When I first saw Edward P. Lazear’s name in print, I was leafing through the Journal of Political Economy, sitting on the floor in the Regenstein Library at the University of Chicago in the fall of 1999. I wanted to get a Ph.D. in economics and learn about published research, and stumbled across Lazear’s paper, “Retail Pricing and Clearance Sales.” It was easy to read, compelling, and intuitive — even for an undergrad like me.
In the 20 years since then, he has been my teacher, thesis adviser, boss, friend, and coauthor. When he died in November of 2020, the world lost one of the brightest stars of the economics profession. Eddie was more than just a top economist at a top school. He had a coherent mental framework, a signature style of speaking and writing, and an outsized personality that gave him superstar status. While some economists share Eddie’s separate skills, it was the mix of those skills that made him so unique, an idea he himself once studied. And that is why we must remember him.
Eddie the Chicago Economist
To anyone who met him, it was instantly clear that Eddie represented the Chicago School of economics. He adopted a few simple principles and pushed every problem to its logical conclusion in research, teaching, and policy analysis. He believed that people acted rationally, competition was a force for good, and markets could achieve economic outcomes through prices reaching equilibrium. Eddie wrote as such in his 2000 QJE essay, “Economic Imperialism,” a manifesto for his own life and mind.
Eddie often told us as Ph.D. students to “dance with who brung ya”. Economics has a great engine; don’t throw it away. His implicit critique was that many economists had thrown it away, or at least tossed it into the recycling bin. To Eddie, the basic toolkit of economics was sufficient to explain the 98% of the world, and the profession had too easily resorted to alternative explanations because they weren’t thinking carefully enough within the rational paradigm.
When I was a graduate student at Stanford at the turn of the century, I noticed that Eddie was something of an outlier among the faculty. He attended both theoretical and empirical workshops, which few others did. He insisted on using the Chicago framework, in contrast to the rising tide of game theory that Stanford was instrumental in developing. Eddie was more than the quintessential introverted academic; he practiced economics in the spoken word. Although Eddie was world famous for his written work on tournaments and mandatory retirement, his main gifts were evident from watching him in person. He possessed deep and fundamental intuition on economic behavior, and was a masterful debater and expositor of economics. In seminars, he often argued against the whole room at once. “Workshops are to academic life what TV is to real life,” he would say. While Eddie’s critique of sloppy thinking was insistent (but gentler in his older years), you could tell that he had been a champion in his youth. Now and then, in the heat of an argument, the old boxer would come out, and hit hard and hit fast. I remember when he brought Bob Topel from Chicago to present his research on the value of health. I have never seen two people talk economics so fast. Though everyone around me was writing dissertations on game theory, I bucked the trend and picked Eddie as my adviser. I wanted to be just like him (and still do). Dance with who brung ya.
Like many theorists, Eddie could see through problems quickly and identify key assumptions behind models that would drive the result. But his greater skill was identifying why many problems would vanish if markets could function properly. Asymmetric information was all the rage at the turn of the century, and it became fashionable to see the world through only that lens. Eddie often called this out. Analysts often took the information environment as given, and never explained why and how information asymmetry could persist in equilibrium. In some sense, Eddie was channeling the Coase theorem, arguing that buyers and sellers had strong incentives to trade, and this would push the world toward efficiency. Eddie was less interested in the theoretical nuances of a complex multi-agent dynamic game, and more interested in a first-order explanation of the world. He was a living manifestation of Occam’s razor, constantly seeking truths that followed simple logic and were easily evident in data — no fancy tricks required.
If Eddie was Luke Skywalker, Gary Becker was his Yoda. Eddie spent the first 18 years of his career at the University of Chicago, and this formed his intellectual foundation. In no uncertain terms, he often said that Gary Becker was his idol. He did not see Becker as “just” an economist, but rather a supreme social scientist who had expanded economics to areas far outside its domain. Like Eddie, Gary used the same toolkit of rationality, equilibrium, and competition as his chief mental model. He put the highest emphasis on prices and the effects of rational agents’ responses to prices. Gary had the uncanny ability to critique a paper based on a single core idea, then return to that throughout the seminar. Like Eddie, Gary had solid respect for the facts but was fundamentally a theorist. He practiced the Chicago craft of mixing theory with data, blending them together to get the best of both. The specialization of knowledge has led the economics profession away from that powerful mixture, and we are the worse off for it.
There were few differences in how Eddie and Gary saw the world, but if I must pick one, it was that Gary was more amenable to normative economics, while Eddie adhered more tightly to positive economics. Gary believed that often current federal or government policy was broken and that radical changes, based on sound economics, could improve social welfare. For example, Gary had long argued that the US should increase skill-based immigration to boost economic output. Eddie, in contrast, insisted on understanding why the US only allows a million immigrants into the country per year, and what specific tension between capital and labor would prevent a policy of high immigration.
Eddie the Economic Adviser
In 2006, Eddie headed to Washington to chair the Council of Economic Advisers (CEA), and I followed him there in 2007 to join his staff. Eddie’s intellectual and social persona made him a natural fit for the job. He was the most senior economist in the Bush administration and as such, received much respect and attention from the President. If one might question the value of the Chicago approach for academic research, there’s no question of its value for policy analysis.
President Truman created the Council because he realized that the president’s cabinet gives conflicting advice on the same policy — e.g., the labor department advocates for raising the minimum wage because it benefits workers, while the commerce department argues for lowering the minimum wage because it lowers costs for business. The CEA was the honest broker that evaluates conflicting arguments and makes recommendations to the President. The Council was maximizing the social planner’s problem, and this was a natural fit for Eddie and his taste for efficiency. The speed of policy work in the White House meant that none of us could conduct long-form academic research to answer questions. We relied on our core human capital as economists, and often spent time explaining basic economics in policy memos, briefings, meetings, and phone calls. This was not a time for fancy econometrics or complex mechanism design; it was instead the time for Chicago Price Theory. Eddie was one of a handful of economists in the world who could execute this with high skill.
To see the Chicago approach in action, consider a policy question that arose during the early days of the financial crisis: removing the exemption for mortgage “cramdown” in personal bankruptcy. Cramdown entails holding asset values at market price rather than historical cost. Bankruptcy laws allow cars to be crammed down to their market value, but not mortgages. For example, a homeowner (the debtor) may have a mortgage on a house valued at $300K at the inception of the mortgage, but during the financial crisis the house’s value may have sunk to $200K. The value of the debt in bankruptcy would still reflect the historical cost of $300K rather than the market value of $200K, unlike cars. The policy question was whether to readjust the mortgage downward to $200K. Without cramdown, the debtor bore the costs from the decrease in market value, since he was required to pay the higher historical cost on the mortgage. With cramdown, these costs shift to the lender. If the market is competitive and the lender makes zero profit in equilibrium, the lender will respond to this increase in costs by raising interest rates on future mortgages. These higher rates will then decrease housing demand, and thereby decrease house prices.
This connection between a policy change (removing the mortgage exemption from cramdown) that leads to a market outcome (increases in house prices) may be obvious to a Chicago economist. It was far from obvious to any of the investment bankers at Treasury who were proposing the policy. This was not an application of sophisticated game theory or complex econometrics, but rather a sequence of logical deductions that are the hallmark of the Chicago approach. We used this kind of reasoning on nearly every proposal we considered that year, and Eddie’s high value at the CEA encouraged this kind of thinking and promoted it in policy discussions. Much of the time we were practicing a kind of simple mechanism design: small policy interventions that could surgically address pieces of the market while minimizing the impact elsewhere and avoiding the creation of permanent government programs. In times of crisis — most notably, 2007–2008 — Eddie was always a countervailing voice of reason, arguing for the ability of markets to adjust, to both reward success and punish failure. Dance with who brung ya.
Why? you might ask, was the constant articulation of Econ 101 necessary in a Republican administration that purports to be pro-business? The chief reason is that politics inevitably touches every decision in the White House, whether external (Senate versus House) or internal (OMB versus Treasury). These different political forces often move the conversation away from economic reality, and it was our job at the CEA to bring it back. Eddie took his role as the honest broker seriously and imposed high standards on all of us. He led by example, constantly explaining in clear terms the fundamental economics in every moment of economic distress, of which there were many in 2007 and 2008.
While Eddie was fiercely committed to the Chicago approach, he was not dogmatic to economic perfection. We often were in the nth-best solution: Second best was not politically feasible, and first best was out of the question. Many economists might have objected, but Eddie was wise enough to know that economics could only have value at the policy table if it’s willing to provide the best solution in a highly constrained environment. This happened during the debate on the renewable fuel standards in 2006, which mandated that biofuels (like ethanol) be a component of gasoline. While Eddie opposed the idea of a government mandate to choose one technology over another, he accepted political reality and advocated for a safety valve to allow small, high-cost producers to be exempt from the standard.
Eddie was a somewhat unusual CEA chair, in contrast to prior chairs like Ben Bernanke. Bernanke spent much of his time with the staff; Eddie spent most of his time networking within the orbit of the Oval Office. We were physically separated from Eddie—his office was in the Eisenhower Executive Office Building, and the rest of us were two blocks away in a satellite building because of post-9/11 renovations. Yet this distance between Eddie and his staff likely elevated the role of CEA in policy discussions, since it allowed him more time to work the West Wing. Everyone knew him. As is now the stuff of legend, Eddie routinely went mountain biking with President Bush and was one of the few senior staff to do so. His uninterrupted time with the President in the limo to and from the White House on weekend mornings helped build his trust in and relationship with the President.
Eddie the Teacher
As a lover of economics, Eddie’s skills were never on greater display than in the classroom. He taught a class on incentives and productivity at Stanford —a class he created in a field he created, personnel economics. He was able to teach integral calculus to MBA students, partly because he was an expert at narrating the intuition behind any formal model. He reveled in the lively exchanges between his MBA students, and often used the Socratic method to tease out the equilibrium consequences of managerial and firm decisions. His Ph.D. classes were met with similar acclaim; he won the Ph.D. student teaching award in 2000, the first year it was offered at Stanford GSB. But Eddie’s teaching extended far beyond the formal classroom. He taught economics to almost everyone he met, from undergraduates to friends, from colleagues to cabinet secretaries.
Eddie’s skill set featured colorful examples, tight diction, and the inclusion of both sides of the argument in every explanation. He often used extreme examples to illustrate a point. To understand how agents respond to risk in a tournament, he invoked the image of playing tennis in a hurricane. Eddie was an equal opportunity teacher, treating undergraduates and Nobel laureates with the same level of patience, respect, and time — and his quick wit and good humor never hurt.
Eddie served as a mentor to legions of graduate students. As every graduate student knows, there are some low points during the Ph.D. years. I failed my econometrics qualifying exam in my first year and almost left the Stanford program. Eddie fought to keep me and convinced me that the academic life was noble. In my third year, before I had an idea for a dissertation, I felt lost at sea, but meeting with Eddie at his Hoover office always cheered me up. He told me to keep trying new ideas and taking shots on goal. Eventually, I built a model of performance targets — a riff on the classical tournament — that became the centerpiece of my thesis. It was in the classic Chicago style — focused on efficiency, no complex agency issues, spare in its assumptions — and it landed me a job at Chicago. Dance with who brung ya.
His greatest gift in mentorship was the ability to always see the best in people. In every conversation I’ve had with him for over 20 years, he always made it a point to say something positive about me. He would weave into the conversation a statement about my strengths, my skills, my endless possibility. That kind of optimism at the personal level was deeply generous. He had nothing to prove by parading his own excellence in front of you; rather, he would lift you up and show you that you, too, could achieve excellence. It was such acts of grace that I will remember the most. He did this with me and with everyone whose life he touched.
Last year I invited him to Texas A&M to give a distinguished lecture, in part as an excuse to pitch him a new paper on applying Chicago price theory to immigration (a topic close to his heart). I am no expert on immigration, but needed to meet him on his turf. I knew I caught his interest because he would email me randomly, like at 10:00 on Saturday night, about the project. We worked on the paper all through the pandemic and were almost finished when he broke the news to me in September about his terminal cancer diagnosis. He did not want to talk about it and asked me to keep it confidential, which I did. He said he planned to “die with his boots on like a good honorary Texan” and keep working until the very end. True to form, we exchanged long emails about the paper weekly until right before he died, the Monday before Thanksgiving. For someone as famous and accomplished as Eddie, he could have done anything in the twilight of his life. That he chose to spend it on new research proves his belief in the power of ideas. Dance with who brung ya.
Korok Ray, Texas A&M
