The Nobel factor — the prize in economics that spearheaded the neoliberal revolution

from Lars Syll

The 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 on Monday 10 October.

Avner Offer’s and Gabriel Söderberg’s new book — The Nobel factor: the prize in economics, social democracy, and the market turn (Princeton University Press 2016) — tells the story of how the prize emerged from a conflict between the Swedish central bank — Sveriges Riksbank — and social democracy. It is no pure coincidence that the ascendancy of market liberalism, Reagan and Thatcher, to a large part coincides with the creation and establishment of the prize. Especially during the despotic Assar Lindbeck’s long chairmanship — 1980-1994 — the prize was thought to take advantage of the connection with the true Nobel prizes and spearhead a market-oriented neoliberal reshaping of the world. Although not all economists who have got the prize have enlisted in the market-liberal crusade, it is still an undeniable fact that neoliberal and conservative leaning male economists are highly over-represented among the laureates. Their often ideologically biased doctrines have to a large extent motivated the neoliberal turn in economic policies for more than forty years. 

Out of the 76 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. Offer and Söderberg do that, 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 — Ingmar Ståhl — 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!

Three 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.

The ‘Nobel prize’ in economics is — and has always been — a total disaster from both a scientific and social point of view, and after having read Offer’s and Söderberg’s book, there is, at least to me, only one conclusion to draw, and that is: Drop it!