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“The Nobel prize in economics takes too little account of social democracy”

From today’s Guardian

The Nobel prize in economics takes too little account of social democracy
Avner Offer

The Nobel prize in economics will be announced today. For economists, it is the pinnacle of reputation. When the word Nobel becomes attached to a winner’s name, his word acquires newsworthy authority (only one woman, Elinor Ostrom, has won the prize so far). The prize matters to everyone else too, because of market liberalism, which advocates marketisation, deregulation, union-busting, financialisation, inequality, outsourcing of healthcare, pensions and education, low taxes for the rich, and globalisation. In the 1990s, this rightwing platform was endorsed by New Labour, Clinton Democrats, and their equivalents elsewhere.

The faith in markets comes from economics. Confidence in economics is underpinned by the Nobel prize, which gives it scientific authority. Nobel economist Paul Samuelson quoted the poet William Blake: “Truth can never be told so as to be understood, and not to be believed.” There is also a Nobel prize for literature. Is the truth of economics more like physics or literature? How good a warrant does economics provide for the primacy of markets?

Like market liberalism, economics regards buying and selling in markets as the template for human relations and claims that market choices scale up to the social good. But the doctrines of economics are not well founded: premises are unrealistic, models inconsistent, predictions often wrong. The halo of the prize has lent credibility to policies that harm society, to inequality and financial disorder. 

Economics does not have the field of policy entirely to itself. A different view of the world – social democracy – is used by governments to allocate about 30% of GDP in most developed countries for employment, healthcare, education, and pensions. Social democracy is not only a political orientation but also a bipartisan method of government. Like economics, it accepts the primacy of markets in production and consumption. Markets reward wealth and success. In social democracy, entitlement is equal, and arises from citizenship, though one-size-fits-all sometimes creates its own problems.

The Nobel prize came out of a longstanding social conflict. On one side, central banks and the better-off striving to keep property intact and prices stable; on the other, everyone else’s quest for economic security. The Swedish social democratic government clipped the wings of the central bank – Sveriges Riksbank – in pursuit of more housing and jobs. In compensation, the government allowed the central bank to keep some funds, which the bank used in 1968 to endow the Nobel prize in economics as a vanity project to mark its tercentenary.

The standing of economics as a profession is probably at an all-time low so whose idea or work is likely to win over the committee this year?

The prize is controlled by a committee of Swedish academics. It was long held captive by centre-right economists. Assar Lindbeck was chairman between 1980 and 1994, and intervened stridently in politics. Competent economists agreed, he said, that high taxes and full employment would lead to disaster. Like British and American economists later, he missed the danger of loose credit, which caused a severe crisis in Sweden in the 1990s.

The prize achieved credibility by means of a rigid balance between pairs of opposites, the right and left, theoreticians and empiricists, Chicago economists and followers of Keynes. Surveys show that economists are to the left of the committee in their sympathies (if not their doctrines). Prize winners are mostly the best economists and provide a good sense of what the discipline is about. But only one of them (Gunnar Myrdal) expounded social democracy. Left-leaning Nobel economists still favour market solutions.

This is costly. Social democracy is not as deeply theorised as economics, but has been enormously successful in providing social and public goods. It has kept economic insecurity at bay. Its method of mutual support is more efficient and equitable than private healthcare, education, and pensions. Social-democratic politicians do not always understand this. If economics is compelling, social democracy is indispensable. The two doctrines have adapted to each other but their marriage is not happy.

In the meantime, the me-first assumptions of economics have led to corruption and tax inequity, and an escalating public mistrust of governing elites. Valid economic doctrine has come into disrepute. Disdain for experts, and disaffection with economic reasoning has energised a politics of the excluded, of Jeremy Corbyn, Bernie Sanders, Marine Le Pen, Donald Trump and now Brexit. Economics is one voice among others, no better than the values it advocates (which many support), but not worse either. The Nobel committee is likely to endorse more of the same.

  • Avner Offer and Gabriel Soderberg’s The Nobel Factor: The Prize in Economics, Social Democracy and the Market Turn is published by Princeton University Press, 2016

Don’t let the Nobel prize fool you. Economics is not a science
Joris Luyendijk


  1. October 10, 2016 at 4:39 pm

    Swedish economists — what’s that?
    Comment on Avner Offer on “The Nobel prize in economics takes too little account of social democracy”

    Heterodoxy’s Lars Syll reports from Malmö: “Among Swedish economists, Paul Romer is the favourite candidate for receiving the ‘Nobel Prize’ in economics 2016. Let’s hope the prediction turns out right this time.” Avner Offer, on the other hand, criticizes in the Guardian that the prize is not social democratic enough.

    Have Swedish economists not realized until now that economics is NOT a science? Have they not realized that the full title of the prize is “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel”. Have they not realized that there is a contradiction?

    No, of course not. Swedish economists like their colleagues elsewhere have no idea what science is all about. They occasionally criticize the economics Nobel, but for the wrong reason. The wrong reason is because the prize has been awarded to someone who does not share one’s own political belief. Science, though, cannot be judged by political criteria but only by the criteria true/false which are well-defined by material and formal consistency.

    The problem is this: economics is not a science but what Feynman famously called a cargo cult science. This is a provable fact and this is what has to be communicated to the general public. It is NOT decisive which of the four main sects (Walrasianism, Keynesianism, Marxianism, Austrianism) gets the prize, because neither satisfies scientific standards. In methodological terms, all four approaches are axiomatically false and therfore beyond repair.

    The Bank of Sweden is legitimized to award prizes to whomever it wants and to push any political agenda it wants. The Bank, though, is NOT legitimized to declare economics as science well knowing that economics has not lived up to scientific standards since the founding fathers.

    In order not to mislead the general public and in compliance with the first principle of science — which is truth — the Bank of Sweden is obliged to delete the word Sciences from its prize. It is the task of Swedish economists in particular to see to it that this happens without further delay.

    Egmont Kakarot-Handtke

  2. Paul Schächterle
    October 10, 2016 at 7:56 pm

    Do not let yourself get fooled. There is no “Nobel prize” in economics.

    The fraudulent usage of Alfred Nobel’s name is just a propaganda scheme for the promotion of neoliberal economic theories, i.e. ideology favouring the 1%.

    • David Chester
      October 11, 2016 at 10:34 am

      Absolutely! But who will favor the other 99%?

      • Paul Schächterle
        October 12, 2016 at 8:40 pm

        I am not sure if I understand your question. What do you mean?

  3. October 10, 2016 at 9:59 pm

    Throughout the world and most notably in the Economic Departments of Western Universities, negative external costs are not being emphasized as a part of the decision making process. Maximizing total return is. There is little or no interest in saving the planet; becoming more efficient in destroying it yes; but not in saving it.

  4. October 14, 2016 at 4:44 am

    Science is merely an effort to figure out the world around us. The experiences come streaming at us, whether we want them or not. We try to figure out what they are, why they are, and how they are. This effort is not perfect. It is not without prejudices or blind spots. It is not without historical baggage. The experiences are based on our relationships with what is “not me.” In the case of human-to-human interactions both the observer and the observed “know” the experiences and explain them. For example, the economist invents a theory to explain why a buyer made a choice to buy, or not. The buyer also explains this event. The explanations are often not the same. Question is, which is correct? The observed’s explanation must always take priority here, since it is supposedly the object of the observer’s study. An observer’s theory can be useful so long as it does not obscure or replace the observed’s event and explanation. In economics for example offering a theory saying the buyer buys to meet their “utility” needs is useful if it agrees with the observed’s understanding of why s/he bought. Otherwise, it’s one or another form of scientism – psychologism, sociologism, etc. When this happens the observed – the scientist’s study subject – disappears. All that’s left is the scientist. Most social sciences are guilty of this offense at times, some more than others. But economics is guilty of it most all the time, as the actual events and actors of economic interactions disappear into mathematical equations and logical syllogisms. Economic interactions are lots of things but always logical, quantifiable, precise, or clear is not one of them. That economists generally treat such interactions as such disqualifies economics as a science. And makes the Nobel prize given in that name incorrect, and makes economics seem suspiciously like an ideology looking for control devices, such as a prize with Nobel’s name attached to it.

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