Don't miss

Replay


LATEST SHOWS

THE DEBATE

Kerry Middle East Tour

Read more

BUSINESS DAILY

Greek shares plunge as trading resumes in Athens

Read more

IN THE PAPERS

'Gulf countries need proof and guarantees'

Read more

IN THE PAPERS

'The deadly French-English border'

Read more

EYE ON AFRICA

Experimental Ebola vaccine could stop virus in West Africa

Read more

MEDIAWATCH

#CecilTheLion : Hunter Becomes The Hunted

Read more

THE WORLD THIS WEEK

Erdogan’s gamble: Turkey launches offensives on PKK and Islamic State Group (part 2)

Read more

THE WORLD THIS WEEK

Europe’s shame: Calais migrant crisis deepens (part 1)

Read more

FRANCE IN FOCUS

The River Seine, the lifeblood of the French capital

Read more

Should the Nobel prize in economics be abolished?

Latest update : 2008-10-13

Alfred Nobel made no mention in his will of an economics prize; it was added in 1969. With world markets tanking, some are questioning whether the prize should be abolished.

Paul Krugman has been awarded the 2008 Nobel Prize for economics. (See our main report.)

 

In an economic climate that many have called the worst since the Great Depression of the 1930s, the awarding of this year’s Nobel Prize in Economics almost seems like a bad joke.

 

Come to that, there have long been detractors who thought the economics award was a bad joke in itself. Almost since its inception in 1969, some members of the Swedish Academy have called for its abolition, as have descendants of the Nobel family. One winner, Friedrich Hayek, who won the prize in 1974, subsequently said that had his opinion been consulted, he would “have decidedly advised against” its creation.

 

In fact, the original will and testament of Alfred Nobel, drafted in 1895 (a year before his death), made no mention of a prize for economics. It was in fact a creation of the central bank of Sweden, and is officially known as The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel. Purists insist that it is in fact not a proper Nobel Prize but an adjunct prize.

 

Eamonn Butler, head of the Adam Smith Institute in London and the author of a book on Hayek, concurs somewhat with his mentor. “I’m sceptical as to whether there should be a Nobel Prize in economics. It’s got a way to go,” he told FRANCE 24.

 

Like other critics, Butler believes that economics is a less exact science than physics or chemistry. “The standard joke is if you take two economists, you get three points of view. It’s not like physics, where you can test things and then everyone can agree at the end of the test,” he says. “Economics is complicated. It’s a human science, and human beings are unpredictable.”

 

Butler does not go so far as to blame economists for the current crash. He says economics is “academic, very rarefied. Its link with what’s happening [in today’s markets] is tangential. It is too much based on mathematical theorems with little basis in reality.”

 

Are economists’ hands dirty ?

 

There are those, and not just conspiracy theorists, who believe that rather than helping the economy, Nobel economic laureates have been responsible for market crashes; that the prestige of the prize gives their theories the force of gospel truth, thus affecting investment decisions.

 

The most notorious example came in 1997, when economists Robert C. Merton and Myron Scholes were honoured for their work (with the late Fischer Black) on the pricing of options - complex financial instruments spun off from traditional investments. Scholes had been one of the co-founders of a boutique hedge fund in the USA called Long Term Capital Management (LTCM). The fund made annual returns of over 40% in its first years; then, in 1998, it lost $4.6 billion overnight, and was bailed out by the US government - the most controversial bank bailout in US history prior to the current financial crisis. Its sensational failure was attributed to holes in the Black-Scholes theorem, which did not allow sufficient room for market anomalies.

 

Tim Harford, a columnist at the Financial Times, counter-argued in an interview with FRANCE 24 that the current financial crisis arose not because of economists, but because of governments ignoring economists. He notes that Yale economist Robert Schiller has been warning of the housing bubble for years.

 

Butler, an economist himself, does not question the usefulness of economics as a discipline. He does warn, however, that economists should not directly involve themselves in policymaking. He quotes his mentor: “Hayek used to say the success of a country was inversely proportional to the number of economists. I don’t think he was wrong.”

 

 


 

Date created : 2008-10-13

COMMENT(S)