Edward Lazear, Bush’s top economist during financial crisis, dies at 72
By Emily Langer,
Ken Cedeno Pool/Getty Images
Edward P. Lazear, an innovative labor economist who sussed out workplace dynamics as an academic and played a critical role in the government response to the 2007-2009 financial crisis as chairman of President George W. Bush’s Council of Economic Advisers, died Nov. 23 at his home in Reno, Nev. He was 72.
His death was announced by Stanford University, where Dr. Lazear was a professor of economics and a senior fellow at the Hoover Institution. The cause was pancreatic cancer, said his wife, Victoria Lazear.
Widely considered one of the foremost labor economists of his generation, Dr. Lazear brought to the so-called dismal science a quality that former Columbia Business School dean R. Glenn Hubbard, a predecessor at the Council of Economic Advisers, described in an email as “a caffeinated interest in an economics to help people.” Dr. Lazear adhered strongly to the tenets of free-market capitalism but attracted admirers among liberal as well as conservative economists with the elegance of his ideas.
“He was somebody who would take a very complex problem and think about it in just an amazingly simple way,” Kevin Lang, a professor of economics at Boston University and editor in chief of the Journal of Labor Economics, which Dr. Lazear founded, said in an interview.
Dr. Lazear was regarded as the father of a field known as personnel economics, which aims to explain and ultimately improve the management of human resources.
In a noted article published in the Journal of Political Economy in 1979 — titled “Why Is There Mandatory Retirement?” — Dr. Lazear identified what Lang described as an “implicit contract” between many workers and their employers. According to the contract, workers are underpaid for their work, relative to what they produce, when they are young and overpaid when they become more senior.
“They’re holding back part of your compensation to create an incentive for you to work hard now,” Lang explained. “Later in your time with that firm . . . they start returning the bond to you, but eventually they’ve returned the bond,” at which point, according to Dr. Lazear’s argument, the employee should retire.
In another paper, published in 2000 in the American Economic Review, Dr. Lazear studied changes in compensation at the Safelite Glass Corp., a manufacturer of replacement windshields, to test the assumption that workers respond to incentives.
In the mid-1990s, the company replaced hourly wages with piece-rate pay, in which workers were paid according to the number of windshields they installed.
The change, according to Dr. Lazear’s analysis, resulted in a 44 percent gain in average output per worker. “The firm shares the gains in productivity with its workforce,” he wrote. “A given worker receives about a 10-percent increase in pay as a result of the switch to piece rates.”
Although Dr. Lazear was most known for his work on personnel economics, he also “conducted fundamental research on the economics of entrepreneurship, immigration, language, education, and sales,” noted Robert A. Moffitt, a professor of economics at Johns Hopkins University and president of the Society of Labor Economists, which Dr. Lazear founded.
Ron Edmonds
AP
Dr. Lazear briefs reporters at the White House in 2008.
He played his most public role as chairman of the White House Council of Economic Advisers from 2006 to 2009, essentially the president’s chief economist.
“He is the PhD who knows the science of economics,” Keith Hennessey, who served in the Bush administration with Dr. Lazear as director of the National Economic Council, said in an interview. By contrast, leaders of the Treasury Department and the Federal Reserve Board are responsible for implementing policy.
According to Hennessey, Dr. Lazear was planning to leave the White House in 2007, shortly before the implosion of the subprime mortgage market touched off the financial crisis known as the Great Recession. Bush asked him to stay.
“The president valued having him around and having his advice,” Hennessey said.
Hennessey credited Dr. Lazear with playing a leading role in the establishment of the Troubled Asset Relief Program (TARP), for which Congress initially authorized $700 billion to stabilize the banking, auto, insurance, housing and other industries. The program was deeply unpopular but, according to Dr. Lazear and many other administration officials, urgently necessary.
“We were in a situation where we were concerned about losing a million jobs,” he told “PBS NewsHour” in 2008, describing the crisis in the auto industry. “That means a million people out of work directly at a time when the economy is struggling, when jobs are not easy to find. . . . We didn’t want to exacerbate that problem.”
Also teetering was the secondary market for student loans, which Hennessey said Dr. Lazear helped steady. “Had it not been for his work, college students might not have gotten their student loan checks in the middle of fall semester,” Hennessey said.
Taken as a whole, the economic crisis proved far more complex than many economists at first understood — a point that Dr. Lazear sought to explain years later comparing dominoes to popcorn.
“ Under the domino theory of contagion, one domino falls and knocks over the other dominoes, and they all topple, and you’ve got a mess on your hands,” he said in a speech in 2011 at the University of Chicago. “That looked like the way to go.
“Unfortunately,” he continued, “the model was not dominoes; it was popcorn. When you make popcorn, you heat it up in a pan and, as the kernels get hot, they pop. Taking the first kernel to pop out of the pan doesn’t do anything. The other kernels are still getting hot, the heat is on, and they’re going to pop no matter what.”
Edward Paul Lazear was born on Aug. 17, 1948, in New York City and grew up in Los Altos, Calif. His father was a hospital maintenance worker, and his mother worked in retail.
Dr. Lazear received bachelor’s and master’s degrees in economics from the University of California at Los Angeles, both in 1971, and a PhD in economics from Harvard University in 1974. He taught at the University of Chicago for nearly two decades before joining Stanford, where his graduate classes, according to the university, were “oversubscribed.”
Survivors include his wife of 43 years, the former Victoria Allen, and a daughter, Julie Lazear, both of Reno; a brother; and a sister.
Bush, who also named Dr. Lazear to his Advisory Panel on Tax Reform, described Dr. Lazear in a statement as a “trusted confidant who helped guide us out of the financial crisis.” The president had nicknamed Dr. Lazear “Stork” for his angular features, according to the Wall Street Journal, and often biked with him at Camp David.
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