Home > Uncategorized > The Nobel prize in economics is a disgrace. Dump it!

The Nobel prize in economics is a disgrace. Dump it!

from Lars Syll

Nobel Prize medalThe Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, usually — incorrectly — referred to as the Nobel Prize in Economics, is an award for outstanding contributions to the field of economics. The Prize in Economics was established and endowed by Sweden’s central bank Sveriges Riksbank in 1968 on the occasion of the bank’s 300th anniversary.The first award was given in 1969. The award this year is presented in Stockholm at a ceremony tomorrow.

Out of the 75 laureates that have been awarded “The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel,” 28 have been affiliated to The University of Chicago — that is 37 %. Of all laureates, 80% have been from the US (by birth or by naturalisation). Only 7% of the laureates have come from outside North America or Western Europe. Only 1 woman has got the prize. The world is really a small place when it comes to economics …Looking at whom the prize is given to, says quite a lot about what kind of prize this is. But looking at whom the prize is not given to, says perhaps even more.

The great Romanian-American mathematical statistician and economist Nicholas Georgescu-Roegen (1906-1994) argued in his epochal The Entropy Law and the Economic Process (1971) that the economy was actually a giant thermodynamic system in which entropy increases inexorably and our material basis disappears. If we choose to continue to produce with the techniques we have developed, then our society and earth will disappear faster than if we introduce small-scale production, resource-saving technologies and limited consumption.

Following Georgescu-Roegen, ecological economists have argued that industrial society inevitably leads to increased environmental pollution, energy crisis and an unsustainable growth.

Georgescu-Roegen and ecological economics have turned against the neoclassical theory’s obsession with purely monetary factors. The monetary reductionism easily makes you ignore other factors having a bearing on human interaction with the environment.

I wonder if this isn’t the crux of the matter. To assert such a thing really is to swear in the neoclassical establishment church and nullifies any chances of getting the prestigious prize.

Twenty years ago, after a radio debate with one of the members of the prize committee, I asked why Georgescu-Roegen hadn’t got the prize. The answer was – mirabile dictu – that he “never founded a school.” I was surprised, to say the least, and wondered if he possibly had heard of the environmental movement. Well, he had — but it was “the wrong kind of school”! Can it be stated much clearer than this what it’s all about? If you haven’t worked within the mainstream neoclassical paradigm — then you are more or less excluded a priori from being eligible for the The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel!

Two years ago — making an extraordinarily successful forecast — I told Swedish media the prize committee would show how in tune with the times it was and award the prize to Eugene Fama. Why? Well — I argued — he’s a Chicago economist and a champion of rational expectations and efficient markets. And nowadays freshwater economists seem to be the next to the only ones eligible for the prize. And, of course, an economist who has described the notion that finance theory was at fault as “a fantasy” and argued that “financial markets and financial institutions were casualties rather than causes of the recession” had to appeal to a prize committee with a history of awarding theories and economists totally lacking any real world relevance.

Well, my forecast turned out to be right — the Swedish Academy of Sciences awarded The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel for 2013 to Eugene Fame. The prize committee really did show how in tune with the times it was …

I love to be right of course, but otherwise this is only saddening and shows what a joke this prize is, when someone like Fama can get it. Maybe I’m not showing proper “respect” for Fama’s “important steps forward”, but, really, how could one after reading the following interview with Nobel laureate Fama?

Many people would argue that, in this case, the inefficiency was primarily in the credit markets, not the stock market—that there was a credit bubble that inflated and ultimately burst.

Eugene Fama: I don’t even know what that means. People who get credit have to get it from somewhere. Does a credit bubble mean that people save too much during that period? I don’t know what a credit bubble means. I don’t even know what a bubble means. These words have become popular. I don’t think they have any meaning.

I guess most people would define a bubble as an extended period during which asset prices depart quite significantly from economic fundamentals.

Eugene Fama: That’s what I would think it is, but that means that somebody must have made a lot of money betting on that, if you could identify it. It’s easy to say prices went down, it must have been a bubble, after the fact. I think most bubbles are twenty-twenty hindsight. Now after the fact you always find people who said before the fact that prices are too high. People are always saying that prices are too high. When they turn out to be right, we anoint them. When they turn out to be wrong, we ignore them. They are typically right and wrong about half the time.

Are you saying that bubbles can’t exist?

Eugene Fama: They have to be predictable phenomena. I don’t think any of this was particularly predictable.

John Cassidy

So, without any respect whatsoever, I say once again — Dump the prize!

  1. October 12, 2015 at 9:48 am

    Surely there’s a case for setting up a petition on Avaaz or a campaign with 38 Degrees or some similar ogranization, to do away with the Nobel Prize for Economics, here?

  2. October 12, 2015 at 2:01 pm

    Thank you, Lars Syll ! I have been trying, along with lawyer Peter Nobel , to expose this intellectual scandal for decades ! Finally, the Nobel family followed Peter Nobel in dissociating themselves from this false ” nobel” prize ! See all my editorials on this subject at http://www.hazelhenderson.com . I had similar exchanges with Nassim Taleb, who told me he had brought this mistake to the attention of the King of Sweden at a garden party , to no avail.
    I was also a friend and admirer of Nicholas Georgescu Roegen and wrote a review of THE ENTROPY LAW and the ECONOMIC PROCESS in the Harvard Business Review in 1971 . Think how it would have changed political debates over the years if, for example, Milton Friedman had been correctly introduced in media interviews as winner of the Swedish Central Bank’s Prize in Economics !

  3. October 12, 2015 at 2:36 pm

    Says Jean-Pierre Dupuy in “Economy and the Future – A Crisis of Faith” 2014:

    “Little by little, Economy emancipated itself from the shackles of the sacred. Once held in check by religion, and then by politics, it has today become both our religion and our politics. No longer subject to any higher authority, it cannot decide our future, or make us a world in which to live: it has become our future and our world. Advanced postindustrial societies have been well and truly mystified, in the original sense of that word, and their politicians hoodwinked. The result is paralysis. …. If civilization can yet be saved from extinction, the change in attitude this requires of us must be, first and foremost, metaphysical in nature.”

    • October 13, 2015 at 6:24 am

      Amen to that Ib. And that could be either/and/or supernatural or natural metaphysics.

      • October 13, 2015 at 12:35 pm

        Thanks – my hunch is that natural metaphysics will serve us the best – we have to nurture our capacity for self-transcendence in order for us to understand and relate to our global predicament.

  4. October 12, 2015 at 4:20 pm

    Thanks, this is a great example.

    For me, the best examples of scrambled Nobel economics flow from Paul Krugman. The subjects and axioms of Krugman are far fetched fiction used to distract.

  5. Jeff Z
    October 12, 2015 at 9:33 pm

    Lars, your case and Hazel Henderson’s case are in fact strengthened by the fact that the committee in charge of the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel awarded the prize to two other economists in 2013, the same year that Fama won. One was Robert Schiller, and both won for “for their empirical analysis of asset prices.” The third person to get the award that year (2013) was Lars Peter Hansen.

    At the very least, Schiller’s analysis and Fama’s analysis come to contradictory conclusions in their empirical analysis of asset prices, thus highlighting an additional problem with the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel. (Thank you copy and paste!)

  6. Dave Raithel
    October 13, 2015 at 2:19 am

    “They have to be predictable phenomena”… OK, I’ll just concede that, to all you economists of every stripe and persuasion. So for all the events that are not predictable, we’re gonna need a solid moral theory for picking up the pieces.

  7. Guest
    October 14, 2015 at 5:47 pm

    It sould be called “Sveriges Riksbank’s Political Prize in Economics” to reflect its real role, and purpose in advancing right-wing politics.

    Right wing lies are the most important problem of our times, ruining lives, ruining our societies. Decent people need to stand up to these madmen, to expose them. To call a spade a spade.

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