The Nobel Prize in economics will be announced tomorrow, Monday, October 11, just before lunch in Stockholm. North Americans will wake up to the radio news.
Why does the identity of the prizewinner(s) always come as a surprise? More largely, what is it that really takes place when the Royal Swedish Academy of Sciences awards a Nobel Prize?
To begin with, there is no Nobel Prize in economics. Not officially, anyway. The proper title of the award is the Bank of Sweden Prize in Economics in Memory of Alfred Nobel. But it is the Nobel Foundation that handles the details, and the Royal Swedish Academy of Sciences that votes the award, just like the original prizes.
The Economics Prize was established in 1968, and given for the first time the following year (to pioneer econometricians Ragnar Frisch and Jan Tinbergen). The idea was to commemorate the founding of the Swedish central bank three centuries before, and to recognize the gradual maturation of the field.
The decision coincided with the high point in the prestige of the Keynesian achievement. Had its organizers been delayed, the award almost certainly never would have seen the light of day. The global economy entered an extended period of turbulence in the 1970s, and before long the prize had become an easy target for criticism. In 1974, for example, it was denounced by Swedish development economist Gunnar Myrdal, who shared it with Austrian theorist Friedrich Von Hayek. Myrdal took it anyway.
Economists had the good example of the original prizes, which had been set up in 1900 by the will of dynamite entrepreneur Alfred Nobel. There were five: the Peace Prize was assigned to the modest Norwegians, who had a long history of suffering at Swedish hands. The prize for literature was to be an internal matter among the littérateurs of the Swedish Academy.
But the Physics, Chemistry and Medicine/Physiology prizes rapidly became the carefully-cared-for property of their respective fields, which were already thoroughly internationalist (and anti-nationalist) in their orientation. So in 1968, a small cadre of Swedish economists and their overseas advisers followed suit. They set about soliciting nominations from the leaders of technical economics around the world.
Today, the five-member committee of Swedish economists invites annual nominations from laureates, Scandinavian economics professors, faculty members of at least half a dozen institutions around the world, and whoever else they take it in mind to consult. They run occasional symposia to survey developments as well.
The result is a pretty good running shortlist of candidates, reported to contain something like twice as many possibilities as there are years in which awards will be given, and a closely-held, tightly-run conversation among concentric rings of insiders about recent developments in the field. The conversation begins anew each year, after the January 31 deadline for nominations to be submitted or renewed for the current year is past.
Each spring, then, the committee resumes its discussions. It settles on an achievement to recognize, considers which among the several persons involved in bringing it about are most deserving of credit — almost inevitably, several combinations are possible. Discreet queries are made, challenges heard, a citation is drafted, a lengthy article justifying the choice prepared.
The committee works to build support and, in September, sends its nomination to membership of the Royal Academy — some 350 Swedish scientists of all sorts, divided into ten classes, 164 of them under 65, with another 164 honorary foreign members — and hopes for the best. (Not all physicists, geologists, biologists, etc., are equally impressed by economists’ achievements.) Academy members meet in October to vote. The committee keeps at least one non-controversial choice in reserve.
The lengthening list of laureates has become a kind of intellectual history of the field, as defined by its current practitioners. Discussion of what constitutes good economics would be far more difficult without it. Tjalling Koopmans’ Three Essays on the State of Economic Science was published about the same time as John Kenneth Galbraith’s The Affluent Society.
The prize for literature that Galbraith might have won went to V. S. Naipul in 2001 instead. But it was Koopmans who in 1975 shared the Economics Prize with Leonid Kantorovich “for their contributions to the optimal allocation of resources” — specifically, developing the tool of linear programming. Economics is what economists do, all kinds of economists; but Nobel economics is what the Royal Swedish Academy says it is.
The Swedes’ record is not perfect. Nearly everyone agrees they made a mistake when in 1972 they paired Kenneth Arrow with Sir John Hicks. It was not that Hicks was undeserving as the prize-givers worked through the history of the Keynesian Revolution, but rather that Arrow was one of the two or three greatest economists of the 20th century, as worthy as Paul Samuelson of an undivided award. Hardly anyone thinks that they should have waited until 1987 to recognize Robert Solow, who in 1956 created one of the pillars of our understanding of the modern age with his model of economic growth. The committee missed a good bet when they failed to honor Hungary’s Janos Kornai with James Buchanan. But all in all, the Swedes record is pretty good.
Indeed, just how good a record can be seen by comparing the ex ante and ex post labors of Trinity University economist William Breit, over a period of nearly forty years. It was in 1970 that Breit and co-author Roger Ransom published The Academic Scribblers, a prescient series of profiles of eleven policy-oriented economists, organized in such a way as to depict what soon came to be called rival paradigms in collision — Alfred Marshall, Thorstein Veblen, Arthur Cecil Pigou, Edward Chamberlin, John Maynard Keynes, Alvin Hansen, Paul Samuelson, Abba Lerner, John Kenneth Galbraith, Frank Knight, Henry Simons and Milton Friedman. In due course, Samuelson and Friedman won Nobel Prizes — and Breit’s readers understood why.
In 1998, a third edition of the book appeared. It was perhaps even more interesting than the first, because of the clarity with which the authors had anticipated the rise of the New Classical school with which Friedman had been associated. In an afterword, however, Breit and Ransom acknowledged the extent to which they had under-estimated the rise of mathematical economics. Econometrics, general equilibrium theory, game theory and applied economics were missing from their account.
Meanwhile, Breit began the practice of inviting one or another of each year’s laureates to give an autobiographical lecture at Trinity University, San Antonio, Texas, subject to certain exclusions. The result is a second book, now in its fourth edition, this one with colleague Barry Hirsch, Lives of the Laureates. These eighteen lectures provide a vivid glimpse into the social world of economics. They also demonstrate how widely the Swedes have cast their net.
In recent years, October has occasionally seen a spate of stories speculating on possible winners in advance of the prize. Almost always they have missed their guesses. Betting pools among graduate students have been common. The University of Frankfurt has created an electronic Nobel Prize Market for all six prizes. The Minneapolis Federal Reserve Bank’s (and Arizona State University’s) Edward Prescott is the market’s odds-on favorite for the Economics Prize — a thoroughly plausible possibility. This is, of course, exactly the sort of thing that anonymous prediction markets are good for. Otherwise, those who know don’t tell, and those who tell don’t know.
(Never mind that the winner in literature and one of the chemists were submitted but didn’t make their IPO price, and that five other laureates were not suggested. All three physicists, on the other hand, traded at a premium from their offering price, though none was among the five moist heavily favored. Remember, the market is new.)
The answer to the question, then, it seems to me — why doesn’t the name of the winner leak out, given that, by late September, several hundred people have become involved in ratifying the nomination? — is that the economics community in particular, and the world in general, has agreed to play along with the pageantry.
We have learned to trust the process. We want to be surprised, to hear the news fresh each year with open minds. The Swedes are running am honest game — ten months of hard work and due diligence, followed by two months of show business.
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When US District Court Judge Douglas Woodlock ruled last summer that Harvard University Professor Andrei Shleifer had committed at least one count of fraud while advising the Russian government on behalf of Harvard University and the US State Department in the mid-1990s, a second charge was unresolved.
Shleifer maintained that various conflict of interest provisions didn’t apply to him, because he was living in Newton instead of Moscow.
Now he’ll get a chance to make his argument to a jury.
Judge Woodlock last week ordered a three or four day jury trial to begin on December 6, on the narrow issue of whether Shleifer was employed by Harvard’s Russia Project while serving as its Director and Principal Investigator, or acting as a consultant. It was a decision he had not felt entitled to make on his own entirely as a matter of law.
Apparently only the amount of damages turns on the outcome.
Both Shleifer and the government attorneys trying the case said they will call several experts to testify on the meaning of the phrase, “assigned to Russia.”
A second, longer trial for damages, of Harvard University for breach of its contract with the U.S. Agency for International Development, may be conducted next year.