obligations it’s in crisis. One of the implications of the work of Douglas Diamond and Phil Dybvig in their model is that it’s very important to prevent bank runs happening because if they happen it creates a very damaging financial instability across the whole financial system.

Brilliant: Does the Diamond-Dibvig model make any recommendations?

Smith: I suppose the answer to that is no, the model doesn’t make implications. What it does is helps you understand what is happening. I suppose that’s the fundamental point of their work. It allows policy makers to get a better grasp of what’s going on in the banking system. Therefore, be in a better position to avoid having bank runs happen in the future. That is the idea at least. It’s been put into practice because the Diamond-Dybvig model has been central to the thinking of central bankers who in the main think that it’s very important to avoid bank runs. The counter argument is that it’s better to let banks fail rather than prop them up.

Brilliant: There’s still quite a lot of debate about this right?

Smith: Most central bankers seem to think that the path is clear and that it’s very important to keep banks afloat when you can. But certainly there are people who disagree. Let’s listen to what Douglas Diamond has to say about his critics.

Diamond: Some people who don’t like the government ever doing anything said this was, we are the devil because we convinced them to not let all the banks in the world fail, which would have been good for the economy. That’s a slightly mean characterization of what other people think. There are people who said the Federal Reserve and Ben Bernanke did the wrong thing. They shouldn’t have intervened into AIG. They should have just let them fail. Maybe if Goldman Sachs had gone down too, that would have been a good thing. I don’t agree with any of that. Just like we don’t want to have earthquakes to find out how earthquakes work, we don’t want to have financial crises that are bigger than they need to be to find out whether we really need to stop them, nip them in the bud. 

Smith: Let me ask you about the age you were when you did this work published 40 years ago. You mentioned already that at the University of Chicago, both young and old contribute, that you don’t stop producing work as you get older. Is there something very special about being a young person in this case, the field of finance, that allows you to do things differently, think of new approaches in a special way? Or is it really just that the time can be right any time? You could be young or old.

Diamond: I think the two things that were special about that period  – financial economics  was a very young field. The oldest important paper at that point was Modigliani and Miller, which was 1958. Most of the stuff on pricing of financial assets was the mid-1960s. It was a young field. I think people had realised that we needed to expand. There were lots of questions that we knew we didn’t know the answer to. The University of Chicago was right in the center of the finance revolution. My senior colleagues, particularly Gene Fama and Mert Miller, were very open to thinking about new, more nuanced ways of doing this. The fact the group was so small meant that I got lots of attention from the senior faculty. Because I was the only assistant professor. There were two associate professors, John Ingersoll and George Constantinides. I had a lot of attention. We’re a much bigger profession and a much bigger group today. I think the University of Chicago, because we’re very open, we don’t hire senior faculty, except very rarely. Because our business model is hiring young people and turn them into famous scholars, or hope they become famous scholars as they get older, it’s a good place to do research. But I think I got unusually lucky. I got that environment when it was tiny. The field was tiny, and most of the questions were unanswered. Or if we had answers, they were completely incorrect answers.  Like Fisher Black wrote a paper on banking and interest rates in a world without money. He basically said, well, now that we have efficient financial markets, the traditional things that banks do are no longer needed. Because we can learn all of the information by looking at the stock price etc. We don’t need to do financial accounting anymore. We don’t need to monitor. That was a paper he wrote in 75. I read that paper, and then I read Friedman and Schwartz, and I said, no, no, that’s the wrong way to think about it.  Banks are still important, even though financial markets are remarkably efficient. Most of the ideas we have around in finance right now are either pretty correct, or the other ones, we all realise what’s wrong with them and why we can’t do a little better. We don’t have the tools or the ideas to fix the things that are just not correct in our profession.

Smith: The advice to the young is seek out new fields if you can.

Diamond: Students ask me, what should I work on? Should I look in the literature and see what’s the next advance we need to move on? I say, no, look for the stuff we don’t understand at all. You might be better off, instead of reading the Journal of Finance, you might be better reading the Financial Times or the Wall Street  Journal. Stuff in the world that we don’t understand. Then ask, in the paradigm of economics, what’s our explanation? 

Smith: Yes.

Diamond: What’s wrong with this picture? What’s wrong with this explanation? I think that’s a much more promising area to get a great idea. Now, the trouble is you often, particularly in a mature field, if we don’t know the answer, it’s probably because the right answer is quite difficult, rather than because we’re not looking in the right place. That’s one reason it was easier for me, because we didn’t even know how to ask the question of, how do you optimally design a financial system? Because that requires a stuff called mechanism design that won a bunch of economics prizes. That was a new tool that no one had ever put onto thinking about finance before. Both my dissertation paper, Financial Intermediation Delegated Monitoring, and the paper with Phil, Bank Runs Deposit Insurance Liquidity, both of those are mechanism design papers at some level. I was the first person to try that approach on this question. Without intending to, it produced the two main contracts that people use in finance. If I tried that 10 years later, somebody else would have done it first. It wasn’t obvious, but the answer turned out to be sort of obvious once I figured out what it was. 

Smith: What do you do for relaxation? 

Diamond: Spend time with my family, my wife in particular, because my kids are grown and live on the opposite coasts of the United States. Our main thing, which we’ve still managed to do a bit of in this post-October period where my time became a bit scarce, we go for nice walks along the lakefront in the city of Chicago where we live. We like to go on hiking trips and vacations. We actually took one week of vacation, which was already been planned in January. Went to Mexico for a week and enjoyed things down there. Didn’t do any work on my speech in that period, which means I’m still finishing it today. That’s what we like to do. I like to go see my children, my grandchildren. 

Smith: Music, I guess, is also important, because I heard on the grapevine that you were a DJ in college. 

Diamond: Yes. WBRU in Providence. That was the Brown University station, which was the commercial station and the number one radio station from 18 to 34 ratings at the time. Radio is less of a thing for music and young people these days.  They’re now an internet-only station. But I spent a lot of my time in college listening to music, playing music on the radio, helping to take care of the station and its music. I still listen to a lot of music. In fact, I listen to some music from the 1960s and 70s that I used to listen to. I’d spend more time listening to classical music, particularly it’s a bit more relaxing than rock and roll or German space rock or things like that. 

CLIP with Freak’n’roll by Ash Ra Tempel

Smith: You mentioned your children living far away, but your daughter is an economics professor. 

Diamond: She’s an economics professor at the Stanford Business School. She’s an amazing economist. She won the Elaine Bennett Prize for the best female economics under a certain age just this last year. She won a week after your people called and told me that I won the economics prize. We had a good week that week in our family. 

Smith: What a Diamond family week. 

Diamond: My son, who is a bit younger, he’s an assistant professor of finance at the Wharton School of the University of Pennsylvania. He’s doing incredibly well as well. My wife, Elizabeth Lee, is also an economist. There’s some memo on diversification of human capital that we never received. But it’s worked out OK for us, nonetheless. 

Smith: On the question of women in economics, the track record of the economics prize, the economics sciences prize to women has been very poor, just two female laureates out of all that have been awarded. What do you have to say on the subject of women in economics?

Diamond: There historically have been very few women in economics. Given it’s a social science, it’s a bit surprising. Among the social sciences, it’s sort of the least social. It’s more about money and business to a certain extent. But then, my daughter is a labour and urban economist.  There are plenty of things that are very important to the well-being of humankind that are studied in economics, particularly after my late colleague Gary Becker sort of extended the breadth of what economics does. It’s a very competitive, tough profession. We’re a little too tough in seminars and things. There are plenty of women out there who are overqualified to be economists. They just don’t tend to go into our field very much because they either don’t understand the interesting things that we do, or they understand the obnoxious things that we do as colleagues. If we can get rid of the obnoxious things that we do as colleagues about being too aggressive in seminars and not understanding that men and women may have different weights on how much they put into child care when their children are young, and that doesn’t affect their long-run productivity, which I think was a major problem in the profession, which is not completely gone, but it’s much better. I think those are the issues, I see just in our applicant pool, the PhD program, there are many more women, particularly super well-qualified women, than there were 20 years ago. I think it’s getting better.  But I think even today, economics is toward the bottom of all technical professions in the fraction of women in our profession. 

Smith: You obviously love your field so deeply. You’re a good advocate for it already. I suppose the platform of the prize in economic sciences gives you even more visibility to go out there and pull people in from putting women, putting people from diverse backgrounds. 

Diamond: No, I completely agree with that. I’m thinking I’d like to get more people who are not considering science in general. In economics, I’m particularly a fan of getting people who think about things in a different and broader way. It’s particularly important in a policy-oriented science like economics is. The fact that there are very few African-Americans in this profession, and there’s all kinds of policy that affects everybody, including African-Americans, means that there’s a whole set of policy biases that we don’t see. We have our biases, but we don’t see them in the profession. Other people have their biases. If we could hear the views of those people, we could all understand everybody’s implicit assumptions and how they’re thinking about the world in a much better way. Getting more really good people to go in the profession who are different from the ones today is really important in economics. 

Smith: The way you describe the collaborative working environment at the University of Chicago, who would not want to be part of that? It just sounds gorgeous. 

Diamond: It’s a fun place to work. One of the things that I try to do to keep our culture alive, is make sure that our business model continues to be hire young people and turn them into successful older people. Some economics departments hire young people for low cost teaching of undergraduates, don’t mentor them much, and then very few of them get tenure and they often drop to not as good schools as they could have got jobs from when they came out of graduate school. When you’re into that setup, then you have to hire senior people and you hire them after they’ve done their work. Many of them retire at that point. We don’t want to get into that. We’re far from that. 

Smith: It’s been an enormous pleasure speaking to you. Thank you. 

Diamond: My pleasure. 

Brilliant: You just heard Nobel Prize Conversations. If you’d like to learn more about Douglas Diamond, you can go to nobelprize.org, where you’ll find a wealth of information about the prizes and the people behind the discoveries. 

Nobel Prize Conversations is a podcast series with Adam Smith, a co-production of Filt and Nobel Prize Outreach. The producer for this episode was Karin Svensson. The editorial team also includes Andrew Hart, Olivia Lundqvist, and me, Clare Brilliant.  

If you’re in the mood for more listening from laureates with a connection to the University of Chicago, check out our earlier episodes with Richard Thaler or Paul Romer… Or Roger Myerson or David Card or Andrea Ghez or Frank Wilczek! You can find previous seasons and conversations on Acast, or wherever you listen to podcasts.  

Thanks for listening. 

Nobel Prize Conversations is produced in cooperation with Fundación Ramón Areces.

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