Even though I almost never read fiction, I got talked into the Stieg Larsson crime thrillers starring a grown-up Pippi Longstocking Goth hacker (Lisbeth Salander) and her link to the outside world—an investigative journalist for a lefty rag (Mikael Blomqvist). Part of the attraction was the notion that a man named Larsson could write so well. But mostly these stories partly answered a question that has gnawed at me since I first visited Olaf Palme's Sweden in 1970 "When the Social Democrats were in power for over 40 years, what was the Swedish right wing up to?" Larsson includes a whole bunch of examples—like the brother who became a Nazi in the 1930s and lost his life helping Finland fight the USSR—a totally believable scenario.
But nothing, but nothing, tops the triumph of the Nordic right wing than their misnamed "Nobel" in economic sciences. By giving their prize to a wide assortment of crackpots, charlatans, and fools, the Swedes managed to undo almost every bit of progress ever made by the Social Democrats. The triumph is so total that now even the Social Democratic Party regularly endorses the principles of neoliberalism.
I watched this process but I never really got a handle on how the economics profession got taken over by religious nuts. But knowing how Scandinavians organize their small groups, I always suspected that there was probably one person with the combination of charm and browbeating who managed to set the agenda. Well there is now a new book out—The Nobel factor: the prize in economics, social democracy, and the market turn—that describes the process of prizewinner selection and the one guy has a name—Assar Lindbeck. The neoliberals have had a wide assortment of bad guys from Pinochet's thugs guided by the Chicago boys to Gaidar who helped loot the USSR with the advice of Jeffrey Sachs and the wünderkind from Harvard. But the real bad guy is Assar Lindbeck because he poisoned the intellectual well. The neoliberal madness he elevated to international fame will lie around in libraries like so much toxic waste ready to seduce gullible young minds for a very long time.
The Nobel factor — the prize in economics that spearheaded the neoliberal revolution27 September, 2016
The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, usually — incorrectly — referred to as the Nobel Prize in Economics, is an award for outstanding contributions to the field of economics. The Prize in Economics was established and endowed by Sweden’s central bank Sveriges Riksbank in 1968 on the occasion of the bank’s 300th anniversary. The first award was given in 1969. The award this year is presented in Stockholm at a ceremony on Monday 10 October.
Avner Offers’s and Gabriel Söderberg’s new book — The Nobel factor: the prize in economics, social democracy, and the market turn (Princeton University Press 2016) — tells the story of how the prize emerged from a conflict between the Swedish central bank — Sveriges Riksbank — and social democracy. It is no pure coincidence that the ascendancy of market liberalism, Reagan and Thatcher, to a large part coincides with the creation and establishment of the prize. Especially during the despotic Assar Lindbeck’s long chairmanship — 1980-1994 — the prize was thought to take advantage of the connection with the true Nobel prizes and spearhead a market-oriented neoliberal reshaping of the world. Although not all economists who have got the prize have enlisted in the market-liberal crusade, it is still an undeniable fact that neoliberal and conservative leaning male economists are highly over-represented among the laureates. Their often ideologically biased doctrines have to a large extent motivated the neoliberal turn in economic policies for more than forty years.
Out of the 76 laureates that have been awarded “The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel,” 28 have been affiliated to The University of Chicago — that is 37 %. Of all laureates, 80% have been from the US (by birth or by naturalisation). Only 7% of the laureates have come from outside North America or Western Europe. Only 1 woman has got the prize. The world is really a small place when it comes to economics …
The world is really a small place when it comes to economics …
Looking at whom the prize is given to, says quite a lot about what kind of prize this is. Offer and Söderberg do that, but looking at whom the prize is not given to, says perhaps even more.
The great Romanian-American mathematical statistician and economist Nicholas Georgescu-Roegen (1906-1994) argued in his epochal The Entropy Law and the Economic Process (1971) that the economy was actually a giant thermodynamic system in which entropy increases inexorably and our material basis disappears. If we choose to continue to produce with the techniques we have developed, then our society and earth will disappear faster than if we introduce small-scale production, resource-saving technologies and limited consumption.
Following Georgescu-Roegen, ecological economists have argued that industrial society inevitably leads to increased environmental pollution, energy crisis and an unsustainable growth.
Georgescu-Roegen and ecological economics have turned against the neoclassical theory’s obsession with purely monetary factors. The monetary reductionism easily makes you ignore other factors having a bearing on human interaction with the environment.
I wonder if this isn’t the crux of the matter. To assert such a thing really is to swear in the neoclassical establishment church and nullifies any chances of getting the prestigious prize.
Twenty years ago, after a radio debate with one of the members of the prize committee — Ingmar Ståhl — I asked why Georgescu-Roegen hadn’t got the prize. The answer was – mirabile dictu – that he “never founded a school.” I was surprised, to say the least, and wondered if he possibly had heard of the environmental movement. Well, he had — but it was “the wrong kind of school”! Can it be stated much clearer than this what it’s all about? If you haven’t worked within the mainstream neoclassical paradigm — then you are more or less excluded a priori from being eligible for the The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel!
Three years ago — making an extraordinarily successful forecast — I told Swedish media the prize committee would show how in tune with the times it was and award the prize to Eugene Fama. Why? Well — I argued — he’s a Chicago economist and a champion of rational expectations and efficient markets. And nowadays freshwater economists seem to be the next to the only ones eligible for the prize. And, of course, an economist who has described the notion that finance theory was at fault as “a fantasy” and argued that “financial markets and financial institutions were casualties rather than causes of the recession” had to appeal to a prize committee with a history of awarding theories and economists totally lacking any real world relevance.
Well, my forecast turned out to be right — the Swedish Academy of Sciences awarded The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel for 2013 to Eugene Fame. The prize committee really did show how in tune with the times it was …
I love to be right of course, but otherwise this is only saddening and shows what a joke this prize is, when someone like Fama can get it.
The ‘Nobel prize’ in economics is — and has always been — a total disaster from both a scientific and social point of view, and after having read Offer’s and Söderberg’s book, there is, at least to me, only one conclusion to draw, and that is: Drop it! more
THE NOBEL PRIZE IN ECONOMICS: HOW IT TOOK A HARD NEOLIBERAL TURNSeptember 27, 2016
SOURCE: NAKED CAPITALISM
Yves here. I saw the galleys for this book (and due to being too busy to finish them, missed my opportunity to endorse it) and was impressed by the rigor and evenhandedness of how it documented the way an influential Swedish economist, Assar Lindbeck, over time became more neoclassical in his policy stance, and in parallel, had major influence over the way the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel were awarded. In other words, this is yet another case example of how a strategically placed individual did considerable harm.
I wish this write-up made the case in a more straightforward manner. It appears to be part of the rules of the academy not to accuse a prominent figure of acting in bad faith, even though when the facts are laid out, Lindbeck’s conduct certainly seems to meet the “if it walks like a duck and quacks like a duck” standard.
By Avner Offer, Professor of History, University of Oxford. Originally published at the Institute for New Economic Thinking website
An award created as a concession to market-minded bankers needs to recognize the centrality of social-democratic policies to the wellbeing of industrialized economies
Avner Offer and Gabriel Söderberg, The Nobel Factor: The Prize in Economics, Social Democracy and the Market Turn (Princeton University Press, published 5 October 2016)
Neoclassical norms have acquired the halo of science from the Nobel Prize in economics, endowed by the Swedish central bank in 1968. The prize came out of the long-standing strife between Sweden’s politically dominant social democracy and the country’s business elites, a local instance of the class conflict prevailing in the West more broadly. In the 1950s and 1960s, Sweden’s central bank had clashed with government over credit policy: Government prioritized employment and housing; the bank, led by an assertive governor, worried about inflation. In compensation for restrictions on its authority, the bank was eventually allowed to endow a Nobel Prize in economics, as a vanity project for its tercentenary. And the committee awarding the prize was captured by a group of centre-right Swedish economists.
The Nobel laureates make up a high-quality sample of economists, which enhances the credibility of the prize — as does a rigid parity of awards between right and left, formalists and empiricists, Chicago and Keynes. But several surveys of economists’ opinions show them to be well to the left of the committee’s balance.
Assar Lindbeck, the Swedish professor who dominated the awards, initially adhered to social-democratic thinking, but later turned away from it. In the 1970s and 1980s, he intervened in Swedish politics, invoking microeconomics against social democracy and asserting that high taxation and full employment were leading to disaster. Along with other economists, he persuaded some of the social democratic leadership to change course, and distracted attention from the real policy error of deregulating credit in 1985. A deep financial crisis followed in the 1990s, which anticipated the global one of 2008.
Lindbeck’s doctrines tallied with those of the IMF, the World Bank, and the U.S. Treasury, which motivated the Washington Consensus. Privatisation, deregulation, and free capital movement enriched business and finance, led to acute crises and reduced welfare in client economies. Economists did not anticipate that these policies would also instigate a ‘corruption eruption’. Corruption then spilled over to the developed countries, and is now pervasive. This corruption is the unintended consequence of rational choice me-first premises, and has done a lot to harm the common good and to foster mistrust in governing elites. Swedish political scientist Bo Rothstein has petitioned the Swedish Academy (of which he is a member) to suspend the prize until the effect of economics on corruption is investigated.
Social democracy is not as deeply theorised as economics has been, and makes no pretensions to parity with physics. Yet, it has been enormously successful in keeping economic insecurity at bay. With sparse academic credentials, and in spite of relentless attacks, it remains an indispensable framework for providing social and public goods. In this task it is more efficient and more equitable than free markets. But its thin intellectual support means that even nominally Social Democratic parties to fail to grasp how well it works.
Markets reward the wealthy and successful. Social democracy is premised on civic equality, and this creates a bias for one-size-fits-all policies. But since the 1960s, social democracy has sought to incorporate an element of choice as well. Because its methods are indispensable and because economics appears to be so compelling, the two doctrines have mutated to accommodate each other, but their marriages are not happy.
Even then, economics is not left alone to set policy in most developed countries, where pragmatic and effective systems of social democracy ensure that about 30% of GDP is allocated to provide for employment, healthcare, education and pensions. Economists invoke a trade-off between equality and efficiency, despite its empirical falsification. But for economic security, the problem is not equality; it is how to support dependency over the life-cycle, i.e. in childhood, education, ill health, and old age. The social democratic solution is cross-sectional transfers from producers to dependents by means of progressive taxation, and investment in health, education and infrastructure. The neoclassical solution is to transfer entitlements over time by means of financial markets. But long-term contracts are rigid, fallible, and costly. The social Democratic alternative is cheaper, more flexible, and endorsed by voters.
In economics, the choices of self-seeking individuals trading in markets scale up to an efficient equilibrium. This model is an ambitious undertaking that has to be judged as a qualified failure, both analytically and empirically. In response, many economists have moved into laboratory and field investigations. The gain in validity is purchased at a cost in generality: localised experiments cannot replace an overarching social vision. Economics needs to accommodate social democracy. A good start would be to acknowledge this in the Nobel Prize awards, maybe reaching beyond economics — as the committee has done before. more