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The Rise of the Economics Underdogs

Handelsblatt, the German equivalent of the Wall Street Journal and the Financial Times, today featured an article on the Revere Prize in Economics.  Here is an English translation. 

The Rise of the Economics Underdogs 

Norbert Haering

No economist saw the crisis coming? But some did, and the Real-World Economics Review Blog has announced a prize for the best doom-mongers. To decide who should get it, Internet users can vote online.

The question of which representatives of the economic profession deserve the biggest blame for the Great Financial Crisis, has already been resolved: Alan Greenspan, Milton Freedman and Larry Summers. Now the alternative economists from the network for post-autistic economics want to show that many economists have warned of the crisis. Only no one with the power to do anything has paid attention, because those who warned did not belong to the mainstream.

Those economists off the mainstream now want to draw attention to the early warners within their ranks and show that the crisis could have been averted if they had been listened to. For that purpose they have organized a vote on the blog website of the online journal Real World Economic Review to determine three economists who should get the Revere Award for economics.

The name refers to the U.S. folk hero Paul Revere, who warned the rebels in the American War of Independence against the approaching British troops. The editor of the alternative Internet journal Real World Economic Review, the British economist Edward Fullbrook, explains that the purpose of the undoped prize “is to draw public attention to the wise people who have proven that they can recognize crisis signals and whose work can help avert the next crisis.”

The frontrunner of the twelve economists, selected for the shortlist by the organizers after a public proposal process, is currently Australian economist Steve Keen, just ahead of Ann Pettifor, Dean Baker and Nouriel Roubini. Keen dedicated a Website in 2005 to warning of an impending credit crunch.

He has just completed a highly publicized march of more than 200 km across the Australian desert to draw attention to what he sees as an absurd situation in the Australian property market. Ann Pettifor is known as the initiator of the Jubilee initiative for debt relief for the poorest countries and for books and essays warning of an impending debt crisis in the developed world. The latter also applies to Dean Baker, the head of the alternative U.S. Economic Research CEPR. Nouriel Roubini, head of the consultancy with his name and professor at New York University, made a name for himself as a Cassandra, because he repeatedly warned of the dangers of the real estate price bubble in the U.S.. On the short list are also household names such as George Soros, Joseph Stiglitz and Robert Shiller.

At the February vote on the completed Dynamite Prize for Economics more than 7500 people had voted, most of them readers of the Real World Economic Review. Alan Greenspan received the most votes in recognition of his responsibility as chairman of the Federal Reserve from 1987 to 2006 for the vigorous expansion of money supply and bank credit, which made the crisis possible. He had vehemently argued that financial markets are inherently efficient and should not be regulated.

Nobel laureate Milton Friedman was “honored” for promoting a “phantasy-based” scientific method postulating the efficiency of the financial unregulated market. The third “winner”, Larry Summers, is now national economic adviser. Summers was instrumental in the repeal of Glass-Steagall Act, which required a strict separation between investment banking and deposit business. He also blocked along with Greenspan efforts to regulate derivatives. The uncontrolled and totally non-transparent trade in credit derivatives is considered the main cause for the current financial crisis.

Initiator Fullbrook points out: “The Revere Award is part of our response to attempts by economists to cover their responsibility for the crisis by designating them as unpredictable.” This is misleading. Instead there have been a number of economists who, on the basis of more realistic approaches than the ones pursued by the economics mainstream, offered advance warning of the looming crisis.

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