Who will win the economics Nobel this year?*

Monday sees the announcement of the 2015 prize winner. There are various tips around the place, some of which I’ve collected below. I think any of these would be a deserving winner – with links to various of their books too. Well worth reading, every one of them! There are surely other deserving candidates too.

I have been trying to think of women who are plausible winners, and there are certainly some younger ones who could win further down the line. Am I overlooking female economists who are old/distinguished/influential enough for this year?

Environmental economics: Partha Dasgupta, William Nordhaus


Update: Twitter folks strongly recommend adding Martin Weitzman in this category.


Growth: Paul Romer, Robert Barro

Inequality: Anthony Atkinson, Angus Deaton


Innovation (and much else): Will Baumol (now 93!)

Econometrics: David Hendry

Some are tipping Thomas Piketty but that seems unlikely to me.

* Yes, I do know it isn’t a ‘proper’ Nobel Prize. People still seem to think it’s worth winning….


Happy fish and economic growth

From The Theory of Economic Growth by Arthur Lewis (after whom my department building is named):

“[T]he advantage of economic growth is not that wealth increases happiness, but that it increases the range of human choice … We do not know what the purpose of life it, but if it were happiness then evolution might just as well have stopped a long time ago, since there is no reason to believe that men are happier than pigs or fishes. What distinguishes men from pigs is that men have greater control over their environment; not that they are more happy. And on this test, economic growth is greatly to be desired. The case for economic growth is that it gives man greater control over his environment and thereby increases his freedom.”

Shades of Sen’s capabilities approach. Lewis is quoted in H.W.Arndt’s The Rise and Fall of Economic Growth.

Alone and together in the economy

There is an interesting new summary of the work of the Systemic Risk Centre, whose theme is the idea of endogenous risk: risk created by the interaction of participants in a market or economy, and amplified through feedback loops. The pamphlet opens with a statement from Milton Friedman: “The great mistake everyone makes is to confuse what is true for the individual with what is true for society as a whole…. Almost any interesting economic problem has the following characteristic: what is true for the individual is the opposite of what is true for everybody together.”

It also, of course, quotes Hayek: “Nobody can be a great economist who is only an economist – and I am even tempted to add that the economist who is only an economist is likely to become a nusiance if not a positive danger.”

The centre focuses on finance. The summary is particularly good on the paradoxes: that making each individual market participant behave prudently will destabilise the whole financial system, in a real fallacy of composition; that many regulations amplify pro-cyclical feedback loops; that the Tobin tax on transactions would amplify market volatility; and so on. The work sounds like a terrific addition to the points made in Ian Goldin’s book The Butterfly Defect, which has a chapter on finance. Adair Turner’s forthcoming Between Debt and the Devil also looks at some of these issues.

How to be a good economist

It has been difficult to resist writing about Dani Rodrik’s new book, Economics Rules: The Rights and Wrongs of the Dismal Science, before the embargo date, but at last I’m free to say how terrific it is. Rodrik is of course one of the most eminent public intellectual economists, engaged with policy and the ‘real world’, and a natural communicator. I’m completely in sympathy with his dual aim of aiming the correct criticisms at economics while defending it others: “I have long been critical of my fellow economists for being narrow minded, taking their models too literally and paying inadequate attention to social processes. But I felt that many of the criticisms coming from outside the field missed the point.” This might sound defensive but it matters to get the criticisms right: some of the old chestnuts (too mathematical, all about selfishness etc) give economists a free pass because they allow them to ignore the more troubling issues.

What are these? Rodrik supports the mathematical nature of economics as bringing clarity of meaning, and argues that the subject is far more applied and empirical than its detractors realise. But he criticises large-scale macro models and time series regressions. “I cannot think of an important economic insight that has come out of such models,” he writes. He also flags up the lack of testability of many economic models: they purport to be deductions from theoretical principles, but as they are ‘deduced’ to explain a particular phenomenon (credit rationing, say), then that phenomenon cannot be used to test the model. “Very few of the models that economists work with have ever been rejected so decisively that the profession discarded them as clearly false.”

Another consequences is that there are huge waves of fashion in economic models. Almost the opposite problem is the use of models that *are* built up from 1st principles and have no relationship with reality – prime culprits being macro DSGE models.

Finally, Rodrik writes, “The profession values smarts over judgment, being interesting over being right – so its fads and fashions do not self-correct.” I would suggest (Rodrik does not note this) that this helps account for the male dominance of economics (like philosophy); young women are very strongly socialised out of this kind of showy intellectual display.

So what, then, does the book argue is good about economics? Rodrik portrays the version of the discipline done well as highly empirical, using inductive and deductive methods, sensitive to context – historical, social, conjunctural – and eclectic in its selection of models. It’s horses for courses. We should think of models as a kind of library of diagnostic texts.

Towards the end of the book, he addresses the kind of challenge exemplified by Michael Sandel’s What Money Can’t Buy: The Moral Limits of Markets. Sandel writes: “Putting a price on the good things in life can corrupt them. That’s because markets don’t only allocate goods, they express and promote certain attitudes toward the goods being exchanged.” Rodrik acknowledges that economists could do with a “richer paradigm” of human behaviour but defends the economic efficiency lens, the analysis of the efficient allocation of resources. Efficiency is a good thing, an important consideration. If carbon trading will reduce emissions, and you believe that to be vital, why would you reject the market approach as immoral? This section ends: “The early philosophers encouraged the spread of markets not for reasons of efficiency or for the expansion of material resources, but because they thought it would produce a more ethical, more harmonious society. It is ironic that, three centuries later, markets have come to be associated in the eyes of many with moral corruption. Just as today’s advocates of markets overlook the limits of efficiency, perhaps the critics neglect some of the ways in which markets contribute to a spirit of co-operation.”

The main message I hope non-economist and economist readers alike will take away from this book is the importance of specific contexts for economic analysis and policy. The book ends with Jean Tirole explaining how frustrating it was for many people, when he won his Nobel Prize, that it was impossible to summarize his work in a brief statement. “It is industry-specific,” Tirole said. “The way you regulate payment cards has nothing to do with the way your regulate intellectual property or railroads.”

The final couple of pages have Rodrik’s Ten Commandments for Economists. Numbers one and two are: Economics is a collection of models; It’s a model, not the model. And also Ten Commandments for Non-Economists, which include: maths is useful; economists are not all alike; economists typically do understand how markets work.

I’m not sure how much traction any book trying to bridge the gap between the best of economics and the subject’s critics can gain (having tried myself in a different way by explaining some areas of economics on the research frontier in The Soulful Science.) The fact that there are plenty of economists doing the version Rodrik criticises in the book doesn’t help our cause; just turn on the TV or read social media and you find oodles of economists making strong, universal claims about macroeconomic policy or trade policy. But I hope open-minded critics of economics will read Economics Rules to learn how the best of economists approach the subject, and how important their work is.

By the way, Dani Rodrik is speaking at the LSE on 7 October.

Machines and humans

A couple of interesting tech-related books have arrived. I’ve started Humans Need Not Apply: A guide to work and wealth in the age of artificial intelligence by Jerry Kaplan & am enjoying it. He is a tech entrepreneur now teaching at Standford’s computer science department. The book starts with a useful overview of the history of AI, which is as far as I’ve got. It’s very engagingly written and is good at bringing the subject to life.

The other is A Prehistory of the Cloud by Tung-Hui Hu, which looks fascinating, a part of the history of the internet that is rather unfamiliar. For example, there’s a chapter on data centers. I’m fascinated by the relationship between the embodied and the disembodied parts of the networks & we know so little about the buildings and wires. There is Tubes: Behind the Scenes at the Internet , which was a good read but disappointed me in terms of hard information. So I’m looking forward to reading this new book. Paging through, it clearly covers social and institutional issues as well as the technology – or in other words the humans too.