Postscript on Nobel

Three economists won the 2013 Nobel Prize in Economics – Eugene Fama and Lars Peter Hansen of the University of Chicago and Robert Shiller of Yale University. This is an odd mix. Fama is famous for devising the “efficient market hypothesis”, a key plank of free-market economics and ideology. Shiller is known for his contribution to “behavioural” economics (more directly “behavioural finance”) that challenges the perfect rationality postulate that Fama’s theory upholds. Hansen’s contribution comes in the area of statistical methods and is unfathomable even to many trained economists.

A cynic would see the selection of these three economists for the Nobel as a compromise. By awarding it to Shiller the award committee is able to say it is rewarding a real-world economics that is capable of confronting the current crisis. By awarding it to Fama and Hansen the committee is able to demonstrate conformity to the established theories and methods of mainstream economics.

Despite the award of the Nobel to Shiller, the key argument made in my earlier post remains essentially valid – there is no Nobel for contributing to the development and promotion of an economics that helps to resolve pressing real-world problems. To the contrary, the standard for winning remains that of progressing economic thinking largely for its own sake.

Shiller’s behavioural economics offers no theory of systemic crisis. Fama’s efficient market theory justifies a free-market approach that got us into crisis.

As the Guardian put it earlier, this is a Nobel for the right. It is also an award for an economics discipline that remains impervious to real dissent and real reform.

Economics Nobel must acknowledge the global financial crisis

What are economists for? Well, one obvious answer is to “do economics”, defined in the academic discipline sense. That is, to publish papers and advance knowledge. But there is another view, one that sees economics as a tool for resolving pressing economic and social issues. Half a decade into a severe global financial crisis, this latter view ought to be more relevant than ever. But it does not seem to be shared by those awarding the Nobel Prize in Economics.

Economics should not be about “advancing economic knowledge” for its own sake; it should be about changing the world for the better. And economics deserves a prize that reflects contribution to society, rather than just to the profession.

The Nobel Prize in Economics, awarded today, is not even an official Nobel, being awarded by a Swedish Bank “in Memory of Alfred Nobel”. Nonetheless, its award signifies the contribution of a leading name or names in the economics profession.

But for wider society, the gains from the award are not altogether clear. Relative to other Nobels, the economics prize has a tougher time demonstrating its contribution to broader progress in society. Given the obvious link between economics, the economy and social progress, this is a real problem. Even a creative and novel solution to the current crisis is not something that would guarantee a nomination – indeed, in some senses this form of rupture with orthodox thinking would be the opposite of what is required.

Economists have generally been rewarded for a slavish devotion to a particular set of theories and methods. Mainstream economics is based on ideas of efficiency, equilibrium and utility maximising agents. Even newer developments in the mainstream, including trendy fields like behavioural economics and neuroeconomics, still retain these core ideas.

The mainstream methodology, new and old, is that of formalism and individualism. Economics has become a science defined by the construction of complex mathematical models that outsiders will find tough to grasp. Winning the Nobel requires conforming to these set standards.

Even those few winners who have achieved a degree of public recognition for their critical commentary on the global situation, such as Paul Krugman or Joseph Stiglitz, tend to revert back to the mainstream in their academic work.

As the ideas conform, so do the winners themselves, fitting a particular mould. They are mostly white, male, and American. Elinor Ostrom, who won in 2009, remains the only female recipient of the award. Over half of the winners have been of US origin, and only three winners have come from outside North America or Western Europe. The University of Chicago, a bastion of mainstream economics and home to the likes of Milton Friedman, has 26 economic laureates alone.

Despite its influence over policy, the economics discipline is not open to public scrutiny. This is, in part, the product of the formal nature of economics that has prevented a meaningful dialogue with the public at large. Economists, as a result, have been allowed to pursue their own research without reference to the real world.

The magnitude of the current crisis – not foreseen by most economists, of course – forced the real world to get in touch with economics. The public could be forgiven for thinking that things would have changed as a result, but if people knew more about how economics research continues to be conducted they would doubtless be shocked. The fact that much economics research does not engage with the current crisis would be a cause of real concern to the public. They would be more horrified if they knew that those being nominated for and ultimately receiving the Nobel Prize in Economics were not undertaking serious study of the causes of and solutions to the crisis.

Dissent remains in economics, but only on the margins. These non-mainstream approaches, known as heterodox economics, build on the tradition of classical political economists such as Adam Smith and Karl Marx. They include diverse perspectives from contemporary Marxist political economy and post-Keynesian economics through to feminist and ecological approaches. These perspectives challenge the theory and method of mainstream economics and offer analysis of and solutions to real-world problems including the current crisis.

But years of marginalisation have meant that the heterodox economics community has diminished in size and influence. Despite its worth in understanding and resolving pressing problems, there is zero prospect of any heterodox economist winning the Nobel.

Yet, in spite of the ongoing crisis, there is talk of awarding the prize to economists whose research is far from helping to understand and resolve our global problems. This is bad for the reputation of economics. It is also bad for the public who continue to suffer the negative effects of the crisis.

We need a revolution in economic thinking, and a prize for leading this radical change would be a great step forward. Without such a revolution, we face the prospect of the Nobel continuing to be awarded for contributions to an esoteric, make-believe economics that few outside of the profession would see as relevant or important. Economists can, and must, do better than this.

*** This post was published on the Conversation website: see here.

Obsession with "hard work" is a dangerous distraction

This year’s Conservative Party conference has reminded us incessantly that George Osborne and his fellow ministers are “for hard working people”. This same slogan has also become popular among Labour politicians – indeed support for “hard working people” has replaced support for the working class.

The broader use (and overuse) of this slogan by politicians reflects a deeper belief that hard work is the proper way of living one’s life. Working hard is the way one gets on in life. No matter that real wages have fallen in recent years, work is promoted as the route to economic success.

Negatively, the benefits of hard work are contrasted with the evils of idleness. The “idle poor” are the ideological counterpoint to hard working people. This inevitably feeds hostility towards those on benefits and leads to support for draconian measures to force the poor and jobless into work even when jobs are in short supply.

But this obsession with hard work as the route to economic success and moral redemption has proved a dangerous distraction in several ways. Working hard to earn a living need not be seen as a good thing if it means enduring long hours of drudgery, long hours away from one’s family and friends, or undertaking several low paid jobs with no security of employment. We lose sight of, and indeed deny, the costs of wage labour by eulogising hard work.

History shows that capitalism brought about an increasing focus on the virtues of hard work. Life in pre-capitalist times was more leisurely and less pressurised; people worked much more irregularly and enjoyed extended periods of free time. It is essentially with the rise of capitalism that the work ethic has become idolised and lauded.

The rhetoric of George Osborne and his colleagues around hard working people is not new but it remains regressive in its effects, not least in ignoring the real hardships faced by those who work hard for a living.

The dream in the past was that capitalism would bring about a reduction in work hours. Keynes famously looked forward to the day when we would work only 15 hours per week. He thought that rising levels of affluence would lead to a shorter working week and to the liberation of humanity from hard work.

History has proved Keynes wrong as workers have continued to face relatively long hours at work, and the prospects for shorter work hours any time in the future look bleak indeed. In fact, with the squeeze on real wages, the likelihood is that many more workers will be forced to work longer just to make ends meets.

But there is a sense in which we could live better lives by working less. Firstly, shorter working hours would provide a means to spread work more evenly in society thereby combating the twin problems of unemployment and overwork. Secondly, working fewer hours would free up more time for people to pursue activities outside of work and thus to realise their creative capacities in other ways. Thirdly, working less would help to combat the stress and burnout associated with long and intense working hours.

Working hard, to be sure, can be rewarding. We can gain intrinsic reward by doing work well on a continuous and intensive basis. Work that matches with our needs, creative and material, can be uplifting. But work has its place. There are other areas of life that matter to our well-being and allowing work to dominate us can only lead to harm.

In essence, the struggle against the ideology of hard work is about the struggle to overcome an economic and political logic that forces us to work longer and harder than we would otherwise. Working less thus ultimately requires us to think beyond capitalism.

George Osborne to think beyond capitalism? Don’t bet on it.