Sometimes, the best way to understand an idea is to meet the people who devote their time and energy to studying it.
The Opportunity & Inclusive Growth Institute’s mission to conduct and promote research that will advance economic opportunity and growth for all Americans means engaging with a diverse group of scholars who approach opportunity and inclusion from many angles. This series of short Q&As spotlights those individuals, what led them to economics, and how their research connects to opportunity and inclusion. Plus: the most useful ideas in economics, abandoned projects, podcasts, and economists to lunch with.
For this installment, Institute Writer Lisa Camner McKay sat down with Jeanne Commault, assistant professor of economics at Sciences Po, to discuss what people do with a $500 windfall, John Maynard Keynes, and planning for tomorrow. This interview took place on March 15, 2023.
What made you decide to study economics? Have you always wanted to be an economist, or was there something that led you to economics along the way?
I have not always wanted to be an economist. I don’t know if maybe some people out there are like that, but that was not my case. After high school in France, I did coursework to prepare for the entrance exam to attend a grand école [similar to a U.S. master’s program], but I did this in the least specialized way possible—I was doing math, sociology, economics, history, philosophy. The grand école I got into was oriented towards statistics and economics, but even then, when I accepted, I was thinking I would do statistics and maybe sociology—I didn’t have economics in mind.
“I discovered that [economics] could be a fun topic to talk about, with interesting mechanisms, big questions, and big implications for the world.”
I think the real turning point was my peers. I made a group of friends in college that were very interested in economics, in macro in particular, and I discovered that it could be a fun topic to talk about, with interesting mechanisms, big questions, and big implications for the world. That led me to do a master’s in economics and then a Ph.D. in economics after that.
Do you remember some of those big questions that you would talk about with your friends?
Yes, I do. I started college in 2009, in the aftermath of the Great Recession, when unemployment and the stability of sovereign debt were topics that were quite important. I discovered that economic models could be really illuminating on these topics.
What do you think is one of the most useful ideas in economics?
What I like most about economics is that at the core is the idea of a maximization problem. “Maximization” might sound unusual, but I think the core idea is that people do things for a reason, and it’s our job to understand those reasons. People have objectives that they try to achieve with scarce resources. If you believe people are solving a maximization problem—they have good information and they are making the best choices for themselves given their goals—then just telling people to do something different is not an effective way to change things because they’re already doing their best given the circumstances they face. It’s paternalistic. We have to recognize that people are doing things for a reason, and trying to understand those reasons is the best way to advance information and welfare.
What economist, living or deceased, would you want to have lunch with?
This question isn’t easy! But I’ll choose John Maynard Keynes. He seems like a fun person to talk to because he had wide-ranging interests, including philosophy and ballet. He made fundamental contributions to economic theory while also trying to act on that theory to influence economic policy. And also, I would like to tell him about what happened after his time, what the situation is today [Keynes died in 1946]. So I think that would lead to interesting discussions. But yeah, many people would be very interesting to talk to.
What are you studying now?
Right now I’m at the finishing state of two projects. One of them is about the effect of health shocks on consumption among old age people. I think the novelty of this project is, first, recognizing that in old age people face some health risks that are permanent, but they also face health risks that are transitory. After age 65 or so, people may break their arm or have a stroke—and then recover. But these health shocks have a substantial effect on how much people consume, so we try to examine why. Is it because they have new medical bills to pay, and so they spend less on nonmedical purchases? Or is it because when you’ve broken your arm or when you’re not feeling well you don’t enjoy your consumption as much, and if you know the condition is temporary, it’s better to put off those purchases?
“What I like most about economics is that at the core is the idea of a maximization problem. … People do things for a reason, and it’s our job to understand those reasons.”
We examine these two possibilities, and we find that the second one is a bit stronger. After age 65, this type of transitory health shock does impair people’s ability to do different activities in the short term, but it’s not hugely costly in terms of the amount of money individuals have to pay. People have insurance for this type of medical expense, so the resource effect is not that large. Yet people are reducing how much they spend by more than just the cost of the medical expense. This suggests that what’s going on is that people prefer to postpone spending on leisure, equipment, going to sports events, going to concerts, things like that.
And what is your second project?
Right, so the second project looks at how people respond if they receive what economists call a “transitory income shock.” If you suddenly were given an extra $500, how much would you spend, and over what time horizon? What I find interesting is that people do respond—on average, people will spend quite a large share of this extra income.
One explanation is that people don’t have much liquid wealth—their income is small, or they just bought a house, that kind of thing. This explains a large part of why many people respond this way, but not everybody. What you see is that people who do have liquid wealth—they have cash or money in their bank accounts—they still use some of this extra $500 to increase their spending. Why do they do so?
I propose an explanation that is related to risk. These people do have liquid wealth around, but they keep it as a buffer because they’re facing quite a lot of risk about their future earnings. And when you give them extra cash, they realize that this extra is not needed as a buffer, because they already have that. So they can spend it instead. This says to me that they would like to spend more of their income, but because it’s risky, they do not do so. Now they can, so that’s why they respond.
What’s an important economic statistic that you think people should know, or one that has surprised you?
Well, this may not be the most important statistic to live your life, it won’t show up at trivia night. But I would use a statistic from the research I was talking about: If you give $500 to everybody in a population, on average people will spend about 30 percent of it over the next three months. That includes 11 percent on nondurable goods. I think this is interesting because a lot of people—a lot of economists—used to assume it would be zero. There are papers with economic models that predict that. Before the 2010s, we did not have good data on consumption so it was really hard to analyze these types of questions.
And then in the general population, the assumption seems to be the opposite. When I talk to non-economists, they wonder, why don’t people consume it all? That is what they expect.
So I think this statistic reflects the power of data-based research, which helped shed light on the fact that yeah, people do respond to this income shock. And once economists started incorporating this statistic in macroeconomic models, there were new implications for monetary policy and for fiscal policy. It also helps explain why consumption fell so much during the Great Recession, which amplified the initial housing wealth loss.
What do you want to study next?
Next, I’m interested in shifting my focus from how people respond to a one-time gain to taking a longer-term perspective: How people respond to the permanent component of their income. So, if they receive a promotion, or they complete new training that improves their labor market opportunities and now they can command a higher wage, how does their consumption respond to this longer-run shock? I think this answers a different set of questions. The one-time, transitory shock is useful for understanding how policies might impact people, particularly during booms and busts. Permanent shocks are more relevant to the long-run evolution of things like inequalities. If people who are richer consume a smaller share of their permanent income, they’re going to accumulate more wealth, which might lead to more inequality.
How does the research you’ve described relate to economic opportunity or inclusive growth?
I think the sensitivity of consumption to shocks is something that is key to business cycle dynamics. We know that recessions are usually unequal in how they affect people. People who are more likely to be unemployed or who have less job stability are affected more strongly than others. Trying to develop tools to reduce the magnitude of these shocks has implications for inequality and for generating stable, inclusive growth for people.
“If you suddenly were given an extra $500, how much would you spend, and over what time horizon? What I find interesting is that … on average, people will spend quite a large share of this extra income.”
Have you ever decided to abandon a project? And if so, why did you abandon it?
Yes. Or, well, it’s hard to completely throw them away, so for the moment they are in the waiting room, but they might never get out of this room! This has happened with theoretical results or technical points that I see in a model, but there’s no concrete application for it. Reading papers is time consuming, so my view is I shouldn’t write a paper that’s a pure result with zero application or implication for how we view the world.
Do you listen to podcasts, and if so, do you have a favorite?
I don’t listen to podcasts that much, though I did more during the pandemic. Then, I would listen to true crime podcasts, like In the Dark by APM Reports. I listened to French podcasts about musicals. All That Jazz was one of them. And back before the pandemic, I sometimes listened to econ podcasts. One of the ones that I like is InequaliTalks, hosted by Clémentine Van Effenterre. People come to talk about their papers or projects, it’s easy to follow, it’s interesting, and by the end, you get a good idea of what the paper is about.
Do you have a piece of advice you’ve read or received that you found particularly impactful or meaningful?
One of my sources of knowledge or advice is the econ Twitter community. And I read a tweet that was pretty useful to me. The advice is, if you didn’t finish a task today, make tomorrow’s task smaller, but not the same, and definitely not bigger. That was from Alyssa Bilinski. That’s a mistake I’ve made many times: Not finishing a task, feeling bad about not finishing it, and then trying to take on an even bigger workload tomorrow. But that won’t help you actually achieve anything.
If you could live anywhere, where would it be?
As you know, I’ve not yet been to Minnesota, so maybe once I’ve discovered this fantastic city, I would say Minnesota, Minneapolis in particular! Apart from that, I like Paris, which is where I’m based. I think I would like any place where you can bike or walk to work. That’s the one thing that is important for me, but otherwise I’m pretty open to places.