The Road to the Nobel



The Road to the Nobel - -

a travelogue and a retrospect

on the occasion of Finn Kydland receiving the Nobel Prize

in economics on December 10, 2004

by Sten Thore

“The Prize… shall be annually distributed … to those who … shall have conferred the greatest benefit on mankind.” (The Will of Alfred Nobel)

Walking on the gangway toward the Iberia flight bound for Stockholm, we were met by a display of the latest Swedish newspapers. I picked up the Svenska Dagbladet. As my wife Margrethe and I found our seats, I scanned the first page: “Finn Kydland is critical of Norwegian bureaucracy and thinks that economic research enjoys better working conditions in the United States.” A big photo of Edward Prescott with the caption: “The deficits in the US economy and the sagging dollar do not worry the Nobel laureate in economics.”

Tomorrow would be the big day, with Finn receiving his prize from the hands of the King. I feel humble and lucky at the threshold of this great moment. A month earlier Finn had surprised and delighted me with an invitation to attend the prize ceremony and the banquet. From there on, the beautifully oiled machinery of the Nobel arrangements committee had taken over, rooms had been reserved and there had been detailed exchanges of emails regarding my academic dress. Fortunately, I had been able to calm the responsible staff persons with the assurance that my academic dress with white tie, tails, and the top hat with my Ph.D. insignia were all in the best order, at this very moment being on their way from Oslo to Stockholm with our son Alex.

The rapid train service whisked us from the Arlanda airport to Stockholm central station. A taxi brought us to our destination, the Grand Hotel. This jewel of the Stockholm landscape, sitting on the shoreline overlooking the royal palace, each year serves as the headquarters for the guests to the Nobel festivities.

The bell captain led us onto the deep carpet in royal blue, with the Swedish heraldic crowns in gold. To the left, the “Nobel desk” with smiling ladies from the Nobel foundation. Somebody stuck a program in my hands with Alfred Nobel’s portrait embossed in gold: “Professor Finn E. Kydland. Program for the Nobel Week 2004.” A stack of invitation cards, to the Nobel museum, to the various Nobel lectures, to the reception of the Nobel foundation, to the press conference of the Royal Swedish Academy of Sciences, to the Norwegian ambassador…

In the narrow elevator I bumped into a couple from California. “We are being sponsored by the physics laureate,“ the gentleman confided. And you? I told him that I was Finn’s old teacher. He got excited and, paying little attention, he bounced out of the elevator already on the third floor, one floor too early. I followed him but realized my mistake and called him back. “Thank you,” he panted, “I see that I need somebody to guide me.” And he added: “If you had been my teacher, perhaps I would have gotten the Nobel prize too.”

Margrethe pulled the heavy brocade curtains aside. There, right in front of us, is the Gamla Stan, the medieval island center of Stockholm. The church spires and the royal palace glitter in the surrounding waterways. The bridges and the streets are filled with bustling traffic. So beautiful! This was once my town; here I was born. There to the right is the Riddarholmen church where most Swedish kings are buried, and opposite it the Superior Court of Assessments where my father used to work. Under the entrance portals of the royal palace a soldier is standing guard, just as I once did on a solitary and cold night back in my youth. But that was a long, long time ago. Forty years ago, Margrethe and I left Sweden never to return.

Finn has arranged a private dinner at the Villa Källhagen restaurant that night, close to the US embassy. He receives us with a big smile and a big hug. We meet his two daughters and two sons and a host of family. A charming lady, Tonya Schooler, professor in psychology in Vancouver, Finn’s new girlfriend.

December 10, the birthday of Alfred Nobel. We spend most of the morning putting on our academic dress, tail coats and white ties for the gentlemen, evening gown or national costume for the ladies. A fleet of chartered coaches brings us to the Stockholm Symphony Hall. There is a chilly wind as we disembark in front of the “Orpheus” statue by sculptor Carl Milles. A police helicopter is hovering right above our heads. The entire plaza outside the hall has been cordoned off, and there are security guards everywhere.

The Symphony Hall is decorated with thirteen thousand red roses, carnations and orchids airlifted from San Remo. The Royal family enters and the orchestra intones the Swedish version of God Save the King.

The time is 4.30 p.m. A march by Mozart and the Nobel laureates enter the podium, sitting down in the red velvet chairs placed opposite the royal family. There is a speech by the chairman of the Nobel foundation, and the laureates are introduced, one by one. King Carl Gustav solemnly steps up to the gold circle on the floor, marked with a huge “N,” diplomas and the gold medals in hand.

There are prizes in physics, chemistry and physiology or medicine. The prize in economics comes last. The chairman of the prize committee concludes his presentation of Finn Kydland and Ed Prescott with the words: “It is a great honor and a privilege for me to convey to you, on behalf of the Royal Swedish Academy of Sciences, our warmest congratulations. I now ask you to receive your Prizes from His Majesty the King.”

Finn bows, first to the King and the Royal family, then to the members of the Royal Swedish Academy, and finally to the audience. The telescope television cameras hover above us. The conductor raises his baton, and the orchestra intones the Swedish national anthem. There is more music. Somehow, I cannot concentrate. The moment is too great; my mind flies across time and places.

* * *

It had all started back in the spring of 1967 when I offered an undergraduate course in Management Science at the Norwegian School of Economics and Business Administration, Bergen. Finn quickly established himself as the smartest kid in the class, and I hired him as a research assistant, grasping him in the nick of time after his graduation, before he had time to disappear into the commercial world.

Those days, the business school in Norway was an inconspicuous place to start a star career, a place at the outer fringes of international research. To find an identity of our own, my colleagues and I all worked in one single field, portfolio theory, inspired in various ways by the works of Karl Henrik Borch, our common mentor. That first autumn, Finn helped me to run mathematical models of bank portfolios programmed on our resident computer installation, an awe-inspiring piece of hardware with a memory of 16K. Finn would now, as a member of the proud academic staff at the school, regularly sport a bunch of 80-columns punched cards in his shirt pocket.

In the summer of 1968 I taught a course in dynamic programming for business executives in Bergen. Finn served as my assistant, teaching the students elementary FORTRAN, and explaining Bellman’s optimality principle. Here, in one stroke, two subjects were put in place in the fertile mind of the young student that were later to blossom into his Nobel work. Bellman’s principle deals with a perfect world where there is no time inconsistency of successive plans of action. And FORTRAN is still to this day Finn’s favorite computer software, the medium for his work on real business cycle theory.

How did it happen that Finn transferred from Bergen to Carnegie Mellon? In my work on the programming of bank portfolios, I had established contact with Kalman Cohen, a world-wide authority on management science in banking. Kal was spending the academic year of 1967-68 away from his chair at the Graduate School of Industrial Administration (GSIA), visiting at the University of Copenhagen. I asked Kal to give a guest lecture in Bergen, and we became friends. Before leaving, Kal made arrangements for me to spend a year at the GSIA on a visiting basis. I decided that I wanted Finn to go with me as my personal assistant. The Norwegian Council of Research, which funded Finn’s work, turned out to be agreeable to the idea.

I have found in my files an old letter from the acting dean Brandenburg of the GSIA, confirming the practical details. He wrote on March 20, 1968: “I am sure that we can work out a special graduate student status for [Finn Kydland] that would enable him to take selected courses here while he is in residence.”

And so it came about that my family and I, with Finn and Liv in tow, arrived at Pittsburgh in January 1969. We both felt like little kids in a toyshop. Carnegie Mellon was a mecca of information technology, with a glittering roster of world-renowned researchers like Herb Simon and Bill Cooper. The computing department possessed an awesome array of computer hardware. The entire GSIA master program was organized around a path-breaking series of practical marketing games. Finn spent his days running linear programming models of financial portfolios, and following courses in game theory.

Karl Henrik Borch was that same spring visiting at the University of Ohio in Columbus, Ohio. I made arrangements for him to come to Pittsburgh and to give a guest lecture at GSIA. I believe that this was the first time Finn got an opportunity to discuss his studies of game theory with one of the giants in the area (Karl Henrik and his wife Ella being intimate friends of the Morgensterns).

When I returned to Norway 12 months later, Finn stayed, now enrolled as a regular Ph.D. student. The rest is history, as they say. Finn wrote his dissertation on the game theory of monetary and fiscal policy and graduated in 1972 with a gold medal (which was not to be his last one!). He returned to Bergen as a young assistant professor.

Finn’s first scientific publication was our joint report on networks of financial portfolios presented at a meeting of The Institute of Management Sciences in London, August 1970 (later published in a book edited by Eilon and Fowkes). In a subsequent paper in Management Science, Finn further explored the decomposition properties of such networks. Already at this early date, Finn exhibited a remarkable knack for being able to write clear and concise text and to get his works published in flagship journals.

In 1978 Finn was back at Carnegie Mellon again, this time for good. Breaking an almost inviolable rule among US universities, the economics department there had decided to hire their own Ph.D. The Graduate School of Industrial Administration at Carnegie Mellon was to remain Finn’s alma mater ever since. He became a Professor of Economics there in 1982.

Many years passed. From a distance, I could appreciate Finn’s path-breaking contributions to real business cycle theory, published in journals such as the American Economic Review, Econometrica, and the Journal of Political Economy. Each time when I checked his address, he was visiting with yet another prestigious research institution (such as the Hoover Institution at Stanford University) or central bank (the Federal Reserve banks of Cleveland, Dallas, and St. Louis).

Remarkably, once more it were to happen that Finn and I would be associated with the same university. In the 1980’s and 1990’s I worked for the IC2 Institute (Innovation, Creativity and Capital), an independent think tank operated by the University of Texas at Austin. I had described to Finn the wonderful research environment that I enjoyed, and when the local department of economics offered Finn their most prestigious chair (the Malcolm Forsman centennial chair), he accepted and moved to Austin for two years. I introduced Finn to my boss, George Kozmetsky, head of the IC2 Institute, who promptly appointed him as a senior research fellow.

Those days, the economics department at the University of Texas desperately needed a star to make up for its sagging reputation. The department had been plagued for many years by the unfortunate insistence of several of its members to pursue the dubious economic specialization of “heterodox economics” - - things had gotten so bad that there was serious talk about closing down the department and shifting it over to the business school. Finn’s arrival in 1994 changed things over night. The University of Texas has reason to be him eternally grateful.

* * *

The morning after the Nobel ceremony, I talked to Finn as we entered the Grand Hotel restaurant to have our breakfast. Finn has a remarkable physical stamina; he looked positively radiating after a full week of grueling receptions, speeches, television interviews, and dinners. He still is a good soccer player, as in the old days.

One of the great rewards of the academic world is sharing knowledge and ideas with young receptive minds, brimming with promise. I have been lucky to meet in my life a series of smart students and I have been blessed to be able to share their joy of research. Thanks, Finn, for giving me so much. Thanks for wanting me to share your triumph.

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