Economist Stanley Fischer, who played a central role in global economy and currency policy for decades, passed away on the 31st of last month (local time). He was 81 years old.
He played a pivotal role during every global financial crisis. Fischer held key positions in international economic organizations, including First Deputy Managing Director of the International Monetary Fund (IMF), Governor of the Bank of Israel, and Vice Chairman of the Board of Governors of the Federal Reserve System (Fed). He was also regarded as the 'economists' economist' for training global policymakers such as Ben Bernanke, Mario Draghi, Larry Summers, and Kazuo Ueda during his tenure as a professor at the Massachusetts Institute of Technology (MIT).
Fischer was born in 1943 in the rural village of Mazabuka, then-British Northern Rhodesia (now Zambia), and spent his childhood in South Africa. After completing his bachelor's and master's degrees at the London School of Economics (LSE), he earned his Ph.D. at MIT under the mentorship of titans like Paul Samuelson and Robert Solow. In the 1970s, he developed a new currency policy theory reflecting the reality that wages do not easily change, which played a significant role in forming the economic school known as 'New Keynesian Economics.' His 1977 paper provided insights that central banks could promote employment and growth in the short term, which laid the theoretical foundation for today's mainstream currency policies.
In the late 1990s, Fischer directed responses to financial crises in emerging markets such as Mexico, Russia, and Asia as First Deputy Managing Director of the IMF. He practically led the 'Washington Consensus' strategy emphasizing high interest rates, fiscal austerity, and market opening, and was deeply involved in designing large-scale bailout packages. However, this approach faced criticism for inflicting excessive pain on emerging market economies. High interest rate policies were said to worsen recessions, while restructuring and austerity damaged social safety nets and hit the impoverished.
The fact that the IMF imposed a one-size-fits-all prescription, ignoring the autonomy and context of each country, was also highlighted. Fischer acknowledged these criticisms and adjusted his stance toward emphasizing the need for flexible policy coordination based on individual country circumstances rather than universal solutions.
From 2005 to 2013, Fischer served as Governor of the Bank of Israel, contributing to improving Israel's economic structure. During the 2008 global financial crisis, Israel was one of the few countries that proactively lowered interest rates among major economies, as he handled uncertainty through foreign exchange market interventions and institutional reforms. He enhanced institutional independence by decentralizing the governor's authority and establishing a monetary policy committee that included external members, which led to improved trust in the Central Bank.
In 2014, he was nominated by President Obama as Vice Chairman of the Federal Reserve, where he coordinated a balance between financial regulation and interest policy alongside Chair Janet Yellen. He repeatedly warned of the potential for excessive loosening of the financial system, stressing that "regulation should pursue long-term stability over short-term outcomes." While he was somewhat classified as hawkish within the Fed, his sense of policy balance garnered trust throughout the international financial community. He resigned early in 2017 for health reasons concerning his wife.
Fischer's legacy extends beyond his career in theory and practice to profoundly influence future policymakers. During his time at MIT, he encouraged students to meet weekly for discussions, even suggesting, "Come even when you have nothing to say," and his teaching style, which involved running along the Charles River while discussing papers, has become legendary. His representative work, "Macroeconomics," has been a must-read for economics students for decades, and his lectures and advice have directly and indirectly influenced countless global policy decisions.
Like the assessment by The New York Times (NYT) calling him "the paramedic of the battlefield," Fischer is always regarded as a practitioner and scholar who is the first called upon whenever the world economy falls into turmoil. His contributions to emergency bailouts at the IMF, institutional reforms in Israel, and normalization policies at the Fed were not one-off efforts but a pursuit of 'sustained system stability.'