October 14, 2020 - 7:00am
A knock on the door in the middle of the night is usually bad news. But not for the American economist Paul Milgrom. His midnight caller was his colleague, Bob Wilson, bringing the happy news that the pair had just won the 2020 Nobel Prize for economics. Milgrom, not unreasonably given the hour, took some rousing. You can see the video here.
A lovely moment, but also a symbolic one. The whole world is knocking at the door of the economics profession, but without getting the answers we need. In this respect, the Nobel Prize is part of the problem — because, too often, it honours the wrong sort of economics.
Just look at the list of former winners. For a start, it’s dominated by the academic establishment of just one country. Most of the laureates are American, and most of those who aren’t are based at a US university. Other nations barely get a look in.
Another thing the laureates have in common is that almost all of them are men. To date, just two women have won: Elinor Ostrom (2009) for showing how, counter to the ‘tragedy of the commons’, communities are capable of stewarding shared resources; and Esther Duflo (2019) for her work using on randomised control trials to assess the effectiveness of aid programmes.
The real issue, though, is what the winners are being honoured for. While Ostrom and Duflo’s contributions do concern real-world problems, other contributions are mind-numbingly abstract. Economists are honoured for their devotion to such technicalities the ‘Markov perfect equilibrium’, the ‘Diamond coconut model’ and the almost-too-exciting ‘generalised method of moments’.
Obviously, these represent genuine academic achievements — and some will have practical applications. But do they answer the really big economic questions of our time? In a series of tweets, Branko Milanovic puts forward some examples of what we actually need to know:
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SubscribeA good article, although many of us have been saying this for some time. Quite frankly I don’t think any intelligent person takes any of these awards seriously, from the Booker Prize (I’ve read a lot of the winners and they are often garbage) to the Oscars (has a good film ever won?) to the Nobel (Paul Krugman for God’s sake!) racket.
My understanding that the ‘Nobel’ prize in economics is not one of the prizes that Alfred Nobel established in his will in 1895, hence it is not correctly a Nobel Prize, however, it is administered and referred to along with the other Nobel Prizes by the Nobel Foundation. The Nobel Memorial Prize in Economic Sciences is officially the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, Laureates in the Memorial Prize in Economics are selected by the Royal Swedish Academy of Sciences. My understanding is that Alfred Nobel do not include economics because it is not a science based on traditional empirical analysis of observable phenomena, it is rather more of an arts subject based on statistical analysis and consequently somewhat flawed from a science perspective. Perhaps this is why it seems to have lost its way.
How did governments manage to slash interest rates to zero for the last decade without unleashing runaway inflation?
The answer is just too easy to honour with a Nobel Prize.
Acoording to my very own theory Hyperinflation is caused when the market for your currency shrinks at the same time as the quantity of currency is growing.
Standard theories of inflation always seem to assume the economy stays the same size as the money supply increases.
However, anyone with a choice stops using the currency at a certain point.
So the market for Zimbabwean dollars shrank to a tiny proportion of its previous size, as Zimbabweans chose to do their business in Rand. That put it into a death spiral.
On the other side is the fact that in a globalised economy and with movement of people, the inflating GBP you just ‘spent*’ in China comes back, attached to a Chinese person. They don’t buy much British food with the money, but they do buy British houses. So the government finances foreign borrowing by selling British land to foreigners. We won’t see food hyperinflation, until a shortsighted government tries to takes the houses back off the foreigners, and claims that the resulting food inflation was caused by ‘speculators’. What actually happens, is Chinese investor sells house cheap for GBP, swaps GBP for Renminbi, pushing down the pound with resulting food inflation.
I doubt I deserve a Nobel Prize for that analysis.
* By ‘spent’ I mean exchanged for RMB (pushing down GBP), bought Chinese produce. Chinese produce seller then converts profits back to GBP from RMB (pushing up GBP, pushing RMB back down) as long as he is tempted to buy e.g. UK bonds, or houses with the money.
Not a very helpful metaphor. Is it a coincidence that the female winners happened to also be the only reality-bound ones, or is it just for political correctness? Or did you simply forget Al Roth for saving lifes through his contribution to the organ donation-organizing institution. And Amartya Sen showing the way to a more equal and just world? Is it also fair to forget the reasons some Physics Nobel Prizes are won for? Are they all understandable to you (and me, as an outsider)? Is not the world asking geologists urgently to predict sooner and more accurately earthquakes? This would save many lifes but we are not there yet and still someone investigates some obscure properties of mater. So what? Not to mention the proportion of female Physics Nobel Prize winners! Finally, note that some useful simple ideas have been put forward by economists even couple of centuries ago. For example that cartels are bad for the world. But politics have only partially listened. Blaming the “economics profession” (in Economics, Nobel Prize winners have also been Psychologists or Mathematicians) for this is like blaming the doctors for the Covid19. This is a very biased and somehow uninformed sensationalist attack against a fast evolving social science which already looks extremely different from what used to look like in the times in which these comments would have been fair.
It’s almost like clockwork, every single year when the Severiges prize for economics in honor of Nobel is awarded. We have people like you, whom (no offense) don’t understand economics beyond undergraduate level come out and decry the current state of academic economics because what does “all these abstraction” have to do with anything. I say this for a reason, I was like that before grad school, and I was a Econ major at that. Truth is, real rigorous economics are abstract, and they help us understand things fundamentally just like physics. To be rigor, you have to start small and avoid generalization. I don’t agree with all Milgrom’s theories, but he did important work for economics and for humanity. His methods help facilitated a market, when without it, the market wouldn’t exist due to barriers and entrance problems. His work influences how much you pay for electricity, how much you pay for cellphone services, and how much you pay for water, just to name a few. Really just a lot things ordinary people take for granted or never think about, yet they don’t truly understand how things work in the background. I encourage everyone who’s interested, to try to understand them, all the informations are out there, they are just hard to understand or solve. That’s why we have the economists whose jobs are to come up with solutions on economics problems. Same goes for any science. So, all the issues you raised, chances are economists have already thought about them, if you can’t find an answer, it’s either because it’s too complex no one can solve it yet, or it’s too generalized, that there’s no one answer to fit all.
You know what’s the difference between an economist and astronomer? Everyone has a opinion on economics. Not everyone holds a strong opinion about stars.
How much I pay for water? Poor example. Water is a monopoly in Yorkshire. I pay whatever Yorkshire Water decide.
Thanks to Peter Franklin for flagging up this difference between the Economics prize and the other Nobel categories. I remember an astronomer friend saying that he and his colleagues regarded a scientific breakthrough as ‘major’ if it should trigger a re-write of an undergraduate textbook. Clearly, the economists on the Nobel committee have set the height of the high jump very much lower.
Well, your friend is right in some sense. However, teaching mechanism design in undergraduate level, almost all students will fail, because it’s too theory and math heavy (you’d need to have taken analysis, game theory, linear algebra, optimization – all the courses you may only take after calculus 3). In another word, they would, it’d be good for the students to know, the materials are remarkable. But in reality they can’t, it’s just too difficult.
three is footage to find basic gravitation center in any form
“We” are not honouring: the Nobel committee is honouring. The rest of us don’t care at all.
Peter! I much appreciate the sentiment.
I say this as a card-carrying empiricist, economic historian, and economist. I also say this as someone who knows quite a number of Nobel laureates in economics, including my own dad. He was serious about making contact with the real world, too. Kind of unusual.
Ceteris Paribus says it all. Simplification to the point of meaningless. That’s the profession.
Scientists are not money grabbers they create good scientific research just because it is interesting, challenging and fun.
Application of theory is a byproduct of good science and not vice versa.
You can’t change how science will evolve by throwing money on it.
Bingo. Nailed it.
There is already an alternative award called “not the nobel prize”
https://economicpluralism.o…
It seems that petty narrow pro-market modelists with quantification mania are favourites of the Nobel committee. The ghost of the auctioneer haunt them. In the past they honoured financial market equationists whose very own company crashed during the Great Recession. What is the use of rational expectations story telling to an Asian student? I have heard some of them giggling and joking about the “Lucifer-Satan” model of hyper rationality. Moreover the Nobel selection committee believes that some universities like Chicago, Harvard or Stanford of America alone could produce greatest minds. Even great US economists who really did great work like Professors Baumol, Minsky or Weitzman were not awarded Nobel Prize. What is the importance of a narrow theory like that of the auction theory in a developing country? I am a student of psychology also and I think that the field of psychology is more justified than economics for a Nobel Prize
Once Barack Obama “won” ( was awarded ) the Nobel Peace Prize, the laughter in the normal world was so loud that Nobel award committees will never live it down. When merit and achievement don’t matter, then who cares? The Nobel is becoming as risible as the Academy Awards.