Tuesday, October 25, 2016

A Fascinating New Book for All Economics Junkies (And those interested in any and all Nobel Prizes)

The Nobel Factor: The Prize in Economics, Social Democracy and the Market Turn.” by Avner Offer and Gabriel Soderberg. Princeton University Press 2016. 308 pages

Reviewed by Walter Block

This is an important book. It will prove fascinating for all economics junkies, plus those interested in any and all Nobel Prizes, whether or not in the dismal science. I learned a lot from this publication, and highly recommend it on that basis. Perhaps a more descriptive, and marketable title for it would have been “Everything you ever wanted to know about the Nobel Prize in Economics, and about those who have given, and been given, this award.” The authors call such people Nobel Prize Winners (NPW) and I shall follow their lead on this.

This book explains the choices of the Nobel Prize committee; they are based, mainly, but not solely, on past citations to their publications, and, also, on who are the acknowledged leaders in this field. Very helpful was their application of the Bass Model of innovation (chapter 6). There, among many other insights, we can easily see which NPWs boosted the prize (had many cites beforehand), and those who were enhanced by it (relatively more cites afterward). I greatly enjoyed reading about how well non-winners (born too early) such as Adam Smith, Karl Marx, John Maynard Keynes and Alfred Marshall stacked up in this way against the actual NPWs: pretty darn well. Ditto for Nobelabiles (Cardinals who might reasonably become Pope are called Papabile) such as Joan Robinson, J.K. Galbraith, who, claim our authors, were cheated out of this well-deserved award by right wing committee members, mainly, Assar Lindbeck. (Our authors write (p. 136) of “… the discretion available to the (Nobel) committee, especially during the later Lindbeck chairmanship years, the period of right-wing ascendency in the 1990s.” My own experience with the latter was when he addressed the Columbia University labor workshop while I was a graduate student there. Gary Becker, Jacob Mincer, Rueben Gronau and several others jumped all over Lindbeck as a left winger. I suppose the political spectrum is different in Sweden than in the U.S.). However, there is no mention of the oft-made claim that Mises, too, was in effect cheated out of this prize. He was mentioned (p. 135) in this regard along with several other “refusees” (Nobelabiles who did not make it).  The prize was awarded to Mises’ student Friedrich A. Hayek in 1974, one year after the former passed away. In the view of Offer and Soderberg, that prize was an anomaly, pretty much undeserved, at least on the basis of citations to his works.

Our authors focus on citations as an explanation of NPW-ing, and this is not unreasonable. However, they rely on JSTOR which (p. 108) “… was started in 1995 with a core of the most important US academic journals…” Precisely correct. But this list almost totally excludes Austrian and libertarian free market economists, who publish in journals such as The Quarterly Journal of Austrian Economics, the Review of Austrian Economics, the Journal of Libertarian Studies, the Cato Journal, Reason Papers, Libertarian Papers, the Independent Review, Dialogue, MEST Journal, The Journal of Private Enterprise, Review of Social and Economic Issues, Romanian Economic and Business Review, Ekonomia Wroclaw Economic Review, Acta Economica et Turistica, Humanomics, Journal of Economic and Social Thought, Journal of Economics and Political Economy, The Journal of Philosophical Economics, etc., etc. Rather, they focus on journals in which the faculties of the Ivies, MIT, Stanford, Chicago, Berkeley, etc., publish in, which leads to an incestuous in-group bias toward periodicals such as the American Economic Review, the Journal of Political Economy, Quarterly Journal of Economics, Econometrica, Review of Economic Studies, Quarterly Journal of Economics, Journal of Economic Theory, Journal of Econometrics, and other “top” journals. Our authors admit (p. 107) that “All citation counts have biases” but they give the back of their hands to this particular one, by ignoring it. Thus, these awards are predisposed away from those economists who favor laissez-faire capitalism, a conclusion that would not be welcomed by these authors.

I would like to offer an alternative hypothesis. NPW and Nobelabiles are chosen on the basis, in addition to cites in “leading” journals, of discovery of “market failures.” Certainly, Akerlof and Stiglitz fall into this category. The American Economic Review is replete with articles of this sort. (One of my favorites was written by Prendergast, in 1993, who claims that the fact that there are “Yes Men in the private sectors constitutes a market failure. She has not yet won the Nobel Prize in economics, but if my theory is correct, this contribution of hers bodes well for her chances.) But this applies as well to the economists our authors are pleased to call “right wing.” For example, Milton Friedman, who sees more market failures than you can shake a stick at. For example, he advocates a voucher system for education, which implies that the market cannot be left in control of this important aspect of the economy. He rejects the gold standard, and favors fiat currency instead, which is consistent with the view that money is too important to be under the aegis of laissez faire capitalism.

This book could sorely use an index. Not so much for subjects, although for that too, but as for names. The latter are effusively mentioned all throughout. In addition to all the NPWs, and the Nobelabiles, there are dozens of other authors who have weighed in on the Nobel Prizes. The book is exhaustive about this subject, one of its many strengths. But, without an index, it is difficult to look anyone up.

Let me end this review on a positive note. Their main thesis is that the awarding of this prize has had important effect upon public policy. Have they demonstrated this? Yes, I think they have. And, this is important, since it is the duty of our profession to explain, understand and analyze economic activity. This is part and parcel of an accurate explanation, and we should all be grateful to these authors for pointing that out.

Dr. Walter Block  is a professor of economics at Loyola University New Orleans, and a senior fellow of the Ludwig von Mises Institute. He is the author of Defending the UndefendableThe Case for DiscriminationLabor Economics From A Free Market PerspectiveBuilding Blocks for LibertyDiffering Worldviews in Higher Education, and The Privatization of Roads and Highways

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