Abhijit Mukhopadhyay currently works as an Economist at Economic Research Foundation, New Delhi. He taught at business schools and also worked at different research based institutes in New Delhi.
My first student was a 10 year old boy whom I tried to explain the significance of Nobel Prizes in different fields of expertise. Even before I started explaining, the boy created confusion in his own and my mind – between “Nobel” and “noble.” Much later I realized that Nobel Prizes are indeed perceived as “noble” achievements not only by that little boy but also by many all over the world.
In this backdrop of nobility of Nobel prizes, if one starts talking about Nobel Prize in Economics then it is better, for the record, to state that it was Sweden’s Central Bank, Sveriges Riksbank, which established this prize in memory of Alfred Nobel in the year 1968. Much before that on 27 November 1895, Alfred Nobel signed his last will and testament, giving the largest share of his fortune to a series of prizes in Physics, Chemistry, Physiology or Medicine, Literature and Peace – all of which we know as the Nobel Prizes today.
The name of the Economics Nobel is also very interesting; it is called the “Nobel Prize in Economic Sciences.” While there always has been a school of thought in economics which treated economics almost like an “exact” science, similarly there are various schools of thought existing since time immemorial opposing this “exact” or “scientific” nature of economics – at the most christening it as an “inexact” science or social acience. Usually most of the Nobel laureates and the Nobel aspirants in economics like to see themselves as “scientists.” As opposed to that, many in the field of economics also do not believe in this – simply for the reason that even at micro-level economics essentially deals with human behaviour and it is impossible to predict human behaviour (even if we forget for a minute about the huge dependence of all macroeconomic variables on so many factors including politics).
However, there has been an array of brilliant and wonderful economists who did not get the Nobel in Economics. The names in this series of non-Nobel economists include stalwarts like Michal Kalecki, Joan Robinson, Richard Kahn, Nicholas Kaldor and Piero Sraffa, and there are other big names as well. The great economists, who had been and have been ignored for the prize, invariably and strictly do not belong to the pro-market stream.
That brings us to the controversial nature of the prize itself. Nobel Prize in Economics, time and again, awarded to that set of economists who corroborates the supremacy of the market. There had been some deviations from this trend like Amartya Sen and Paul Krugman in the recent past, but they were also awarded the prize for their earlier works which were done within the ambit of neo-classical economic theory. Their critiques of market mechanism were largely ignored in their citations.
Peter Nobel, the great great nephew of Alfred Nobel and a human rights lawyer and activist, in a 2005 interview said, “(Nobel Economics Prize) is a PR coup by economists to improve their reputation… There is nothing to indicate that he (Alfred Nobel) would have wanted such a prize… It’s most often awarded to stock market speculators, which does not reflect Alfred Nobel’s spirit of improving the human condition.”
Apart from people like him, a lot of other heterodox economists, who do not believe in the hegemony of the conservative pro-market and pro-finance economics, have suspicion in such a motive of Nobel Committee for actively legitimising only one stream of thought in Economics. For the umpteenth time, this thesis once again is strengthened by the recipients of the Economics Nobel for 2013.
Eugene Fama, Lars Peter Hansen and Robert Shiller received the Nobel in 2013 apparently “for their empirical analysis of asset prices.” While Fama and Hansen are from University of Chicago, Shiller is from Yale University of the United States of America. University of Chicago boasts of an astounding number of Economics Nobel laureates (28 till date) and it has become the “high temple” of research and academics of a particular kind.
The award for 2013 is also interesting because of the findings of the trio in “empirical analysis of asset prices.” Two of them – Eugene Fama and Robert Shiller – apparently have companies that engage in or advise on stock market activities. As noted Indian economist Jayati Ghosh pointed out in her reaction, their disagreement on stock market’s operating principles is also quite well-known. While Fama argues that these markets are highly competitive and “efficient,” because investors immediately incorporate any new available information into the price of an asset, Shiller argues that investors in these markets behave in ways that are not completely rational, as psychological factors play a big role. The third winner, Lars Peter Hansen, has produced econometric work that largely supports Shiller’s argument.
While the world economy is still reeling under stagnating and recessionary trends which started from the USA and then spread to other parts of the world, more and more economic zones like European Union are now looking into the prospects of serious economic turmoil. If not in all of them, then definitely in most of them the volatile movements of asset prices and dubious operations of stock markets have played a definitive role in bringing down the financial market and causing stress throughout the economic system. In such a period, awarding three economists holding diverse views about stock market’s operation and asset price determination seems a bit of a cruel joke on those people who directly or indirectly bearing the brunt of recession in the form of loss of wealth, loss of income or unemployment.
This has been brought out quite succinctly by David Spencer of University of Leeds when he said, “Economists have generally been rewarded for a slavish devotion to a particular set of theories and methods. Mainstream economics is based on ideas of efficiency, equilibrium and utility maximising agents. Even newer developments in the mainstream, including trendy fields like behavioural economics and neuroeconomics, still retain these core ideas. The mainstream methodology, new and old, is that of formalism and individualism. Economics has become a science defined by the construction of complex mathematical models that outsiders will find tough to grasp. Winning the Nobel requires conforming to these set standards.”
While creating confusion by giving the Prize to contending theoreticians on the same issue was avoidable, overlooking the many perils of recession does not make any logical sense at all. It reminded people of the infamous episode of awarding two economists in 1997 “for a new method to determine the value of derivatives” and then the subsequent crash in Wall Street because of huge volatility of derivatives, among other factors. Some critics said that to salvage some of the lost credibility the Committee next year awarded the Prize to Amartya Sen – the economist who talks about the “human face” of economic growth. Whether that decision was able to achieve that or not is subjected to individual interpretations.
However, the basic criticism that riding on popularity of other Nobel Prizes Swedish Central Bank created a prize in economics to fundamentally support and legitimise neo-classical pro-market and pro-finance thought in economics which is often completely detached from the well-being of the people of the world – remains as strong as ever. Ideally, there should have been an alternative award for economics which would address common people’s concerns and which should have been made as popular as the Nobel Prize itself. In the absence of such a possibility, one can only lament about the fact that contrary to the popular belief the Noble Prize is not so noble after all, at least in economics.