The Ideology of Nobel Economics
THIS year’s (so-called) Nobel economics prize has gone to three US-based academics – Abhijit Banerjee, Esther Duflo and Michael Kremer. Banerjee and Duflo (who are married) work at the Massachusetts Institute of Technology, while Kremer is a professor at Harvard. They received the £728,000 prize for work in, er… framing policies to alleviate mass poverty in India.
Duflo is only the second woman to be awarded the Nobel in economics since the prize was instituted in 1969, thanks to a cash bung from the Swedish central bank, the Sveriges Riksbank. The awards committee has picked only two female economists in half a century – which tells you all you need to know about the Royal Swedish Academy of Sciences,- which does the choosing. This year the Academy covered itself in opprobrium by handing the literature prize to the Austrian apologist for Serb fascism, Peter Handke.
Economics is more ideology than true science – an ideology crafted to justify capitalist exploitation and despoliation of the planet. I say that as someone who was an academic economist for 25 years. The ideological function of economics is glaringly obvious if you look at the roster of bourgeois economists chosen to get the Swedish central bank’s version of the Nobel.
Over 50 of the Nobel winners are American, since clearly economics is focused on how the world’s largest capitalist economy performs. The universities that appear the most as homes to Nobel economics winners are American ivy league – Harvard, MIT, Columbia, Chicago, UCLA and Berkeley, Stanford, Johns Hopkins, Princeton, Yale, Cornell, and Carnegie Mellon. And no wonder: these elite institutions are heavily funded by US business interests.
In the first decade or 15 years the Nobel economics prize was being awarded, there was a lot of catching up to do. The annual prize was doled out to economists who had done significant work in the preceding couple of generations, covering the inter-war depression, World War II and the subsequent global boom in the 1950s and 1960s, when it looked (briefly) as if capitalism had stabilised and would make everybody prosperous.
It is significant who got the tap on the shoulder in this catching-up exercise – and who didn’t. There were still a few of the original Keynesians around in 1969, the high point of the Keynesian Revolution. John Maynard Keynes, the quintessential English bourgeois academic, had reinvented the discipline with his General Theory of 1936, perhaps the most influential economics text apart from Karl Marx’s Das Kapital. Keynes had literally saved capitalism by offering a convincing theoretical model for state intervention to get the world out of the Great Depression (though the techniques were first applied to fund World war II).
Keynes was long dead by 1969 but his immediate co-workers were still around and who merited a Nobel. In particular there was the great and flamboyant Joan Robinson, then in her youthful sixties and still causing trouble. I attended a seminar she gave on development economics and the Chinese Cultural Revolution – she turned up in a sexy black Mao suit. Robinson’s work on monopoly and the dynamics of long-run growth were seminal. Of course, Joan Robinson was never awarded the Nobel for economics, even though she lived till 1983: (a) she was too critical of US capitalism and (b) she had the temerity to be a clever woman.
Instead the early economics Nobels went to the in-crowd: Paul Samuelson (1970) whose textbook convinced the post-war generation that slumps had been abolished; Simon Kuznets (1971) who invented GDP accounting; Kenneth Arrow (1972), who explained how capitalism always tended towards market equilibrium; Friedrich Hayek (1974) for explaining that socialism also led to totalitarianism, while free markets guaranteed ‘freedom’; and Milton Friedman (1976) for convincing us that capitalism was the best thing since sliced bread.
Occasionally, the Swedes threw in the odd Third World development specialist, Soviet apparatchik or Scandinavian native son, in order to disguise this abasement to US academic colonialism. But the bulk of the early economics Nobels were dedicated to honouring the ideologues of American industrial and consumer capitalism, the better to export that model to the rest of the world.
Even mild critics of the system were blackballed, notably John Kenneth Galbraith, a mentor to President John Kennedy whose books on consumerism and the reality of US monopoly capitalism were vastly popular at that period. And if you were seriously critical of capitalism – competition theorists Paul Baran and Paul Sweezy come to mind – then you didn’t waste time waiting for the phone call from Stockholm.
The 1970s brought the end of the post-war boom, a series of inflation crises culminating in a successful onslaught against industrial unionism in America and Britain, and finally (in the 1980s) the emergence of what we now call neo-liberalism and globalisation. The Nobel prize for economics moved on to justify this neo-liberalism – the doctrine that markets always know best, that unfettered free trade brings universal prosperity and happiness, and that global finance capitalism makes the world go around.
Accordingly, the main recipients of the economics Nobel in the later decades of the 20th century and early Noughties were contemporary academics who justified the new neo-liberal order. In particular, a new breed of mathematical economists came to the fore who justified the so-called ‘efficient’ outcomes of financial markets free from regulation, and who supplied the mathematical models used in derivatives trading. No surprise, this new breed of academic economist was heavily funded by the investment and hedge funds who used these complex new trading models.
Among the Nobel winners in this neo-liberal era were: Lawrence Klein (1980) the pioneer of (bogusly accurate) computer forecasting models; James Buchanan (1986) who used ‘economic’ arguments to claim elected politicians were self-interested, justifying wholesale privatisation; messers Sharpe, Miller and Markowitz (1990) for the capital models whose use led to the 2008 Bank Crash; Robert Lucas (1995) whose so-called ‘rational expectations’ theory did the most to justify the de-regulation of financial markets; Merton and Scholes (1997) who created the insanity of derivatives trading; plus a bunch of statistical whiz kids in the early Noughties who got the Nobel cheque for inventing the forecasting models that proved the 2008 Crash could never happen.
AFTER THE CRASH…
Which brings us up to the present day when a contrite Swedish central bank and Nobel awards committee has been busy covering their tracks by giving the prize to less damaged academic goods. The new fad of behavioural economics has got a lot of attention from the Nobel committee because it avoids confronting the obvious question that if capitalism as a whole is a failed model, then why have the Nobel economics prize winners for the past half century not offered an alternative?
Behavioural economics looks at the psychology of individual choice. That’s not an invalid subject but – as practiced – it abstracts from looking at how those individual choices are circumscribed by existing power relationships. At how banks, hedge funds and concentrations of capital limit the choices of individuals, be they industrial workers, poor peasants or marginal slum dwellers (the fastest growing demographic on the planet).
The three latest Nobel winners – Banerjee, Duflo and Kremer – fit into this new category of recipient. “Our goal is to make sure the fight against poverty is based on scientific evidence,” Ms Duflo told a press conference. “Often the poor get reduced to caricatures and even those [who] try to help them do not understand the deep roots of what is making them poor… We try to address problems as scientifically as possible.”
Actually, the vast inequalities of wealth ownership in India are what makes people poor, not their psychology. Once again, the Nobel prize for economics is ideological mince.