The Ignoble Prize for Economics

Flattr this!

The Real World Economics Review Blog–which is run by PAECON, the “Protest against Autistic ECONomics”–has just launched “The Ignoble Prize for Economics“.

The intent is to select by popular vote the “three economists who contributed most to enabling the Global Financial Collapse (GFC)”.

Nominations are now open, and anyone can nominate up to three individuals by visiting this page and leaving a comment.

As it is currently stated, the prize is open for posthumous award; this may change if there are simply too many dead economists who get a guernsey.

Nominations should include a reason, and if a nomination you’d like to make are already there, you can add a comment supporting the case for that person.

If you’d prefer to make an anonymous nomination, you can send an email to pae_news@btinternet.com.

After roughly a month, nominations will be closed, the top dozen nominees (based on both the number of votes and the evidence given) will be selected, and a vote will be conducted using PollDaddy to select the three winners (this will ensure that each IP address can vote only once).

So please get in there and add your nominations, or your evidence. We are more than two years(!) into the crisis, and the level of self-examination by the economics profession about its failure to anticipate it remains pitiful. It’s time to turn the torch of public opinion onto it.

The current list of nominees (and some of the evidence given in favour of them) is:

Alan Greenspan

… for perpetuating a financial bubble that should have burst in 1987.

“Alan Greenspan promoted the view that free financial markets are efficient while he was the Chair of the Federal Reserve System from 1987 to 2006. In a “mea culpa” testimony before a Congressional Committee on October 23, 2008, Greenspan stated: “This crisis , however, has turned out to be much broader than anything I could have imagined…. [T]hose of us who looked to the self-interest of lending institutions to protect shareholders’s equity (myself especially) are in a state of shocked disbelief…In recent decades, a vast risk management and pricing system has evolved, combining the best insights of mathematicians and finance experts supported by major advances in computer and communications technology. A Nobel Prize was awarded for the discovery of the pricing model that underpins much of the advance in derivatives markets. This modern risk management paradigm has held sway for decades. The whole intellectual edifice, however, collapsed”. In response to questions from Congressmen, Greenspan stated “I still do not fully understand why it happened…”

Ben Bernanke

… for believing the theories of Milton Friedman about what caused the Great Depression and thus leading us to the brink of the next one, and for supporting Greenspan’s delusional belief in the efficiency of financial markets.

… for his poor understanding of financial crisis, which not only, as Mr. Keen points out, was oversimplistic, but who’s been rewarded with a political influence and control of economic policies that is keeping the economy away from recovery and job creation.

Larry Summers

Timothy Geithner

Edward Prescott

… whose flawed methodological innovations on cycle theory or econometrics; along with a ultraliberal policy strategy (of which he remains a tenet during the GFC) are guilty of ruining both the economy and most of the university courses in macroeconomic issues for two generations (I am young enough to know).

Eugene Fama

Chief promoter of the “Efficient Markets Hypothesis”.

Paul Samuelson

Paul Samuelson is the major economist responsible for aborting Keynes’s Revolutionary general theory argument that the cause of unemployment is nested in the operation of financial markets and the demand for liquidity on the part of savers.

Paul Davidson provides the empirical evidence using direct quotes from Samuelson to show “Why Keynes’s Ideas Were Never Taught in American Universities” , [ pp 162-178 of the book THE KEYNES SOLUTION: THE PATH TO GLOBAL ECONOMIC PROSPERITY (Palgrave/Macmillan, September 2009). Samuelson is quoted as stating that he found The General Theory “unpalatable” and not comprehensible. Samuelson then goes on to say “The way I finally convinced myself was to stop worrying about it [understanding Keynes’s analysis]. I asked myself why do I refuse a paradigm that enables me to understand the Roosevelt upturn from 1933 till 1937… I was content to assume that there was enough rigidity in relative prices and wages to make the Keynesian alternative to Walras operative”. In 1986, Samuelson still held to this line when he stated “We [Keynesians] alweays assumed that the Keynesian underemployment equilibrium floated on a substructure of administered prices and imperfect competition”.
In other words, Samuelson propagated the view that Keynes’s analysis relied on the rigidity of wages and prices , even though Keynes, on page 257 of THE GENERAL THEORY wrote that the classical theory assumed that “the self adjusting character of the economic system [rested] on an assumed fluidity of money-wages, and when there is rigidity to lay on the rigidity the blame for maladjustment…..My difference from this theory is primarily a difference of analysis”.

Thus Samuelson, who proclaimed himself as the chief Keynesian after the war, promolgated a false basis for Keynes’s theory– and in ascribing rigidity of prices and wages as the cause of unemployment made his brand of ‘Keynesianism’ an easy target for peole like Milton Friedman. The result was Keynes’s policies were killed by Friedman et al and politicians such as Reagan and Thatcher were able to paraded out Nobel Prize winning monetarists, etc as strong advocates for their free market philosophy.

Fischer Black [deceased] and Myron Scholes

(Nobel Prizes 1997) for developing the Black-Scholes formula that led to the explosive growth of financial derivatives.

Some Dead Nominees

Leon Walras

Although Walras was not THE founding father of neoclassical theory (Menger and Jevons made it before him to the press), he is today, perhaps, the most remembered of the three so it is in order to nominate him in representation of the 3 people who did most damage to the discipline. True, others followed suit with their failed physics-turned-economics pursuits, but the original 3 (akin to the not-so-good, the bad and the ugly) were Menger, Jevons and Walras.

Milton Friedman

… for misleading the economics profession with a naive methodology and an equally naive theory of money.

…  his insane and fundamentally flawed musings on monetary theory (especially the assumption that doubling money in a system would result in a simple doubling of prices) led his neoclassical acolytes to believe in a chimera that has been disastrous in the first place and that promises to be even more disastrous now following the GFC.

Leon Keyserling

Nothing in the remit for this prize said it couldn’t be posthumous. Keyserling virtually invented military Keynesianism with his advice to NSC-68 author, Paul Nitze and, later, advice to AFL-CIO honchos, George Meany and Walter Reuther. It’s been a long (60 years), strange trip but the GFC is Keyserling’s Cold War guns and butter chickens coming back home to get fried.

Bookmark the permalink.

235 Responses to The Ignoble Prize for Economics

  1. hopetobedrjoe says:

    MMitchell @ 217,

    Again though the idea of ‘legally requiring’ us as ‘consumers’ to ‘care’ about what is important puts the onus on the consumer. My point is that this is misplaced – the ‘consumer’ is likely to care (even for purely selfish reasons) about important things like, for instance, product safety, but is ill equipped to deal with them. The onus must be placed on the producers of the products who have specialised knowledge on them to adequately disseminate that knowledge.

    Re: protectionism, I think that the issue is more complicated than it is made out to be. In Australia we have a relatively well functioning government and economy (the worst except for the rest, as Churchill might say) such that even the unemployed among us are much better off than many people working 80-100 hour weeks in other countries. If giving people in those poorer countries jobs improves their lot then that is potentially a good thing. The problem is in the execution – companies are so dogged in their pursuit of the bottom line that they refuse to pay these people even a living wage. If some system were in place which required that they were paid a decent wage – if for instance there were a global agreement requiring that companies outsourcing labour be forced to be paid a minimum wage by some measure of purchasing power parity, then companies could still save a lot of money, consumers could still pay less than they otherwise might, and the (foreign) workers would benefit from better standard of living. Of course, this still leaves a problem of deindustrialisation and unemployment (of various degrees of permanency) of the original developed country (eg Australia). I don’t have an answer on this.

    Thanks for correcting me on the nature of ‘organic’, though it’s likely preindustrial agriculture may also have had those other conditions.

    Philip @ 220

    Hard to agree more. Ironically, Friedman has quoted John Stuart Mill to (erroneously) support his positions, while Mill in his Principles of Economics actually has something insightful to say about the role of trade unions: that they are not an interference in the market, but the ‘necessary instrumentality’ of the market: that is, strong trade unions are needed to make the free market for labour actually work.

    I will have to have a look at Dean Baker’s book. If I remember correctly he had some insightful things to say on the crisis in the real-world economics review.

  2. BrightSpark1 says:

    hopetobedrjoe @226

    You make some good points re the benefits which may accrue to the poor countries but I can not see that this is now relevant. We are not talking about poor countries here.

    The wild card here is Communist China. The coutry, for which all of the neoclassical economists who are paraded on the mainstream media in Australia, are Cheer leaders “China will save us”. How much more “pinko” could those “economists” be?

    China runs a command economy with which the west is meant to “compete”. They peg the exchange rate at 8% of its real value (if we take the cost of labour as a yardstick),making that impossible. Now this Communist measure has provided virtually free cargo for the west and a line of credit for the token purchase of this said free cargo. This credit has contributed to the debt bubble and caused the progressive deindustrialisation of the west. That these neoclassical economists have championed this course reveals their real agenda, personal greed the same as the motivation for the communist Chinese politbureau members.

    ak

    The European Communists were incompetant and they were only a threat to their own countries and peoples. The Chinese communists are competant and far more of a threat to the west.
    When greedy incompetents compete with greedy competent people it seems that the outcome is never in any doubt. But the imbalances which have developed will more likely result in mutually assured economic destruction.

    cheers

  3. PETER_W says:

    Still, Mr. Buffett did offer one tough general opinion: make sure the bosses of failing banks — and their spouses — pay very, very dearly. “If I was running things, if a bank had to go to the government for help, the C.E.O. and his wife would forfeit all their net worth,” he said. “And that would apply to any C.E.O. that had been there in the previous two years.”

  4. stf says:

    Completely agree, Mahaish

    I would just add that OF COURSE we consider the political side. If you’re proposing a policy alternative that nobody’s really considering or everyone is otherwise not paying much attention to, as we all are here, what other reason could there be for it not being considered besides the realities/prejudices/particularities/mismanagement (in our view, of course, as this is mostly relative) of the political process? It should therefore go without saying that we recognize all this, but for whatever reasons we get that all the time.

    Best,
    Scott

  5. Gamma_home says:

    Scott @ 222

    “MMT is a theory of aggregate demand and any discussion relating MMT and inflation is about AD. It NEVER suggests that you can’t have other sources of inflation.”

    This does not seem to be consistent with Bill’s writings on Zimbabwe for example, and I would be interested to hear your thoughts.

    My impression from reading http://bilbo.economicoutlook.net/blog/?p=3773
    is that the Bill does make the case that inflation in Zimbabwe was due only to the changes in aggeregate demand / supply for goods, and NOTHING to do with the change in demand / supply for money.

    That is, the inflation was caused only by a decrease in real output (without a corresponding decrease in aggregate demand) and not the massive increase in supply of money.

    However the inflation rate in Zim was in the order of hundreds and thousands of percent per year, and in 2009 probably millions of percent. The decrease in supply was between 5 and 10 percent per year over this time.

    Something does not add up in this theory, and the missing link is that the huge increase in the supply of money in this circumstance did have a big effect on prices.

    But this is a problem for MMT, because MMT would suggest that an inflation problem cannot occur while there is unemployment, which was sky high in Zimbabwe at the time.

  6. stf says:

    Hi Gamma

    Bill’s point is that, with output falling so much, you would have had high inflation in Zimbabwe unless you had reduced AD very substantially. He’s not arguing that the rise in government deficits wasn’t hyper inflationary, but that no rise in government deficits would have been very inflationary, too (though less so, of course, than with the deficits added). Therefore, the scenario has little to do with the MMT view and those who use it to critique MMT don’t understand MMT. Rather, the MMT view technically would have suggested a reduced deficit in Zimbabwe (unless the deficit could also somehow raise capacity–might be possible, but beside the point for now since obviously Zimbabwe’s deficits didn’t do this), not an increased deficit, since MMT argues that the only releveant cost of deficit spending to consider is the potential inflationary impact.

    Best,
    Scott

  7. stf says:

    Quick edit:

    Meant to say “with CAPACITY falling so much” in the first line, not “output.”

    Also, MMT doesn’t argue that you can’t have inflation with unemployment high. It argues that increasing AD doesn’t raise inflation (at least not enough to really worry about) if there is significant unutilized capacity. Very different points. Of course, this leaves somewhat the concept of “unutilized capacity” somewhat squishy (for instance, I would argue that a negative supply shock could reduce unutilized capacity . . . Bill’s making this point with respect to Zimbabwe).

    Best,
    Scott

  8. Ramanan/superpoincare says:

    Good interviews here. Long ones – touch all topics .. Bill Mitchell and Randy Wray

    http://e1.newcastle.edu.au/coffee/education/MMT_interviews/

  9. hopetobedrjoe says:

    BrightSpark1 @226

    As great as China’s gdp and economic growth are I would still classify most of the people there as ‘poor’. And they aren’t the only ones making things sold in the west – there are many in Asia and elsewhere who have nothing like China’s growth. The difficulty of competing with them isn’t just that they have a semi-command economy (there is much that is capitalist about China) but the fact that they do have such low wages (and their people aren’t empowered to ask for higher ones).

  10. MMitchell says:

    #226 hopetobedrjoe

    Sorry for the late reply (I have been tending some other commitments). I don’t think that people should be legally made to consider aspects of what they buy and I do believe that the producers have obligations there (although I am prepared to debate how prescriptive some of those obligations should be) what I personally lamented was why so few people actually do care about aspects of what they buy (and I acknowledge a fair bit of hypocrisy here). I am not sure what Schumacher really thought either, as far as I can tell he was just comparing property laws with other requirements of consumers.

    I am no expert, but to me it is not clear that what is happening in China is really to the long term benefit of the Chinese, if Western industrial society is on a destructive path, then joining that path seems a dangerous idea. This is a civilisation that, until recently, successfully supported, in relative wealth, more people than any other culture on earth ever has. They would probably be better off looking to their traditional roots rather than poisoning themselves and their environment to produce crappy wasteful goods of little long term value. It is all a huge gamble anyway, as you point out, there are plenty of other cheap labour countries which can be moved to if their currency or wages increase so China could be locked into this pattern for some time. There must be better ways to develop countries (Schumacher discusses one possibility).

    I acknowledge in turn your point on the other aspects of traditional agriculture – of note though is that Chinese agriculture was far more advanced in this respect (apparently) than Western ag (both was and is), which never had to deal with such intensive demands on its resources, and when it did resorted to imports (from India, US and Oz among others) and fossil fuel based approaches.

Leave a Reply