Why do we *still* have a Nobel Prize in economics?

by John Quiggin on October 14, 2013

Ingrid 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.

And the Nobel Memorial Prize in Economics…

by Ingrid Robeyns on October 14, 2013

Wait, why do we have actually have The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel ? If you have ten minutes to spare, Philip Mirowski will give us part of the answer, and tell us about his research project investigating this issue.

So, during our latest enjoyable discussion fracas mêlée, John alluded to the fact that what I have is something more like a reading illness than a love of literature per se. I usually either walked to school or took the (very crowded) bus when I lived in New York. So I never developed the special skill, honed to perfection by my uncle, of folding the New York Times first, in half upper to lower; then, in halves again but along the central line; finally, in half again along the midline, and reading 1/8 of a page at a time. This sounds easy. But you really need to picture my uncle, a partner at Cadwalader, Wickersham & Taft, taking the subway to work down on Wall Street from the upper East side, whence he was bound to get a seat–I must note he was being rather frugal (which will seem to be belied by what follows, but having a smaller number of really well-made suits is cheaper in the long run). There he is: sitting, in a beautiful bespoke suit (I thought he would die when during a brief fever of dot.com bubbliness the firm introduced “casual Fridays,” which policy was happily discarded in 2000, as I assured him it would be), and horn-rimmed glasses, on the express, hemmed in by people, none of whom he is inconveniencing in any way by his NYT reading, because of his special, lifetime-New-Yorker ability to pick up each section, shake it into sudden crisp folds against its own grain, and repeat, as needed, until all is read and the crossword finished by 7:45 a.m. when he gets to work. (As I say, it sounds easy, but think of what happens when you must get from an article folded into the top left 1/8 of one page into the middle 1/8 of the lower part of the next page, and you may not extend it beyond your knees or your elbows beyond your shoulders.) He is a very meticulous and wonderful person, my uncle.
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