Monday, 14 October 2013

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.

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