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Faculty Friday: A chat with Pete Klenow, macroeconomist

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Economics professor and senior fellow in the Stanford Institute for Economic Policy Research Pete Klenow. (Courtesy of Pete Klenow)

The Stanford Daily recently sat down with Pete Klenow, economics professor and senior fellow in the Stanford Institute for Economic Policy Research, to discuss his thoughts on his time at Stanford and his current research.

The Stanford Daily (TSD): Would you first be able to tell me what led you to ultimately come back to Stanford after getting your Ph.D. here?

Pete Klenow (PK): It’s a great research place. It’s really strong in macroeconomics, and so you know this is really appealing to come back here. The other options I had were great too, but I felt like this was the most productive place for me and it actually has been really productive for me, if I think about what I was able to do.

Half my career post Ph.D. was elsewhere, and then half of it’s been here, and I think it’s been really good for me. One of the things that’s really good, is that the Ph.D. students are really outstanding and they’re like partners in research, sometimes literally in terms of co-authorships, but other times, you know, as research assistants on the projects. And they’ve really helped my productivity relative to other places where I didn’t have so many research assistants, because I was at a business school and then at the Fed, where you don’t have access to these really high-quality graduate students.

TSD: Would you be able to me a little bit about the specifics of your current research, in terms of what markets you’re actively researching?

PK: What markets? I’m a macroeconomist, so I don’t necessarily specialize in particular — but maybe you meant labor market versus the retail market versus manufacturing. So there’s one line of research I’m doing, which is looking at the U.S. and China and India and particularly manufacturing, just because we have a lot of good data. And it’s also the sector [in which] people think there’s a lot of technical progress, and so to the extent that technological progress is leading growth, a key question is: What form does that progress take?

Is it incumbent firms improving their products — that would be like Intel’s successive generations of computer chips or Apple’s successive generations of its product lines, versus new entrants that come in and do something differently, you know — Uber taking over a bunch of the market from traditional taxi cabs? That’s not in manufacturing but you can get that phenomena, someone comes in with something better, and they creatively destroy the existing producers, by improving on it. So this line of research is trying to figure out how much of growth is coming from entrants versus incumbents, and how much is taking the form of creative destruction, as opposed to just improving your own products.

And the reason we care about that, is because the more people learn from others or creatively destroy others, the more that there might be a market imperfection there, that the private market might not produce the most efficient outcome. Because if you innovate by taking over a market from somebody else you might have too much incentive to innovate; on the other hand if you build on other people’s innovations you might have too little, so that’s why we’re interested in that.

And then we’ve got a bunch of results for the U.S.; the stuff for India is pretty preliminary and I can only speculate on what we’re going to get for China, but what I’m going to speculate is that we’re going to get for China what we’re getting for India, which is that entrants are really important and that in the U.S. incumbents seem to be carrying most of the growth. Because everyone knows Google’s important but how much of the growth is Google doing after, say, their first five years? If most of what they do is after the first five years, then it’s true that if you shut off all entry you might shut down growth completely, but in terms of when they did the innovating it seems like a lot of it is still happening for what we call incumbent firms.

Whereas in India the incumbents aren’t growing that much, so a lot of the growth seems to come from the entrants, and [for] China I can just speculate that that’s going to be the case, because they’ve had in the last 15 years so many private enterprises take the place of government enterprises, so you really need an entrance to carry the growth process.

TSD: Do you have any particular strategies for teaching students that have helped you in your teaching career? You’ve won numerous awards throughout your career for your teaching.

PK: I mean, I think it might help that I don’t consider myself that smart. And I don’t think that helps because students aren’t smart. I think students are very smart. In fact, just as I was saying about graduate students, I think the undergrads here are amazing, and are better than, say, the MBAs that I taught at Chicago, who are renowned for being very smart, and I think the undergrads here are even better and they’re more intellectually curious.

But I say that not being abstractly brilliant helps because [for] just explaining something to somebody who hasn’t seen it yet, it helps to remember what it’s going to be like to have seen something for the first time. So if everything was crystal clear to me and obvious, then it would be harder to explain. Now, I do have colleagues here and elsewhere who are brilliant and yet they are able to explain things well, but I feel that just being able to say, “OK, I need to break this down in a way that will be accessible to lots of different people and different backgrounds.” I feel like that’s the thing I try to do the most.

The interview has been condensed and edited.

This piece is part of a continuing series of faculty spotlight pieces.

Contact Skylar Cohen at skylarc ‘at’ stanford.edu.

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