by Neil H. Buchanan
The time has come once again to talk about the non-Nobel Prize in Economics. There are many years in which I choose not to take public notice of the announcement of that prize, either because I have no opinion about the recipients' work or, more likely, because there are too many other things going on in the world to devote one of my columns to discussing what is in the end an obscure academic award.
Obscure? Nobel? One of the late night shows recently asked passersby in Los Angeles to name even one Nobel winner of any kind, including the Peace Prize. It was embarrassing to watch those poor people struggle. How would they have done if asked to name any of the economists?
This year, however, there actually is something both interesting and heartening about the economics award. Sometimes, economists' work is important enough to be transformative and to deserve recognition, even in a field as encrusted and often retrograde as academic economics generally is. This year's award even has current policy implications.
Before I get there, however, I am contractually obligated to spend a nontrivial amount of time calmly ranting about why I call this award the non-Nobel, the faux Nobel, or (when I am feeling generous) the quasi-Nobel. I guess I might go with The Notbel Prize henceforth. My first go-round on this issue on Dorf on Law, from October 2009, explains my arguments in more detail, but the central problem is that there is no such thing as the Nobel Prize in Economics. That would seem to be a pretty important fact in and of itself, one might think, but that is in fact the least of it. It gets worse from there.
Plenty of people think there is such a prize, including the writer of this year's New York Times news item announcing the names of the winners, saying that those economists' "work earned them the 2021 Nobel Memorial Prize in Economic Sciences." Clicking on that link does bring up a page with the words "The Nobel Prize" at the top of the screen, but the page states explicitly that there is only one economics-related award, and it is called "The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel." This contrasts with the official names of every other prize announced on that site, all which are Nobel Prizes in full, not a long title with the name of the inventor of dynamite appended to it. Despite great efforts by economists, the Nobel family firmly resisted adding economics to the list of Nobel Prizes, at which point the Swedish central bank stepped in with some money and brokered a face-saving compromise, allowing economists to say Nobel and Economics in the same breath. And at this point, the website integrates economics onto the list with the others (but still without calling it the Nobel Prize in Economics, mind you), so the press's confusion is even more understandable. But it is still misleading.
For comparison, consider the Rhodes Scholarship, which is wildly over-respected and is based on a selection process that is, shall we say, manipulable. (When I was a graduate student, I was on a committee that sifted through Rhodes applicants. The discussions are confidential, but I can at least report that we were not ranking people by their level of supposed genius.) A Rhodes Scholarship is, however, still a Rhodes Scholarship, so when people overestimate someone like Pete Buttigieg, at least they are being impressed by the correct (but not in fact all that impressive) thing. Celebrating a Nobel Prize in Economics does not even have that much credibility.
Economists often refer to their field as the "queen of the social sciences," thinking that doing plenty of mathematics makes them more manly than those schlubs in, for example, sociology departments. (Interestingly, however, a sociologist once claimed that his field is the true queen of the social sciences. Maybe the next season of "The Crown" will dramatize this fight.)
Why the focus on labels? Does this matter substantively? Yes, because the economics prize was very carefully contrived (a half-century after the real Nobels were created) by savvy academic self-promoters who understood that having the word Nobel somewhere in the name of a prize would be a major public relations coup -- and that having "science" in the title would be pure marketing gold. This is not merely about labels but about real-world influence. Constantly repeating the lie that this is a Nobel-level honor overstates the stakes, and it causes people to put too much weight on the opinions of the winners. And by "people" here, I am not talking about the folks in the streets of L.A. who could not remember that Barack Obama won the Nobel Peace Prize. I am talking about the opinion makers, the chattering class, the punditocracy, the inside-the-Beltway crowd. You know, them.
Back in 2014, I characterized the reactions from the press and policy insiders to the labeling of the economics prize as "tend[ing] to make it seem that the award recipient has just been deemed An Economic Expert Par Excellence For As Long As He (or, only once, She) Shall Live." Gary Becker was the most shameless in exploiting that aura, which was especially egregious in light of his announcement immediately after winning the award that he was aware of the temptation and would not yield to it, but he has hardly been alone.
Having reprised this discussion about the Nobel label many times, I might be tempted not to bother to bring it up again, content to consign it to a quick link to a previous year's column. Some economists, however, take a Scalian "get over it approach," telling those of us who try to set the record straight that this is old news and not worth re-fighting. And it is indeed truly tiresome that some people cannot get over losing an argument, which is why the purveyors of this Lost Cause-like telling of the "It's a Nobel" story need to take be reminded that they lost, so they should take the L and move on.
Especially in years when I am pleased by who has received the award, it is important to devote this time and effort to saying that this is all a bit much. Ninety-nine percent of the time, I agree with Paul Krugman's writing. (Maybe 98.) I am mostly glad that he once won The Notbel, as I am mostly glad that Kenneth Arrow and George Akerlof won it in other years. But perhaps "glad" is an overstatement. Given that the press overrates the winners and treats them as oracles, I suppose it is useful that some of the winners happen to have done work that has good progressive policy implications, but that does not make the entire discussion less silly -- or damaging, because there will inevitably be years when reactionaries win and bask in the glow.
Having spent slightly less than half of today's column explaining why this particular prize does not matter -- but that it matters how and why it does not matter -- I will spend the remainder of the time here discussing one of this year's honorees, Berkeley's David Card. Card split the prize with two other economists, Joshua D. Angrist and Guido W. Imbens (although the Swedish bank awarded half of the money to Card alone), but I have nothing to say here about their work one way or the other.
Card's frequent co-author on the prize-winning work, Alan Krueger, was ineligible for the prize, which cannot be awarded posthumously. Even so, nearly everyone who is familiar with this line of research knows it as the Card-Krueger work, not Card's alone. And their work was truly important, both in terms of the specific policy issue that they explored -- the minimum wage -- and in how they changed for the better the way that economics research can be pursued.
As even students who received C-minuses in Econ 101 will vaguely remember being told, the minimum wage is ... not good? Supposedly, good and bad are not words that economic scientists are supposed to use, lest we imagine that they are not the positivists that they claim to be. Even so, there is no mistaking the overwhelming disapproval of minimum wages in the canon that we force-feed students every semester. The brilliance of Adam Smith's "invisible hand" supposedly rests on the idea that the government should never intervene in a market (but again, we are not allowed to say "should" or "should not"), because private actors motivated by self-interest -- greed is good! -- will move the market to equilibrium, supposedly leading all resources to be put to their highest-valued uses.
This is so deeply embedded in economists' presumptions that I had a colleague tell me once that the only things we should hope that our students will remember five years after taking our courses is that "printing money is inflationary, and minimum wages cause people to lose jobs." To be clear, "cause unemployment" does not have to equate to "is bad," because (among other things) there are plenty of jobs that people should not hold (an extreme case being slave hunter). But the implication is clear, and conservatives have been running with that idea for years.
To the extent that we can separate the economic analysis from the political implications, however, the anti-minimum wage argument from Econ 101 is an empirical claim. Many, many economists talk as if the real world will always reflect the relentless logic of market idolatry, but this is in fact a testable assertion.
What made Card and Krueger young superstars in the 1990's, when they were both on the Princeton faculty and already quite highly respected, was a shockingly simple empirical study about the minimum wage's effect on employment. Being located near the Pennsylvania/New Jersey state line, they took note that their state had passed an increase in the state-level minimum wage (which is allowed because states can exceed but not undercut the federal floor), which meant that employers only a few miles from each other were faced with different minimum wage levels. Orthodox economic theory said -- no, screamed -- that there could only be one result: the state with the higher minimum wage would lose jobs to the state on the other side of the Delaware River.
Card and Krueger narrowed down their inquiry to the line of business that would presumably be most affected by differences in the minimum wage: fast food. They also made sure that they looked only at restaurants that were not too far apart, as there would be too many confounding factors to explain any differences between, say, Atlantic City and Erie. Their work was careful, subtle, and explosive. They found that, if anything, employment had gone up in the higher minimum wage region compared to the other. Certainly, there was no evidence that the increase in the minimum wage had had the effect that it was presumed by almost all economists to have.
It is difficult to explain to non-economists just how important this one little paper was. In the years that followed, Card and Krueger published many other studies of the issue, demonstrating that their first study was not a fluke. They also performed a particularly important "meta analysis" of previous studies that had confirmed the orthodoxy about the minimum wage, with Card and Krueger demonstrating that those studies were systematically biased (through the twin sins of specification-searching and data mining) to reach the orthodox result.
There is a small army of conservative economists who will swear to the ends of the earth that the Card-Krueger results are wrong in oh-so-many ways. This truly is a hill that a large number of orthodox economists are willing to die on. But this paper caused a policy revolution, with a large chunk of the economics profession breaking loose and saying that possibly, just possibly, we ought to think about minimum wages -- and possibly other received wisdoms -- with more open minds.
This is not to say, of course, that the American political system nimbly adjusted to the cracks in the wall of orthodoxy. Republican politicians still mostly do the bidding of their paymasters (other than when Republicans threaten to destroy the economy by refusing to increase the debt ceiling), and their paymasters do not want to pay their workers anything close to a living wage. And we should not forget that at least some Democrats are hardly heroes on this issue, with the increasingly infuriating Senator Kyrsten Sinema having made her national stage debut by pantomiming a sad, scenery-chewing thumbs down to the plan to phase in a $15 minimum wage.
It is true that Card-Krueger inspired work on the minimum wage has not answered every question, and it is always difficult to know just how high the minimum could be pushed before there might be any negative effects. But Card and Krueger's innovation truly changed the course of economic research on an always-important policy issue that concerns real people, inequality, and many other important matters.
Card's Notbel-recognized work, however, was not merely important because of its policy implications. At a time when economics had all but swallowed itself with rational choice modeling, game theory, and atheoretic econometric methods, the Card-Krueger approach was a breath of fresh air in making it possible to ask interesting questions and address them with not-high-theory methods. The Pennsylvania/New Jersey policy difference that they exploited was the most prominent example of what is now generally called Natural Experiments, where we can reasonably act as if we have a treatment group and a control group, which is otherwise almost never possible in economics. There are ways in which Natural Experiment-based studies became an overused fad in economics over the last generation, but they certainly have a lot of value.
And although I have no idea how Card feels about "big data," it is at least worth noting that the dataset that he and Krueger used was gathered from scratch, by calling business owners on the phone and -- oh my god -- talking to them. This was not a big study, but it had a huge impact.
In the end, if there is going to be a committee that bestows public acclaim on one or more economists every year -- and again, I strongly believe that the entire ritual is a bad idea -- finally recognizing the Card-Krueger work is one of the best uses of the event that I could imagine. And as frequent readers of Dorf on Law know, I am quite stingy when it comes to passing out compliments to academic economic work. But credit is due.