Thursday, January 27, 2005

Ignoble Prizes

I have had the chance of talking quite a bit with Erik Reinert who is one of our visiting professors. He's an engaging fellow. Erik is a pioneering economist who founded The Other Canon which, among other things, tries to reinvigorate the study of the economy as a real object and predicates its analysis on the obviously uneven development of capitalist economies. What this means is that economics should not be defined in terms of the adoption of mathematical assumptions and techniques. As other critical economists have long argued, mathematics is not a unique foundation of economic science. In fact it is not a foundation of economics-as-science at all.

My most recent conversation with Erik turned to the award of the 2004 Nobel Prize in Economics to one of his countrymen,
Finn Kydland (jointly awarded with Edward Prescott), for work on business cycles. Erik pulled a face and dismissed Kydland's work as being of the autistic variety and added a few personal anecdotes to embellish the arid character of the man's "personality". It prompted a little more digging by me about the nature of the Nobel Prize.

Perhaps because I'm not an economist I hadn't realised that there is a raging debate going on. First of all, there is no real Nobel Prize in Economics at all. Its correct name is
The Bank of Sweden Prize in Economic Science in Memory of Alfred Nobel and was only established in 1969 to legitimise economics-as-science. A recent interview with Peter Nobel, a descendant of Alfred, chafes at the Economics Prize's pretensions:
... there is no mention in the letters of Alfred Nobel that he would appreciate a prize for economics. The Swedish Riksbank, like a cuckoo, has placed its egg in another very decent bird's nest. What the Bank did was akin to trademark infringement - unacceptably robbing the real Nobel Prizes.
Even more to the point Peter Nobel goes on to highlight the narrow-minded bigotry of most of the recent prizewinners in this field:
Two thirds of these prizes in economics have gone to US economists, particularly of the Chicago School - to people speculating in stock markets and options. These have nothing to do with Alfred Nobel's goal of improving the human condition and our survival - indeed they are the exact opposite.
Kydland would be a prime specimen of the type of economist that Peter Nobel has in mind. Other scientists are also beginning to voice their resentment of economists' misuse of mathematical modelling. Mathematicians have been especially scathing about Kydland and Prescott's abuse of
a mathematical model which purports to be a blueprint for whole economies (and therefore, societies). The implications of this work are two-fold: that market-driven reforms are the only policy options; and policy guidance is best left to autistic economists rather than to elected and accountable politicians. The statement of Sweden's Royal Academy of Science, which selected Kydland and Prescott, makes this clear:
Already, in their 1977 article, the Laureates ...work has had a far-reaching impact on reforms carried out in many places (such as New Zealand, Sweden, Great Britain and the Euro area) aimed at legislated delegation of monetary policy decisions to independent central bankers.
What all this points to is the extent to which orthodox economics has conquered not only its own established field of enquiry but is also colonising the whole range of social sciences while dominating public policy. Behind the smokescreen of fancy mathematics lie regressive social and political ideologies and practices. Perhaps the time has come to abolish this ignoble prize.

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