Why do we *still* have a Nobel Prize in Economic Sciences?

Ingrid Robyens at Crooked Timber links to some fascinating discussion from Philip Mirowski of the role of Swedish domestic politics in the establishment of the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, with emphasis on the way in which claims of “scientific” status for economics helped the claim of the Swedish central bank to independence from government.

In the broader context, it seems pretty clear that, if the idea had arisen even a few years later, it would have been rejected. In 1969, economics really did seem like a progressively developing science in which new discoveries built on old ones. There were some challenges to the dominant Keynesian-neoclassical synthesis but they were either marginalized (Marxists, institutionalists) or appeared to reflect disagreements about parameter values that could fit within the mainstream synthesis.

Only a few years later, all of this was in ruins. The rational expectations revolution sought, with considerable success, to discredit Keynesian macroeconomics, while promising to develop a New Classical model in which macroeconomic fluctuations were explained by Real Business Cycles. This project was a failure, but led to the award of a string of Nobels, before macroeconomists converged on the idea of Dynamic Stochastic General Equilibrium models, which failed miserably in the context of the global financial crisis. The big debate in macro can be phrased as “where did it all go wrong”. Robert Gordon says 1978, I’ve gone for 1958, while the New Classical position implies that the big mistake was Keynes’ General Theory in 1936

The failure in finance is even worse, as is illustrated by this year’s awards where Eugene Fama gets a prize for formulating the Efficient Markets Hypothesis and Robert Shiller for his leading role in demolishing it. Microeconomics is in a somewhat better state: the rise of behavioral economics has the promise of improved realism in the description of economic decisions.

Overall, economics is still at a pre-scientific stage, at least, as the idea of science is exemplified by Physics and Chemistry. Economists have made some important discoveries, and a knowledge of economics helps us to understand crucial issues, but there is no agreement on fundamental issues. The result is that prizes are awarded both for “discoveries” and for the refutation of those discoveries.

35 thoughts on “Why do we *still* have a Nobel Prize in Economic Sciences?

  1. What do we mean when we say economics isnt scientific ? If it is evidence and logic based and proceeds by making testable hypothesis then it is scientific . Failure to find universal laws doesnt make a field unscientific in its methodology.
    My random musing ;- One problem in finding universal laws where human behaviour is involved may be that in an attempt to gain advantage over each other competing people and nations will undermine any successful model once they have it .In this way human activity prevents the formulation of universal laws ,once enough people take the laws into account in an attempt to make money the laws break down as predictors .
    Also, maybe its because I have no training in macro-economics that it usually seems to make most sense to me when put in psycho/social terms ;but maybe not .

  2. In furthering sunshine’s comment, I’d point out that advances such as general relativitiy, by their necessity, started out as theoretical exercises well before strong evidence existed. All Einstein had to work with were tantalising hints, and a strong intuition. Oh, and a decade of persistence at figuring out how Riemann’s “pure” mathematics on curved manifolds could be used as a basis for a geometric approach to spacetime. Hard slog, and it could have collapsed on the very next discovery of the astronomy community.

    The willingness of academics to stick to their guns on theoretical work that fails the data isn’t confined to economics, not by a long shot. Perhaps economics is approaching a moment of truth, the one where it either jumps the shark, or it finds within itself a whole new direction of research that’s more in tune with measured reality, a Kuhnian revolution, perhaps?

  3. Modiglani considers the Keynesian vision of macroeconomic policy to be:

    a market economy is subject to fluctuations which need to be corrected, can be corrected, and therefore should be corrected.

    Friedman’s vision of central banking is far more circumspect:

    The central problem is not designing a highly sensitive [monetary] instrument that offsets instability introduced by other factors[in the economy], but preventing monetary arrangements becoming a primary source of instability

  4. @hc nails it. Though Harry is a tad harsh in his list of the deserving – I think Friedman, for all his errors, deserved a prize. I’d also seriously think about giving it to a handful of microeconomists – say Akerlof. If we chose to define “economics” really broadly then maybe you’d also think about the odd statistician like Hansen or philosopher like Rawls.

    I’ve always thought the economics “Nobel” should not be given every year but reserved for occasional use for people who have made truly big advances and whose advances have stood the test of time. Such advances happens much less than once a year.

  5. #27 Jim Rose mentions Modigliani. Could someone please explain what is new in Fama that Modigliani & Miller and their commentators missed?

  6. “the rise of behavioral economics has the promise of improved realism in the description of economic decisions.”

    I’ve noticed that a recent Economics Nobel Laureate isn’t, in fact, an economist, this is a very positive development indeed.

  7. @derrida derider

    Friedman was a charlatan through and through. He made stuff up. He ignored empirical evidence. He kept repeating assertions and prescriptions after he knew they had been falsified. He was in the pay of the plutocrats and working solely for them.

    Actually, it’s interesting in the history of thought, just how often charlatans gain an immense following and garner much success and wealth. Humans are such a credulous bunch when it comes to believing invented nonense and so hard to convince with extensive empirical evidence. I think it has something do with the fact that blind belief is easy, requiring almost no thought or effort at all, whereas assessing truth on real evidence is quite a painstaking process.

  8. @sunshine
    From what of seen of psychology, it is deeply affected by fads, wave after wave of them; I’m referring to psychology as a clinical practice here, not as a research discipline. Furthermore, the same presenting symptoms can conjure up entirely different “explanations” from different psychologists, explanations that are mutually exclusive, and explanations that are impossible to refute (or to prove are true, for that matter). Such is the nature of the mysteries of the mind.

    The current practice seems to be to largely ignore the patient’s symptoms, while pushing the favoured treatment upon them. Aside from being patronising in the fashion of the doctors of old, where a diagnosis and treatment was pronounced by the voice of authority, uncontested, it raises the question as to how a treatment can be applied without great consideration of the symptoms and the underlying condition. That’s not to say that the current treatments are useless: there is nothing wrong with learning mindfulness therapy or cognitive behavioural therapy, for example; it just seems rather strange and arbitrary for so many conditions to be lumped in as requiring a single treatment type. It is a bit like seeing a group of patients, one with a grazed knee, another with a bump on the head from fainting for some unknown reason, a compound fracture, and another with an arrow through their chest, and then applying bandages and leeches to all of them. The bandages can’t hurt, the leeches are benign, but it is rather missing the point. Something just doesn’t seem to sit right with that.

  9. @Ikonoclast speaking of charlatons and false dawns, Mises explained the youthful allure of socialism thus:

    It promises a Paradise on earth, a Land of Heart’s Desire full of happiness and enjoyment, and—sweeter still to the losers in life’s game—humiliation of all who are stronger and better than the multitude.

    Logic and reasoning, which might show the absurdity of such dreams of bliss and revenge, are to be thrust aside. Marxism is thus the most radical of all reactions against the reign of scientific thought over life and action, established by Rationalism.

    It is against Logic, against Science and against the activity of thought itself—its outstanding principle is the prohibition of thought and inquiry, especially as applied to the institutions and workings of a socialist economy.

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