The Damage Done by the Nobel Prize in Economics
Has the institution of the Nobel Prize in economics been a cause of the global economic woes of the last 20 years – its financial crises, its economic slowdowns and its increasing intra-national inequalities? In their recent book, The Nobel Factor: The Prize in Economics, Social Democracy, and the Market Turn, authors Avner Offer and Gabriel Söderberg make a good, if somewhat haphazard, case that it has.
The entrenched mindset
A recent article by John Cassidy in The New Yorker, titled “Hillary Clinton’s Plan to Squeeze the Ultra-Rich,” begins with a photo caption reading, “Democrats in 2016 are making the case that using the tax system fairly aggressively to counteract inequality and boosting G.D.P. can actually be complementary.”
Why the “actually”? The word “actually” is generally used to buttress an assertion when it seems counterintuitive or unlikely to be true. This suggests that, to most readers, the notion that an aggressive use of the tax system could be complementary to boosting G.D.P. is counterintuitive.
If this seems counterintuitive to you, then your intuition may have been influenced by a series of Nobel Prize winners in economics. Prior to the awarding of these Nobel Prizes, that was probably not most people’s intuition.
It is the effect of this creeping certainty about particular economic relationships that the authors wish to highlight – and to note that these relationships have never been proven true; even the creators of these theoretical relationships do not believe them to be true in the real world.
The origin of the Nobel Prize in economics
Offer and Söderberg are economic historians. Much of their book is taken up with economic history, a lot of it specific to Sweden. Though I read at rapid speed much of their Swedish economic history, their account of the creation of what is widely believed to be the Nobel Prize in economics is particularly interesting.
The originator of the idea was Per Åsbrink, Governor of the Riksbank, Sweden’s central bank. For a variety of reasons in the 1960s the bank had accumulated a substantial fund from its profits. It decided to use part of it to create a “special jubilee” to take place on May 15, 1968, to celebrate the bank’s tercentenary (300th anniversary). About 100 central bankers and other dignitaries would be invited.
As the date approached, Åsbrink, in 1967, reluctant to hand the bank’s profits back to the Treasury, came up with the idea of using them to establish a Nobel Prize in economics. He discussed it with his young special advisor Assar Lindbeck, who pursued it from there. There were some objections from scientists, who didn’t believe economics merited such an award, and from the Nobel family itself. However, since the money didn’t come from Nobel family funds but from the Swedish taxpayer, they had little say in the matter.
The only concession to the family was made when its oldest living member, an 87-year-old woman, insisted on setting the prize apart by naming it “The Prize in Economic Science in Memory of Alfred Nobel,” versus the other, more simply named awards, such as the Nobel Prize in Chemistry. As Offer and Söderberg say, “This showed a remarkable presence of mind, since the awkward title has continued to tarnish the award ever since.” Peter Nobel, Alfred’s great-great nephew, according to Offer and Söderberg, later wrote that “The Economics prize has nestled itself in and is awarded as if it were a Nobel Prize. But it is a PR coup by economists to improve their reputation.”