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James Tobin (March 5, 1918 – March 11, 2002) was an American economist who served on the Council of Economic Advisers and consulted with the Board of Governors of the Federal Reserve System, and taught at Harvard and Yale University Universities. He contributed to the development of key ideas in the Keynesian economics of his generation and advocated government intervention in particular to stabilize output and avoid . His academic work included pioneering contributions to the study of investment, monetary and fiscal policy and financial markets. He also proposed an econometric model for censored dependent variables, the well-known tobit model.
Along with fellow neo-Keynesian economist James Meade in 1977, Tobin proposed nominal GDP targeting as a monetary policy rule in 1980. Tobin received the Nobel Memorial Prize in Economic Sciences in 1981 for "creative and extensive work on the analysis of financial markets and their relations to expenditure decisions, employment, production and prices."
Outside academia, Tobin was widely known for his suggestion of a tax on foreign exchange transactions, now known as the "Tobin tax." This was designed to reduce speculation in the international , which he saw as dangerous and unproductive.
In 1935, on his father's advice, Tobin took the entrance exams for Harvard University. Despite no special preparation for the exams, he passed and was admitted with a national scholarship from the university. During his studies he first read Keynes' The General Theory of Employment, Interest and Money, published in 1936. Tobin graduated summa cum laude in 1939 with a thesis centered on a critical analysis of Keynes' mechanism for introducing equilibrium involuntary unemployment. His first published article, in 1941, was based on this senior thesis.
Tobin immediately started graduate studies, also at Harvard, earning his AM degree in 1940. In 1941, he interrupted graduate studies to work for the Office of Price Administration and Civilian Supply and the War Production Board in Washington, D.C. The next year, after the United States entered World War II, he enlisted in the US Navy, spending the war as an officer on destroyers including (among possibly others) the .Reference to USS Kearny in c. 1965 letter to fellow shipmate Clitus H. Marvin At the end of the war he returned to Harvard and resumed studies, receiving his Ph.D. in 1947 with a thesis on the consumption function written under the supervision of Joseph Schumpeter. In 1947 Tobin was elected a Junior Fellow of Harvard's Society of Fellows, which allowed him the freedom and funding to spend the next three years studying and doing research.
Besides teaching and research, Tobin was also strongly involved in the public life, writing on current economic issues and serving as an economic expert and policy consultant. During 1961–62, he served as a member of John F. Kennedy's Council of Economic Advisers, under the chairman Walter Heller, then acted as a consultant between 1962 and 1968. Here, in close collaboration with Arthur Okun, Robert Solow and Kenneth Arrow, he helped design the Keynesian economic policy implemented by the Kennedy administration. Tobin also served for several terms as a member of the Board of Governors of Federal Reserve System Academic Consultants and as a consultant of the US Treasury Department.James Tobin's CV at the Cowles Foundation's website
Tobin was awarded the John Bates Clark Medal in 1955 and, in 1981, the Nobel Memorial Prize in Economics. He was a fellow of several professional associations, holding the position of president of the American Economic Association in 1971. He was an elected member of the American Academy of Arts and Sciences, the American Philosophical Society, and the United States National Academy of Sciences.
In 1972 Tobin, along with fellow Yale economics professor William Nordhaus, published Is Growth Obsolete?,Nordhaus, W. and J. Tobin, 1972. Is growth obsolete?. Columbia University Press, New York. an article that introduced the Measure of Economic Welfare as the first model for economic sustainability assessment, and economic sustainability measurement.
In 1982–1983, Tobin was Ford Visiting Research Professor of economics at the University of California, Berkeley. In 1988 he formally retired from Yale, but continued to deliver some lectures as Professor Emeritus and continued to write. He died on March 11, 2002, in New Haven, Connecticut.
Tobin was a trustee of Economists for Peace and Security. Economists for Peace and Security History : James Tobin among founding Nobel laureates
Tobin's Tobit model with censored endogenous variables (Tobin 1958a) is a standard econometric technique. His "q" theory of investment (Tobin 1969), the Baumol–Tobin model of the transactions demand for money (Tobin 1956), and his model of liquidity preference as behavior toward risk (the asset demand for money) (Tobin 1958b) are all staples of economics textbooks.
In his 1958 article Tobin also led the way in showing how to deal with utility maximization under uncertainty with an infinite number of possible states. As Palda explains "One way to get out of the mess of figuring out asset prices using a model of maximizing the expected utility of investing in stocks is to make assumptions about either preferences or the probabilities of the different possible states of the world. Nobellist James Tobin (1958) took this line and discovered that in some cases you do not need to worry about the utility of income in thousands of states, and the attached probabilities, to solve the consumer's choice on how to spread income among states. When preferences contain only a linear and a squared term (a case of diminishing returns) or the probabilities of different stock returns follow a normal distribution (an equation that contains a linear and squared terms as parameters), a simple formulation of a person's investment choices becomes possible. Under Tobin's assumptions we can reformulate the person's decision problem as being one of trading off risk and expected return. Risk, or more precisely the variance of your investment portfolio creates spread in the returns you expect. People are willing to assume more risk only if compensated by a higher level of expected return. One can thus think of a tradeoff people are willing to make between risk and expected return. They invest in risky assets to the point at which their willingness to trade off risk and return is equal to the rate at which they able to trade them off. It is difficult to exaggerate how brilliant is the simplification of the investment problem that flows from these assumptions. Instead of worrying about the investor's optimization problem in potentially millions of possible states of the world, one need only worry about how the investor can trade off risk and return in the stock market."Palda, Filip (2013). The Apprentice Economist: Seven Steps to Mastery. Ottawa: Cooper-Wolfling Press.
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