Avner Offer & Gabriel Söderberg (2016). The Nobel Factor:
The Prize in Economics, Social Democracy and the Market Turn. Oxford: Princeton
University Press, pp. 323
Prizes and honours are not just
acknowledgement of merit and excellence in a given field, they are rituals and
symbols, as well. The Nobel prize,
annually given to outstanding work in various disciplines, has particularly
acquired an aura and prestige that makes it an unrivalled realm of excellence. The
four institutes of authority who select the winners of the Nobel prizes are the
Royal Swedish Academy of Sciences, the Swedish Academy, Karolinska Institute
and the Norwegian Parliament (for the peace prize). The Nobel memorial prize in
Economics differs from the other prizes because it was constituted by the Swedish
central bank in memory of Alfred Nobel in 1969, and was not one of the original
prizes awarded since 1901. One of the earliest critiques of the economic prize
was that economics was driven in the real world by politics. However, over the
years, economists have brought in a particular use of ‘scientific method’ to
economics and argue that economics remains closer to the physical sciences in
methodology. This book looks at this argument and critiques it both with respect
to methodology, and ideology that guides economics in practice. The authors
argue that the construction of ‘merit’ of economics has been through calculated
deliberation in a way that outcomes are increasingly difficult to predict.
There is an assumption that there could be an objective criterion for ranking merit
and the Nobel committee has a methodology to reach this calculus.
Model
thinking and market turn
The authors begin their argument
by invoking the historical thinking that placed economics as political management
of economy or moral philosophy by Adam Smith and John Mill. This earlier
tradition was opposed with the introduction of positivist thinking in the mid
twentieth century. Milton Friedman’s article ‘The methodology of positivist
economics’ published in 1953 is one such example. The authors argue that ‘model thinking’ in
economics began with this market turn. Formalist branches of economics use model,
not as a plausible representation of the world, but as an instrument with
internal consistency. The criteria of validation from the empirical world is
not a necessity. As a result, models of economics not only diverge from real
world situations, but predictions based on these models routinely fail.
The impact of formalist economics
has been to vilify models that actually work on the ground. The authors give
the example of welfare state. Social democratic forms of state offer two kinds
of support structures against uncertainty and risk. At an individual level, risk is reduced through
state-supported housing, education and healthcare and at a collective level, life-cycle
dependencies are met through welfare. This mechanism involves two types of
transfers- transfer from present to the future in an individual life and
lateral transfers across generations in a society. These support structures
have been the bedrock of prosperous and equitable societies in many countries.
The rational model thinking economics, by critiquing the inefficiency of this
system, has pushed societies into market-centrism. This has resulted in an
unprecedented vulnerability of many sections of society.
Decoding
Nobel prize impact
Did the most visible prize in
economics have a role to play in the way economics is envisaged today? Offer
and Söderberg
use an interesting methodology of correlating citation of prize winning
academic papers, ideology implied in the arguments and economic prize winners
to determine whether the prize had a definitive (ideological) market turn.
Their empirical study over the period till 2005, show three interesting
results. First, the economics prize has been awarded on a balance between
ideologies of left and the right, formalists and empiricists, Chicago school
and Keynesians with the exception of the period 1990-1997, when all winners
were of the neoliberal argument. Second, there has been a decided shift from
work that was predominantly theoretical to that which is empirical. For instance,
in 1983, 57.6 per cent of the total articles published in the top three journals
in economics were theoretical, where as it was 19.1 per cent in 2011. On the
other hand, empirical articles jumped from 3.2 per cent in 1983 to 42.2 per
cent (Offer and Söderberg, p. 56). Third, the authors argue that of all the
prize-cited works of economists up to 2005, only 5 percent were based on the scientifically
rigorous idea of falsification, 12 per cent were of less reliable verification
criterion and 20 per cent of confirmation criterion that was not supported by
the scientific method. In other words, going by the strict criteria of scientific
method, only a few works in economics would comply with the rigour.
The ultimate argument of the book
is that the mechanical balancing act of the selecting prize winners in
economics belies the belief in scientific regularity and reasoning that is
believed to be at the heart of the discipline.
Choices in economics is a matter of preference and not fact. Real
choices are difficult to make within a situation of unknown future, risk and
uncertainty. Rather than reason, discretion becomes a commitment device for
individuals. Economic choices may be driven by non-economic factors like ethical
and normative preferences in addition to seemingly irrational decisions taken
as a result of cognitive limitations. The ‘merit’ of the Nobel winner then
becomes a task of ‘construction’ that is driven by extraneous considerations
like ideology. The Nobel memorial prize begins to look a lot like that of
literature and peace than those of the sciences.
