The Next Economics Nobelist: Model Maker Or Storyteller?By
Few economists are willing to speculate in public about who will win the Nobel Memorial Prize in Economic Science, to be announced on Oct. 12. But each year, David Romer, an economist at the University of California at Berkeley, collects Nobel predictions from 100 faculty and graduate students. This year's votes are not in yet, but the top choices in last year's survey were Gary Becker, the 1992 winner and a BUSINESS WEEK columnist; Edmond Malinvaud of France; and Amartya K. Sen, now at Harvard University.
The prize will mean prestige and $850,000 for the winner, whether it is Malinvaud, Sen, or another economist (table). But more important, the Nobel committee's choice may indicate whether economists will continue to rely on mathematical models or shift their focus to economic history and institutions.
When the economics Nobel was started in 1969, the intention was to emphasize that "economic science" had reached the status of physics and chemistry. Most of the winners for the award's first 15 years were mathematical and statistical model makers who were looking for laws that could reliably predict economic behavior, just as physical laws predict the behavior of atoms.
But in recent years, people have become more skeptical of macroeconomic theory and econometric models. Economists continue to wrangle over such simple questions as whether raising taxes to cut budget deficits is a terrible mistake or an absolute essential.
Instead, the last two Nobels have gone to Ronald Coase and Becker, both of the University of Chicago, for their penetrating insights into institutions such as the company and the family. According to Arjo Klamer of George Washington University, an expert in the history of economics, Coase and Becker are examples of the economist as storyteller, not as physicist. "We can think of the Nobel more as a literary prize than a scientific prize," says Klamer.
Will the Nobel committee lean toward the model builders or the storytellers? A Nobel prize for Sen, mainly known for his work on social welfare and poverty, would clearly signal the importance of economic institutions. Other institutional economists mentioned as potential winners include Albert Hirschman of the Institute for Advanced Study at Princeton and Charles P. Kindleberger of Massachusetts Institute of Technology.
But don't count the model makers out yet. Besides Malinvaud, most economists expect Chicago's Robert E. Lucas to win in the near future. Lucas led the rational expectations movement, which uses sophisticated mathematics to argue that macroeconomic policy is ineffective because people anticipate the government's actions. Other possibilities include Robert Aumann of Israel, who studied formal models of bargaining, and Robert Mundell of Columbia University, who created the basic models of international economics. But no matter who gets this year's prize, it will mean less and less to everyone else if economists can't help solve real economic problems.
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