Q&A With Professor Randall Kroszner

Randall Kosner

As a current Evening MBA student, one of the aspects that attracted me to Chicago Booth was the unparalleled faculty. While the faculty includes Nobel Laureates, Presidential Advisers, successful entrepreneurs, and proven business-people, one theme is constant: the faculty members at Chicago Booth have a desire to share their knowledge and genuinely engage with students both inside and out of the classroom.

This Spring I had the opportunity to take Booth’s Money and Banking course, taught by Professor Randall Kroszner. Professor Kroszner leverages his invaluable real world experience in this field, including serving as a Governor of the Federal Reserve System during the financial crisis, to provide unique insights and perspectives into the financial system and broader economy. I recently had the privilege to sit down with him to learn more about his background and why he enjoys teaching at Booth.

Bormet: First of all, thank you for taking the time to sit down with me today. I appreciate it and am looking forward to our conversation. I thought we could start with a lighter question so we can all get to know you better.  You mentioned in class that you are a movie fan. What is your favorite movie?

Kroszner: It’s really hard to say because there are so many wonderful ones, but one of my favorites would have to be Ferris Bueller's Day Off, a classic Chicago movie that is celebrating its 30th anniversary this year. As you know, I showed a little snippet of that in class. One of the reasons it’s a favorite is the classic scene with Ben Stein as the most boring economics teacher imaginable that pushes Ferris Bueller over the edge to take his “day off.”  What is great is that he is talking about economic history, and the Great Depression which of course plays an important role in thinking about financial crises in “Money and Banking” and that provides the substantive link to the class.  The hilariously tedious way that he talks about it just sets everybody to sleep, at best. His infamous role call of attendance where he repeats Bueller’s name a zillion times before anyone tells him Bueller is not there set the perceptions about economics teaching back decades!  Nonetheless, I think it is a great movie about Chicago and a warning to economics professors to liven up class.

Bormet: Great choice, you can’t go wrong with that one. You’ve studied and taught at a handful of world class universities in both the United States and in Europe.  From your perspective what makes Chicago Booth unique?

Kroszner: The intellectual vibrancy here is something you just don’t find anywhere else. It’s the engagement by the faculty and the students combined with the intellectual rigor. We have a great illustration from David Booth himself. David often says that he drew on the cutting-edge research ideas that Gene Fama and others at Chicago were developing when he was a student in the early 1970s and translated them into business practice.  Gene wasn’t setting up a hedge fund or setting up an asset manager, but David said these ideas have real world applicability and we can build better ways of having people save and invest if we use these ideas. Obviously, he has been wildly successful. That helps us to make it credible to the students that new ideas generated from fundamental research are relevant to the business world. The students can then take these ideas and run with them to see what can be done. I think that really differentiates Chicago from other places - that intellectual engagement and intellectual rigor and understanding it’s from that framework that you then can build very successful businesses or from that framework building improvements in policy that really can transform the world.

Bormet: I know from my perspective it’s been the encouragement to challenge ideas, to challenge the status quo, and ask questions. That mentality gets engrained and when you take that out into the real world, you realize people are not used to that everywhere. Once you experience that kind of a culture, it’s hard to understand why other places don’t embrace it.

Kroszner: Yes, it seems so obvious once you’re in it, but, as you said, when someone who has been in this culture then goes into another one, it is often shocking because the person is asking so many questions. Here at Chicago Booth, if people don’t ask questions we think that’s a sign of failure. In some other places, everything is perfect if there are no questions. I’ve tied everything up. Well, you never tie everything up. It doesn’t matter whether you have a Nobel prize or you’re starting out as a graduate student, there are things that are not complete, there are things that are not all put together and trying to ask questions about how do you put those together, how do you tie the loose ends up is critical.  

Bormet: Now I’d like to get your perspective as a professor. In addition to the time you spent at the SEC, Department of Labor, and IMF, you worked on the Council of Economic Advisors under the Bush administration, and, of course, as a member of the Board of Governors at the Fed during the financial crisis.  How has that wealth of practical experience impacted the way you teach in the classroom?

Kroszner: I think in two main ways. One is that I engage with people differently.  When you are an academic, you tend to spend a lot of time talking to other PhDs. There are a lot of great things about that realm and it is incredibly intellectually stimulating but it is only one realm. In these policy positions, I was dealing with a lot of people to whom I had to explain economics, or try to engage them and get them to see that economics had something useful to say, but in doing so I found that they had a lot of useful things to say.  I think I broadened my engagement with other people and found there is a lot more that I can learn from the world beyond just talking to PhD economists.

Second, is that you learn about practical realities. I sometimes say, “You can say precisely nothing or you can say nothing precisely.” When you are at the policy realm obviously you are at the realm of not being very precise and when you are in the academic realm you are in the realm of being extremely precise.  Both of those extremes are not perfect, and I think by dealing with the policy realities you bring as much analysis as you can to bear. You do the best that you can, but it is never going to be with all the I’s dotted and T’s crossed because you don’t have the data. You don’t have the time to be able to wait ten years to figure out what the right thing should be. You have to make policy in real time; you can’t just wait and say “oh, that’s a great idea. Let me come back to you in a decade.”  When you are actually making policy, you don’t have the luxury of that much time, you don’t have the luxury of having all of the data, but you have to get things done. That is a very different approach to the world, but one that helps to inform how I think about talking about policy. 

Bormet: That’s great perspective.  Along those lines, what motivates you to continue teaching MBA students?

Kroszner: Well, actually it is funny - a few of us {faculty} were talking about this recently. Teaching forces you to stay relevant to what is happening.  As you know from class, whether it is on the final that you just took or on the midterm or the homework, there are some questions based on things that have happened in the last week or two. We have the analytical frameworks, but the applications will be current ones. Teaching keeps the balance right.  Particularly for people who are interested in banking and financial regulation, or regulation more broadly construed, or certainly in monetary policy, you want to be engaged in what’s happening because there are so many new things that you want to understand to then generate research questions and new theories.  I think that engagement is valuable. If you want to stay relevant to the policy process you have to know what’s going on and in some sense teaching a class forces you to do that.

Bormet: I know from our end, especially for me working in banking, taking the concepts we’re learning in class and seeing how it plays out in reality is valuable on our end.  For those students who don’t work in the financial sector, why is studying the financial markets important even if you don’t want to work in that field?

Kroszner: A financial crisis affects everyone. It doesn’t just impact the financial institutions and that is why it is a crisis because it has that effect on everything in the economy. This ranges from individual households managing their saving for retirement or their ability to send their kids to school to executives in an industrial company that may find its financing drying up or its customers unable to pay or suddenly the price level is falling so it’s more difficult to repay their debts.   Understanding the fragilities of the financial system, which is one of the things we focus on in class, and how well or poorly we have adapted to the fragilities that are still there, and how to think about dealing with another crisis is very valuable regardless of whether you are working in financial services or not. I hope a lot of the lessons are not just about how to deal with a crisis within a financial institution but when it’s more economy-wide.  

As you know, one of the key fragilities that we talked about in class was interconnectedness, so you can say that you’re an innocent bystander, you weren’t doing anything wrong but it doesn’t matter if you weren’t doing anything wrong if everyone around you is playing with matches and a fire starts. Understanding how you may be in a vulnerable situation even if it is not of your own making and then thinking about how others will respond to it, whether it’s the government or the financial institutions, as well as how you can respond and what that means for the markets and your own personal life is very valuable.

Bormet: Absolutely.  Are there any aspects that you enjoy specific to teaching Evening MBA and Weekend MBA students who are working full time while attending your class?

Kroszner: I have enormous respect for the evening and weekend students. The evening students have been working an eight, nine or ten hour day and then you have to come and listen to me for three hours in the evening or the students on weekends are taking time away from their families to come to Chicago and listen to me for three hours.  It’s an incredible commitment that is being made so I really appreciate that. 

I think the people who choose to take the classes in the evening after they’ve been working all day, the people who choose to fly in to Chicago for the weekend program that is not your typical person.  As economists say there is a selection mechanism that is going on there so people are really engaged and that is particularly fun.

Bormet: We had the benefit of hearing directly from both Hank Paulson and Ben Bernanke during Money and Banking this quarter. I know you’ve worked with both of them so I thought we would conclude with a “would you rather” question.  Would you rather provide color commentary on the next FOMC meeting with Ben Bernanke or draft regulatory reforms for Government Sponsored Enterprises with Hank Paulson? 

Kroszner: Well, I think you have stacked the deck because you know from class that I think probably the most important agenda item that we have not addressed since the financial crisis is reform of the government sponsored enterprises Freddie Mac and Fannie Mae. Regardless of whether you are on the right or the left, I think everyone agrees that housing had something to do with the financial crisis and Freddie Mac and Fannie Mae had something to do with that. What is the one set of organizations that we haven’t reformed? It is Freddie Mac and Fannie Mae.  It is an incredible honor to talk with or work with either Ben or Hank, but if I had to choose issue going forward, trying to make a difference on GSE reform I think potentially gets one of the most important fragilities that we haven’t addressed since the financial crisis.

Bormet: Fair point. That’s probably more impactful than color commentary on the FOMC meeting. 

Those are all of the questions I have prepared so I very much appreciate you taking the time, Professor Kroszner. I enjoyed our conversation and learning more about you and your perspective on Booth. Thank you again.

Ryan Bormet | Current Evening MBA student | Student Advisory Council Co- President