Three Economists Worthy of a Nobel
If you follow economics news, you know that Angus Deaton, a Princeton scholar who has spent his career studying consumption, poverty and inequality, just won the Nobel. So who’s going to get the big gold medal next year? Here’s my shortlist, with my reasoning:
I had actually tipped University of California-Berkeley’s David Card to get the prize this year. If he doesn’t get it at some point, it will be a great historical oversight. New empirical techniques -- broadly classified under the heading of “natural experiments” -- are taking the economics profession by storm. Eventually, at least one Nobel will almost certainly be given for the people who pioneered the use of these incredibly influential techniques. Among these pioneers, Card stands out.
Many of the economics talking points that people in the media now take almost for granted come from Card’s research. Before Card, most economists thought that minimum wages were very harmful to employment, and that immigration imposed big costs on native-born workers. They believed this based on theory, but Card came with evidence, showing that the negative impacts of both minimum wages and immigration were small. Evidence trumped theory, and now these results are widely known.
In other words, much of the economics now being done traces its roots back to Card, so he’s a natural choice for a prize in natural-experiment empirics. There’s a good chance he will share the prize with Princeton economist Alan Krueger, who was his co-author on the landmark minimum wage study.
Macroeconomics is the glamour division of economics -- the topic on which the public most desperately seeks economists’ help and insight. Macro has traditionally garnered an outsized share of Nobels, and the last macro prize came in 2011. This means that unless the Nobel committee has decided to shift its emphasis toward other economics disciplines, a prize for macro is in some sense overdue.
The problem is, macroeconomics is very hard to get right. Because of a lack of data (history only happens once), it’s hard to know who is right and who is wrong when it comes to the questions of why recessions, crises and inflations happen and what we can do about them.
Which is why I predict that a prize will go to Princeton’s Nobuhiro Kiyotaki. Many of the ideas in macroeconomics today can be traced to Kiyotaki’s various papers. He was one of the key architects of New Keynesian theory, the macro model used by most central banks to describe how monetary policy can stabilize growth and inflation. He also developed a model of why people use money.
And most importantly, along with John Moore, he developed a model of how debt can amplify business cycles -- in other words, of how housing defaults can sink the financial system and the economy. That model was published in 1997, a decade before the housing bust and the financial crisis. You say no economist predicted the financial crash? Well, Nobuhiro Kiyotaki did. If anyone deserves the next macro theory prize, it’s Kiyotaki.
Harvard’s Martin Weitzman is a true polymath. His contributions to economics are too numerous and diverse to name. He is most famous for environmental economics -- in particular, for emphasizing the risks from extreme climate change. When you hear people talking about the tail risks of global warming, know that Weitzman is the main economist who has sounded that alarm.
But that is just one small piece of Weitzman’s oeuvre. He has analyzed the sources of stagflation. He has looked at the usefulness of profit-sharing inside companies. He has studied whether it’s more useful to tax pollution or to put a cap on it. He has made major contributions to the math that economists use to model individual decision-making. And he has provided one of the most insightful, brilliant theories of the so-called equity premium -- that stocks tend to earn higher returns than would seem justified by their riskiness.
Weitzman’s work is so brilliant, diverse and important that it has to put him on the short list for a Nobel.
So there are my three predictions for next year’s prize. Eventually I’ll narrow it down to one. But I hope that all of these researchers win the gold medal sometime soon.
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