Re: Nobel Prize In Economics Diminishes All Other Nobel Prizes
From: MS (mikesc_at_iname.com)
Date: 12/16/04
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Date: Thu, 16 Dec 2004 13:58:46 GMT
Technically, it is not a Nobel Prize.
Robert Vienneau wrote:
> Dagens Nyheter, 10 December 2004
>
> "The Nobel prize in economics diminishes the value of all other Nobel
> prizes"
>
> A member of the Royal Swedish Academy of Sciences proposes that the
> prize in economics should be broadened in scope or abolished. The prize
> in economic sciences in memory of Alfred Nobel is most frequently
> awarded to economists who, by using mathematics and disregarding
> political views, claim that they can prove optimal ways of organizing
> society. These attempts at mimicking the objectivity and methods of the
> natural sciences are not acceptable. The economics prize diminishes the
> value of the other Nobel prizes. If the prize is to be kept, it must be
> broadened in scope and be disassociated with Nobel. This is the view of,
> among others Peter Jagers, professor of mathematics who is also a
> member of the Swedish Royal Academy of Science who awards the prize.
>
>
> In the early 1960s, a group of university mathematics teachers in
> Gothenburg used to go to a certain café to play pinball. Surely, you
> know the game? It's played on one of those machines that coughs up a
> number of steel balls when you put a coin in the slot. The point of the
> game is to maximize the number of points by controlling the balls with
> two flippers and making the pinballs fall into holes and hit various
> objects that make ringing noises as many times as possible before the
> pinballs return to where they came from.
>
> The group included both senior lecturers and professors, all extremely
> talented mathematicians. But there was no clear connection between being
> skilled at the game and scientific competence. In principle, it should
> probably be possible to calculate the perfect trajectory for the
> pinballs, but the advanced physical and physiological models this would
> entail were clearly too advanced even for the professors. The matter was
> rendered even more difficult because some players would attempt to
> sabotage the game by casually bumping into the machine to upset the
> pinballs. Anyone who would have suggested that the game of pinball
> should be reserved for mathematicians, physicists and physiologists
> would have been regarded as slightly deranged.
>
> However, this is not the case in economics. In economic science, it is
> claimed that it is possible to construct mathematical models that can be
> used in calculating the optimum behaviour of individuals in much more
> complex decision making situations than the one outlined above. And that
> is not all. Economists believe that they can prove by referring to those
> models that they are more suited to making political decisions than are
> the politicians themselves!
>
> Let us use the latest prize in economics (The Bank of Sweden Prize in
> Economic Sciences in Memory of Alfred Nobel which is its correct name)
> as an example. The prize was awarded to Finn E Kydland and Edward C
> Prescott. This is an excerpt from the statement of The Royal Academy of
> Science:
>
> "Kydland and Prescott showed that economic policymakers who cannot
> commit to a rule in advance often will conduct a policy that gives rise
> to high inflation, despite their stated objective of low inflation.
> Already in their 1977 article, the Laureates considered the possibility
> of conducting fiscal and monetary policy on the basis of long-run rules,
> which are difficult to change. This work has had a far-reaching impact
> on reforms carried out in many places (such as New Zealand, Sweden,
> Great Britain, and in the Euro area), aimed at legislated delegation of
> monetary policy decisions to independent central bankers with different
> kinds of pre-specified price-stability objectives."
>
> So, what is in the famous 1977 article? The heart of the article is a
> mathematical model, an optimization problem with side conditions. A
> rational decision maker, let's call him P, knows the exact relations
> between a number of economic variables, some of which are under the
> control of P. Furthermore, P knows the exact outcomes of his decisions
> at a certain stage in the economy when the decisions are made. P is
> guided by "a widely accepted social goal function" which has such
> characteristic - for example being differentiable and having the right
> convexity in its graphs - that an unambiguous and optimum solution can
> be calculated. Despite of this, the decisions do not lead to an
> optimized solution. The reason for this is that P has "opponents" to
> consider and this is not only "nature", but it also includes "rational
> economic agents".
>
> The level of abstraction in the article is extremely high. The model can
> be used for economies where P represents "the politicians" as a
> collective, and where the guiding variables are interest rates, monetary
> assets and the national budget and where the variables of the goal
> function can be inflation and unemployment rates. It can also be used if
> P is a company that needs to decide which investment strategies would
> maximize the profits. In both cases, the decision power is monolithic.
> All conflicts of interests, be it between politicians, between political
> parties or between different owners in a company, have been removed from
> the model.
>
> Of course, these types of hypothetical societies or companies may be
> interesting in their own right, as utopian schemes or as points of
> comparison with a more complex reality. However, the claims of those
> awarding the prize go much further than this.
>
> As can be seen in the academy's motivation, the laureates are supposed
> to have shown that part of economic policy-making should be removed from
> the sphere of the general public and their elected representatives.
> Instead, the decision-making power should be transferred to experts, who
> should be protected by law from being directed by their politically
> elected supervisors.
>
> There may of course be reasons for why there should be central banks
> directed by experts, just as there may be reasons why this shouldn't be
> the case. There has been a heated debate on this matter both among
> politicians and among economists. However, the reasons cannot, even with
> the best intensions, be derived from the sort of abstract reasoning that
> is now rewarded with the prize in economics.
>
> The basic problem is that economic science cannot be compared to natural
> sciences. Especially physics and chemistry are universal in the sense
> that their findings are equally valid in the U.S. as they are in China
> or Germany. They are independent of politics and economic systems. The
> equations governing the construction and durability of a concrete bridge
> are the same irrespective of country. If you use one particular method
> for building the bridge it will collapse. If you use another method it
> will stand. Medicine is not equally universal, as there are
> controversies between different schools of thought. However, compared to
> the social sciences there is an astounding degree of agreement on how to
> assess the quality of different research findings.
>
> In the mid 1960s the world economy was fairly stable. Herbert Tingsten
> declared the demise of ideologies. This was also the time when the
> belief that economists could draw up laws governing economies, not very
> different from Newton's laws of gravity, was at its peak. It was in this
> intellectual climate that the idea for a an economics prize in the wake
> of the Nobel prize was born in the Swedish central bank. In 1969, the
> first prize was awarded to Paul A Samuelson and Jan Tinbergen, both
> symbols for a mathematically oriented and purportedly politically
> neutral discipline of economics.
>
> The true art of the natural sciences is the ability of simplifying
> matter in a manner that allows mathematics to be used while still
> producing meaningful results. Economists, however, do not have the same
> favorable conditions. The assumptions that have to be made about human
> behaviour to be able to solve the equations are simplified to the extent
> that they become meaningless. Political science, sociology, history,
> social anthropology and even business economics are all, on average,
> more careful in their use of mathematical models. We find it hard to
> believe that a political scientist would dare to claim that it would be
> possible to 'prove' that certain ways of organising a society are
> optimal, solely based on mathematics and with disregard of any kind of
> political value assumptions.
>
> One could perhaps argue that this may not really matter, but it does and
> it does so for a number of reasons. It is true that the prize in
> economics has been awarded to broad non mathematically-oriented
> economists such as Gunnar Myrdal and Friedrich von Hayek. This joint
> prize illustrates, by the way, how awkward it all becomes when one tries
> to neutralise the political dynamite inherent in the prize.
>
> The tendency, however, has been to award the prize to a special kind of
> economics, which tries to mimic the methods and claims of objectivity
> found in the natural sciences. This is, in our view, deeply unfortunate
> since the prestige of the prize will make it dictate the direction of
> tomorrow's research.
>
> It is not reasonable to claim that the economics prize has been awarded
> for such great insights into the workings of society that it is on par
> with the findings in physics when it comes to the understanding of the
> structure and nature of matter. The prize in economics devalues all the
> other Nobel prizes.
>
> So, what should be done? We see that the three responsible authorities -
> the Bank of Sweden, the Nobel foundation and The Royal Academy of
> Science - have four alternatives:
>
> 1. Nothing is done. All the Nobel prizes gradually diminish in value.
>
> 2. The prize in economics is abolished.
>
> 3. Keep the prize, but completely remove the association with the Nobel
> prize. Award the prize on a different day.
>
> 4. Try to gradually make the prize more in line with how the broad array
> of modern social sciences understand how the economy works in different
> types of societies. Thus, the prize could be awarded to a historian or a
> political scientist who have furthered our understanding of the economy
> in a social perspective, just as well as an economists, mathematician or
> statistician. This would be challenging, however, since it would
> probably be much more difficult to agree. On the other hand, the Swedish
> academy has succeeded in finding worthy laureates for the prize in
> literature, so it should not be completely impossible.
>
> We would argue for the fourth alternative. But, on the other hand, now
> that the Bank of Sweden's need for independence has been mathematically
> proved through this year's prize, it would only be fair to make up for
> this by an initiative that once and for all would remove any association
> between the economics prize and the Nobel Prize.
>
> Johan Lönnroth
> Senior lecturer in economics, former member of parliament (left)
> Måns Lönnroth
> Senior lecturer in technology and social change, director-general
> Peter Jagers
> Professor of mathematical statistics, Chalmers
>
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