Professor Richard Blundell, CBE FBA, joined UCL in 1984 and was Head of Department from 1988 to 1992. He is currently Ricardo Chair of Political Economy at UCL and Director of the ESRC Centre for the Microeconomic Analysis of Fiscal Policy at the Institute for Fiscal Studies. He has been President of the European Economic Association, the Econometric Society and the Royal Economic Society.
Why did you first choose to become an economist? Was it a good choice?
It was a good choice. I still love the questions raised by economics and the sharp discipline economic logic gives to answering some of the key challenges facing society. Of course, economics doesn’t hold all the answers, but it clearly was the questions being asked in economics that drew me to study economics.
A distinction is sometimes drawn between economists who see themselves as engineers – looking for workable solutions to practical problems - and those who see themselves as scientists - looking to uncover the laws by which the world works. Where do you see yourself on that continuum?
I don’t see such a distinction. We are all after workable solutions to economic problems. Economic science is about trying to uncover some general rules governing the behaviour of economic agents that will help our understanding of how the world works. In turn allowing us to help design better policies. Seeing which policies fail and which succeed is one way economists learn about behaviour. The analysis of ‘Big data’ is another. Laboratory and field experiments are others. The key is be open to alternative approaches and to choose the one that most suits the question at hand. It is all part of the scientific process of discovery. Economics is a practical science but one that has to acknowledge the strategic interaction between different economic agents and the changing environment in which decisions are being made. It draws on game theory, on choice theory, on dynamic programming, and much much more, to provide a framework for understanding behaviour. So Economics is in a continuous state of development. That’s what makes it such a challenging yet exciting field of study.
Economics suffered a loss of credibility in some quarters with a perceived failure to anticipate or agree on a remedy to the recent macroeconomic crisis. Some of the critics are intelligent people from other disciplines who have looked at the state of economics and worried that it has taken a wrong turn somewhere. What would you say to someone like that?
The crisis should certainly make us modest as economists but it should also make us more excited than ever about our discipline. To improve our understanding of economic actions and events must be one of the most pressing research needs of modern societies. Economic phenomena have proven to be enormously complex. To make progress we need to bring to bear all the power of economic reasoning, mathematical logic, statistical modelling as well as drawing on new data sources and ideas from related disciplines. Modest, for sure, but excited too about the challenges ahead in the study of economics.
Who have been the most influential economists during your career?
There are truly too many to mention all but a very select few. My research path was paved through my interactions with the brilliant economist Terence Gorman, even while I was studying as a graduate student at LSE. He was always willing to challenge any point of view and really understood the power of economic modelling in gaining insights into human behaviour. Most importantly he stimulated my interest in the study of household behaviour, especially consumer choice. In terms of my research career, that really took off after a series of early visits to North America: in particular to UBC, Berkeley, Chicago, Toronto, MIT and Princeton, where I was lucky enough to meet and discuss ideas with many inspirational economists, perhaps most notably Dan McFadden and Jim Heckman. Back in the UK, together with a group of wonderful colleagues and students, I was fortunate to be given the opportunity to help build the vibrant research group at UCL and IFS. In my view now the most exciting place to do economics in the world.
Moving from Manchester to a Professorship at UCL, your biography follows that of Stanley Jevons. You hold a Professorship named after David Ricardo. Is the department’s distinguished nineteenth century intellectual history a source of inspiration to you or do you not think that sort of thing important?
That’s true. I have a soft spot for Manchester, even though I’m a southerner! After all they gave me my first academic job. Ricardo was a great economist whose ideas remain alive and important. In the end though, for a department, it is the ‘here and now’ that really matters. Even though UCL has a history of academic creativity and academic freedom, I don’t believe in dwelling on institutional history. Ricardo and Jevons were great economists, we can make use of their ideas but we have to create our own history and reputation. That creative spirit comes through working with brilliant and original thinking colleagues and students.
When you came to the department in the late 80s it was a much smaller and very different department to what it has come to be. What were the most crucial steps in the transformation of the department since your arrival?
I found a great openness and ambition at UCL to create something special. It is true in those early days I had a somewhat ruthless ambition to make it work. But few people stood in my way and most of my colleagues across the college were very supportive. Our aim was to create a research led department of international standing, focusing on areas of research where we could engage at the frontier of research. At the time for me these were the areas of microeconometrics and empirical microeconomics. When Ken Binmore arrived in the early 1990s to help build the economic theory group that was the icing on the cake. Now the department is second to none and covers the full spectrum economics.
It is always possible to see a strong applied angle to your work and your attachment to the Institute for Fiscal Studies draws you into policy-relevant research. Is influencing policy an important motivation for you?
I was always motivated by policy problems, but also by understanding behaviour. One of the great things about the IFS is that it believes, and always has done since the remarkable economist John Kay was Director, that to make good policy you have to understand behaviour. This has some similarities to creating a good drug to combat some disease. You can learn a lot by field experiments and pure data analysis, you may even develop a workable drug by trial and error, but in the end to create an effective drug, it is important to understand the biology and chemistry. Economic policy is like that. For example, we can learn about good tax policy by trial and error and by running experiments, but to get a complete picture of tax policy design, it is essential to understand the behaviour of the economic agents involved – individuals, firms and government.
Have you seen any change over your career so far in receptiveness of policy makers to evidence-based economic advice?
It has been hard work but I think the understanding among policy-makers that reliable evidence makes for good policy has struck home. There are always the more `religious’ policy types who think they know how things work without an empirical foundation but typically they come unstuck and quite quickly have to fall back on evidence to get their policies right. Not that getting the evidence base right is that easy. If it was we probably would not have needed to develop the field of econometrics! How to interpret evidence, and how to draw conclusions for policy from it, remains difficult and controversial. Some economists maintain that randomized control trials are the only way to proceed. But much in economics is hard to discern from control trials alone, and the degree of interactions between economic agents makes the environment in which we work very different from that of clinical trials in medicine. In my judgment, we need to draw on controlled experiments where possible, on survey and administrative data, and on the stock of received knowledge and economic logic.
You have put a lot of time and intellectual effort in recent years into the Mirrlees Review, a comprehensive review of the whole UK tax system modelled on the Meade review of the 1970s and published last year. Do you see any evidence of the Meade review having changed the direction of tax policy? Through what channels do you see an exercise like the Mirrlees Review realistically affecting policy?
Over the last thirty years economists have put an enormous effort into building up a knowledge base and an empirically founded approach to tax design. Not just at IFS and UCL, of course. The aim of the Mirrlees Review was to draw on this material and to see if we could come up with a systematic ‘guide’ to tax design. Reviews like this and its predecessor, the Meade Report, are ‘slow burn’ policy documents. They seep into the policy discussion. The Meade report completely changed the way savings and capital taxation is conducted in the UK and around the world. The expenditure tax, developed in that volume, is the basis for the lion’s share of tax policy with regard to pension saving and also to the integration between corporate taxation and the taxation of personal savings. It was a remarkable document. The Mirrlees Review too was motivated by a strong desire to see the tax system as a whole. How the different bits of the system could fit together better. Without seeing the whole picture, policy mistakes are easily made. The Mirrlees Review has already influenced policy in the UK and abroad. In the reform of the taxation of savings, of corporate profits, of inheritance, of housing, of earned income, etc. It has formed the blueprint for tax reviews and tax reforms in many other countries. Much more to be done but I think we can be proud of what was achieved in the Review.