The Changing Fortunes of Bank Economists
DePrince, Albert E., Jr., Ford, William F., Business Economics
IN JANUARY of 1991, Forbes magazine ran a major article entitled "Dreary Days in the Dismal Science."(1) It began by describing the unfortunate experience of a senior bank economist formerly employed by Chicago's Continental Bank. He became unemployed, at the age of fifty-two, after his bank decided to reduce their economics staff from twelve professionals to just one economist. It goes on to point out that many business economists who once enjoyed successful careers in macroeconomic forecasting have fallen on hard times during the past few years. Citing the work of Stephen McNees of the Federal Reserve Bank of Boston, the Forbes article then asserts that most macroeconomic forecasts have such great margins of error that one can do as well simply by straight-lining recent economic history, without the use of any economists at all.
The article also notes, ironically, that a former chief economist of a major corporation is now working with attorneys who sue employers in wrongful dismissal cases. Adding insult to injury, it closes by stating that "business people no longer have use for such (economic forecasting) services, but naive juries apparently still believe in them."(2)
The generally negative tone of the article aptly portrays what many people apparently think about the future of economists in banking and the business world. Against that backdrop, the purpose of this article is to reexamine the changing role of business economists in general and bank economists in particular.
THE HEYDAY OF BANK ECONOMISTS
After the winds of World War II abated, the economics departments of money center banks were widely regarded as some of the most credible forecasters of our nation's and the world's economic. fortunes. In fact, a number of the major banks circulated economic newsletters that had a wider distribution than all but a few daily papers in America's major cities. The largest of these was published by Citibank and, at its high point, over 300,000 copies were distributed. They were read by the industrial and economic elite of America, and by business leaders and government officials throughout the. world.
In that environment, dozens of talented bank economists rose rapidly through the ranks on the financial management side of their institutions. The most successful of these earned top management titles such as Executive Vice President, Vice Chairman, President, and, in a few cases, CEO. Such noted business economists as Gabriel Hauge, Wes Lindow, Hebert Prochnow, Lee Prussia, Tom Storrs and others like them, retired as either the number one, two, or three person in major money center and superregional banks. In addition, dozens of other professional bank economists rose to the level of senior vice president or vice president and served as members of the management committees of America's leading banks.
The economist's path to the upper echelon of such banks usually started in the economics department, where they would normally begin by working on macroeconomic analyses and/or in money market forecasting. After rising to head his or her department, the most successful bank economists would then be given added responsibility for strategic planning, the money desk and/or foreign exchange operations. The final and most difficult steps, which usually led directly into the executive suite, involved moving beyond money desk management positions and into the chief financial officer position -- alongside the CEO and president of the bank.
Along this road to the executive suite, the postwar economist would also often play a leading role as an external spokesperson for the bank. A. Gilbert Heebner, Walter Hoadley, and Beryl Sprinkel were good examples of economists who played the latter role while serving as members of their banks' senior management committees. Nowadays, only a small handful of the surviving bank economists still play such highly visible roles. And few enjoy the respect that the prior generation of bank economists took for granted. …