Thursday, October 15, 2009

The Bank of Sweden and You

Posted by Neil H. Buchanan

Earlier this week, news outlets (e.g. the New York Times, here) announced that this year's "Nobel in Economics" was awarded to two Americans: Elinor Ostrom and Oliver Williamson. A few thoughts:

(1) "While commonly used, this term [Nobel Prize in Economics] is not strictly correct. The Nobel Prizes are separate and distinct from the economics award. The Nobel Prizes were first awarded in 1901 and are called 'The Nobel Peace Prize' and 'The Nobel Prize in _____' (Physics, Chemistry, Medicine, or Literature). See, e.g., The Nobel Prize in Physics, http://nobelprize.org/physics. The economics award, on the other hand, was first awarded in 1969 and carries the somewhat ungainly name [the Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel]. For a critique of the economics prize and an argument that the award should be abolished, see Barbara Bergmann, Abolish the Nobel Prize for Economics — How Fair Is the Nobel?, CHALLENGE, Mar.–Apr. 1999, at 52."

I wrote those words in 26 Va. Tax Rev. 1151, 1158 (2006). (Actually, it's the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel.) Why does the distinction matter? Because the award is all about prestige, and the winners of the award are held in high esteem by the general public only because it is a "Nobel Prize." In a year in which I am personally happy with the winner (most obviously 2008, when Paul Krugman won), that is all to the good. Frankly, however, there is no good reason to have a lifetime achievement award in Economics, and the winners whose work has had seriously negative effects on the world (the guys who brought us Long-Term Capital Management, the other guys who brought us Rational Expectations, and the rest) have also had their negative impact enhanced by winning the award.

Those who disagree with me on substantive grounds can simply reverse the list. Hate on Krugman, Stiglitz, Solow, Myrdal. Big love to Friedman, Becker, et al. It is not, however, a wash. Having one's happy years does not guarantee that the damage in bad years is offset. Moreover, the merits on which the award is based are typically wholly separate from famous (and infamous) recipients' policy views. Krugman, for example, won for his technically impressive work on international trade theory. I doubt that any of his fans or detractors know or care about that.

(2) Even though it is wonderful that a woman has finally been a winner of the award, it is painful to remember that Joan Violet Robinson never won the award. Because the award cannot be won posthumously (thus ruling out years of catching up with the greats: Smith, Ricardo, Marx, Keynes), Robinson's death more than 20 years ago meant that she can never be honored with the award. The widely-accepted theory is that she did not win because she was an avowed Socialist, and the committee of bankers simply could not bring itself to give her the award, even though she was one of the greatest economists of her generation (and certainly greater than some who had already won, e.g., Hicks).

There is thus a permanent taint on the award. It should not be a greater taint merely because a different woman will finally share the award. (A woman has still not won it outright, it should be remembered.) Professor Ostrom certainly deserves to share the spotlight and the money and not to apologize for not being Joan Robinson. If she did, every male recipient should similarly apologize, but there can be no shame in not being one of the greatest of the greats.

(3) I doubt that I am the only economist who read the news and said, "Ollie Williamson and who?" Again, this is not to detract from Professor Ostrom. Her work, now that I am somewhat familiar with it, certainly is worthy of recognition. The point is that she is a political scientist, and she is thus unfamiliar to many if not most economists. The newsworthy aspect of this year's award, in fact, is that the committee again had to reach outside of economics departments when it honored work in "economic science." (Although Williamson is an economist, much of his career has been spent in other academic schools and departments.) As in 2002, when the award went to an untraditional economist (Vernon Smith) and a non-economist (Daniel Kahnemann), the committee seemed to be saying that it has become difficult to find worthy economists for the award.

(4) According to the New York Times article by Louis Uchitelle: "[I]n honoring [Ostrom], the judges seemed to suggest that economics should be thought of as an interdisciplinary field rather than a pure science governed by mathematics. ... The Nobel judges, in their description of Mr. Williamson’s and Ms. Ostrom’s achievement, said that 'economic science' should extend beyond market theory and into actual behavior." To quote the movie Buffy the Vampire Slayer: "Does the word 'duh' mean anything to you?" It is amazing that what should be a truism to the point of cliche is the basis for conferring an award that carries such prestige among serious thinkers.

Yet there we have it. It is a breakthrough to say that economics is not a pure science and it should be concerned with actual behavior. Early in my career, my colleagues in the economics department of a small liberal arts college wanted to petition the dean to move our department from the Social Sciences division to Natural Sciences. I protested and said that this was not a good idea. "Why?" they asked. "Because economics is a social science." "Oh, right."

By the way, I now teach in a law school.