There is No Nobel Prize in Economics

Yves here. From time to time, readers chide us for lacking the patience to spell out the proper name of economics profession’s imitation Nobel Prize. J.R. Swenson is particularly annoyed by this practice and is highlighting some of the (sadly still few) instances within the discipline of pushing back against the brand appropriation.

To highlight additional points: Trying to imbue economics with the luster of more rigorous disciplines is a political exercise. Remember that after World War II, economists became the only social scientists with a seat at the policy table. The USSR had gone from a peasant society to a major industrial power in barely over a generation. Many Western leaders recognized that would have been impossible in a free enterprise system. Economists were seen as the experts who could help governments adopt policies to enable market systems to keep up with centrally planned ones. (More careful studies of the USSR have concluded that central planning actually worked pretty well initially, but then the middle manager bureaucrats started gaming targets and hiding output to assure they’d meet their plans).

More specifically, the fake Nobel Prize in economics has strongly favored adherents to the Chicago School of Economics’ neoliberal dogma. So it has served to act as an enforcer of conservative, capital-backing, anti-labor policies.

The Nobel Foundation haf bleated about the Swedish Riksbank hijacking of their name, but clearly gave up.

By J.R. Swenson, formerly a consultant, teacher and project manager in math, computing, and database research

Despite the obvious counter-incentives, it’s time to ask the cadre of professional economists and some others to admit to a bit of self- aggrandizement, namely by claiming to win a Nobel Prize. We’ll encourage a few economists who have won the yearly prize in economics awarded at the Nobel ceremony each December in Stockholm to fess up to the fact that there are no Nobel Prizes for economics and perhaps even that economics is not a science. We’ll use a number of published remarks by various economists and some physical evidence< The Prize

Let’s consider some details regarding the prize. The correct name of the prize (in Swedish) is:

Sveriges Riksbanks pris i ekonomisk vetenskap till Alfred Nobels minne 

An English translation of this is:

The Swedish Riksbank Prize in Economic Sciences in the Memory of Alfred Nobel 

Notice that the prize is from “The Swedish Riksbank” aka The Swedish Central Bank which is the Swedish equivalent of the US Federal Reserve, except it formally reports to the Swedish legislature. It is NOT from the Will of Alfred Nobel.

There is another point which may be quibbled about and that is the translation of vetenskap. As with translations in general, there is another English word other than “science” that is deemed to be a valid translation and that is “scholarship.” I will deal with the claim that economics is not a science later

So why do the media, economists, and others refer to this prize incorrectly? A colleague suggested the idea of “leveraging a brand.” Another way to look at this is that applying a “label” also carries with it the aura or halo of that label.

This point was made by Dan Kahneman, a famous psychologist who actually won this prize in 2002. He suggested this in his book Thinking Fast and Slow 2011 (Farrar, Straus and Giroux) Most economists don’t protest the incorrect naming because they can bask in the glow of the words “Nobel Prize.” Journalists and book publishers also like this aura. Isn’t it curious that a famous psychologist and a famous mathematician, John Nash (1994) also won this prize in “economics?” In my opinion both deserve as many prizes as they can garner for their accomplishments. 

The Correct Name

It is instructive also to read the 2019 Annual Review from the Nobel Foundation to learn that it never refers to a “Nobel Prize in Economics” but always uses the longer title involving the Swedish Riksbank.

This document is large and is not attached here.

Finally, the Nobel Foundation describes the many names used during the 60 or so years of is existence when discussing this prize. “Nobel Prize” is not one of them.

To directly show that “Nobel Prize” is an incorrect name, I insert below three images that should be examined that provide real evidence as to why the phrase “Nobel Prize” is inappropriate. First, those words do not appear on the Certificate or Medal received by the winners. This claim is verified by actually looking at the image of the medal and Certificate awarded to John Nash. I have made the image of the latter as large as possible so that the writing on the Certificate is visible. Furthermore, the phrase “Nobel Prize” does not appear on the announcement of the recent winners of the economics prize. The top image is the announcement.

Background

When the prize was created by a group of Swedish bankers in 1967 and first awarded in 1968, there was political conflict in Sweden regarding the orientation of economic work in that country. I will not attempt to give the history as it is well told in the first 4 chapters of The Nobel Factor 2014 (Princeton Univ Press) written by economic historians, Avner Offer and Gabriel Söderberg. The prize was created for political purposes. This was not the behind the creation of the real Nobel Prizes.

Given the near-universal use of the incorrect name for the Swedish Riksbank award, it was courageous for the President of M.I.T., Dr L. Rafael Reif, who wrote an email to Alumni lauding the two 2019 winners who are M. I. T. faculty. (copied below) To my knowledge this was one of the few public announcements that used the correct name of the prize except in two places However, soon after I found two other publications associated with M.I.T using the words “Nobel Prize”: Technology Review (March 2, 2020) and Spectrum (Spring 2020). Unfortunately, there are two places within President Reif’s email that do use the phrase “Nobel” or “Nobel Prize.”

In response to the article in Technology Review, I composed a long note and mailed it to them sometime in late March or early April. I have not received even an acknowledgment that they received it, which is disappointing.

Why Isn’t Economics a Science?

To argue that economics is not a science encourages deep discussions as to just what is meant by the word “science.” This is an old discussion. It was taken up by Karl Popper in his book The Logic of Scientific Discovery published first published in German in 1934, then in English in 1959. (It is available on-line.) Popper discusses his fundamental idea that unless a theory is falsifiable, it cannot qualify as “scientific.” From Wikipedia:

Popper argues that science should adopt a methodology based on falsifiability, because no number of experiments can ever prove a theory, but a reproducible experiment or observation can refute one. According to Popper: “non-reproducible single occurrences are of no significance to science. Thus a few stray basic statements contradicting a theory will hardly induce us to reject it as falsified. We shall take it as falsified only if we discover a reproducible effect which refutes the theory.” Popper argues that science should adopt a methodology based on “an asymmetry between verifiability and falsifiability; an asymmetry which results from the logical form of universal statements. For these are never derivable from singular statements, but can be contradicted by singular statements.The New Paradigm for Financial Markets, 2008 (PublicAffairs), George Soros extends Popper’s idea with the idea of “reflexivity.”

Soros continues his theme in great detail in Fallibility, Reflexivity, and the Human Uncertainty Principle (Jnl of Economic Methodology, January 13, 2014). The book and article point out that when human participants involve themselves in economic activity e.g., trading in markets, bargaining, saving, etc., they are affecting the very system that they are pretending are objectively real, stable, perfectly known, etc. by virtue of some theory and not subject to ignorance, misunderstanding, emotion, etc. on their part or on the part of other actors at the same time. (Note that humans are assumed to not influence scientific discoveries.)

Also, economics is often portrayed as deterministic involving perfectly rational actors with complete knowledge who don’t make mistakes, are not emotional and possess complete knowledge. Economic theories often assume that markets are perfectly efficient, completely understood, and subject to deterministic theories that can be mathematically modelled.

These assumption are made for the purpose of permitting simplification of the current model. They is being steadily eroded by economists such as Professor R. J. Thaler, the winner of the prize in 2017 who wrote the book Misbehaving 2015 (WW Norton), a book extolling the idea that economic activity is fraught with ignorance, emotion, and fallibility.

If economics were a science, the winners of the prizes would hardly be constantly arguing about one another’s theories. They would be capable of making accurate predictions. The following quote from the lecture of Friedrich Hayek upon winning the economics prize in 1974 is another mark against “economics as a science”:

It seems to me that this failure of the economists to guide policy more successfully is closely connected with their propensity to imitate as closely as possible the procedures of the brilliantly successful physical sciences – an attempt which in our field may lead to outright error.

Hayek goes on to discuss reasons and examples of why the paradigm of science (in Popper’s sense) is inappropriate for economics.

Closing<

Consider these tidbits from web searches:

The Sveriges Riksbank Prize in Economic Nobel the Nobel Prize in Economics, is a prize awarded each year for outstanding contributions in the field of economics. … The amount of money awarded to the economics laureates prizes.

https://www.britannica.com/topic/Winners-of-the-Nobel-Prize-for-Economics-1856936

Notre Dame historian Philip Mirowski has found evidence that the economics award grew out of Swedish domestic politics. According to Mirowski, in the 1960s, the Bank of Sweden was trying to free itself from government oversight and become independent. One way to do that was to frame economics as purely scientific, rather than political — in which case, government interference could only hurt the bank. Having a Nobel Prize boosted economics’ scientific street cred. And Mirowski isn’t the only academic who is skeptical of whether there should be a Nobel-associated economics prize. Friedrich von Hayek, who won the award in 1974, used his Nobel Banquet speech to critique the prize.3 “The Nobel Prize confers on an individual an authority which in economics no man ought to possess,” Hayek said. He worried that the prize would influence journalists, the public and politicians to accept certain theories as gospel — and enshrine them in law — without understanding that those ideas have a different level of uncertainty than, say, gravity or the mechanics of a human knee.

https://fivethirtyeight.com/features/the-economics-nobel-isnt-really-a-nobel/

This link also triggers a great 10 minute Youtube presentation that mentions Offer and Söderberg. 

I also commend the reader to refer to “Nobel” Prizes for Nonsense :

In 1968 the Central Bank of Sweden, Sveriges Riksbank, instituted the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel. The long-winded title gives the impression that the award is a Nobel Prize alongside those for Peace, Physics, Chemistry, Medicine and Literature. It is not, though by practice (imitation and aspiration?) it is announced at the same time.

In 1999 Barbara Bergmann, a prominent US economist, explained the “contributions” of recent winners:

The prize frequently occasions embarrassment, since we have to explain to the public what the achievement of the newest laureate is. That achievement is usually…a totally made-up, simplified representation of some process we all know takes place. People snickered when they heard that James Buchanan’s prize was for telling us that politicians and bureaucrats act in their own interests, Robert Lucas’s was for telling us that people do the best they can in doping out what to do, and Franco Modigliani’s was for telling us that people save and spend their savings at different times in their lives. 

Referring specifically to Robert Fogel, who in 1993 won for demonstrating the economic “rationality” of slavery, and to Gary Becker for the insight that the subordinate role of women in the labor force is optimizing behavior (1992), Bergmann wrote: “Fogel’s and Becker’s awards were not just in bad taste. Those prizes honored work that distilled complicated and sometimes painful phenomena into simplistic representations of cheeringly optimal processes.” 

The “contributions” of Buchanan, Lucas, et al. seem seminal compared to later ones. In 1997 Myron Scholes and Robert C. Merton garnered the Sveriges Riksbank Prize for their breakthroughs in the theory of capital markets (“break” being singularly appropriate). Using their contributions to science they helped create in 1994 a scheme for high-stakes speculation, Long-Term Capital Management (LTCM). In one of those outcomes a critic couldn’t make up, the scheme of the laureates went spectacularly bust in 1998, losing $4.6 billion. To my knowledge, no one at Sveriges Riksbank expressed embarrassment, much less an apology. [From page 16 in Economics of the 1%: How Mainstream Economics Serves the Rich, Obscures Reality and Distorts Policy. (2014). Anthem Press by John Weeks]

And finally, from the concluding chapter of Capital in the Twenty-First Century by Thomas Piketty:

I see economics as a subdiscipline of the social sciences…. I dislike the expression “economic science” which strikes me as terribly arrogant because it suggests that economics has attained a higher scientific status than the other social sciences.

It is not the purpose of social science research to produce mathematical certainties that can substitute for open, democratic debate in which all shades of opinion are represented

As far as I can tell, the phrase ‘Nobel Prize’ occurs nowhere in his book. 

Epilogue

I have failed above in one respect for which I must apologize. All the preceding has been clearly motivated by the book The Nobel Factor written by Gabriel Söderberg and Avner Offer.

In my opinion, however, the most thought-provoking portion of the book is its last chapter, Conclusion – Like Physics or Like Literature. I wish that I could simply copy it here. One observation seems worth noting: mathematics is not a science and simply adopting mathematics does not turn an endeavour into science.

_____________________

A copy of and announcement email from the President Reif of M.I.T: 

From: President L. Rafael Reif <leadershipnews@mit.edu> Sent: Monday, October 14, 2019 6:35 AM To: blackiebernard@alum.mit.edu blackiebernard@alum.mit.edu 

Subject: Economics Nobel for Profs. Abhijit Banerjee and Esther Duflo PhD ’99 To the members of the MIT community, Good morning! 

I am delighted to share the news that Abhijit Banerjee, the Ford Foundation International Professor of Economics, and Esther Duflo PhD ’99, the Abdul Latif Jameel Professor of Poverty Alleviation and Development Economics, have just been awarded the 2019 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel. 

As co-directors of MIT’s Abdul Latif Jameel Poverty Action Lab, they share this honor with Michael Kremer of Harvard for their transformative work on the economics of poverty alleviation. 

As Professor Duflo emphasized in an interview this morning, the essence of their work is to make sure that the global fight against poverty is based on scientific evidence, so that policymakers have a systematic way to understand which interventions work, which do not and why. By providing an experimental basis for development economics, they have both transformed their field and profoundly changed how governments and agencies around the world intervene to help people in poverty – a proud example of MIT’s commitment to bring knowledge to bear on the world’s great challenges. 

You can read more about the impact of their work here. 

(http://news.mit.edu/2019/esther- duflo-abhijit-banerjee-win-2019-nobel-prize-economics-1014) 

We join with the Economics department in celebrating this extraordinary honor for Professors Duflo and Banerjee and their Harvard colleague. MIT Economics faculty have been awarded the Nobel on five previous occasions. This morning’s announcement serves as an inspiring reminder of the department’s wide influence and groundbreaking ideas. 

With admiration, L. Rafael Reif 

MASSACHUSETTS INSTITUTE OF TECHNOLOGY 77 MASSACHUSETTS AVE, W98-300 | CAMBRIDGE, MA 02139