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REDEEMING THE NOBEL IN ECONOMICS  
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Robert Kuttner
October 18, 2024
The American Prospect
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_ This year’s prize went to three institutionalist critics of
neoliberalism. The award is overdue. _

Economist Simon Johnson poses for a photograph after jointly winning
the Nobel Memorial Prize in Economics, at his home in Washington,
October 14, 2024., Ben Curtis/AP Photo

 

The Nobel Memorial Prize in Economic Sciences
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was awarded on Monday to The award cited their research into how
institutions shape which countries prosper.

Their case in point was colonalism
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which cast a long shadow once former colonies became independent. In
some colonies, the European colonial power was mainly extractive. In
others, they built political institutions that allowed a local economy
eventually to thrive.

This research is informed by history as well as data, and is far from
the sterile and abstract economics of equation manipulation built on
the assumption of market efficiency, which has long dominated the
mainstream profession. There is another related subtext—a rebuke of
neoliberalism, with its calls for derergulation, privatization, and
fiscal austerity.

Simon Johnson, whose credentials include having been the chief
economist of the International Monetary Fund, is about as mainstream
as it gets. Yet his 2010 book written with James Kwak, _13 Bankers:
The Wall Street Takeover and the Next Financial Meltdown_, is the
definitive account of how insider influence and excessive deregulation
of finance led to the 2008 financial collapse and the deep recession
that followed.

Among the things that markets are supposed to price accurately are
financial securities. So says standard theory. But as Johnson
demonstrated, thanks to political corruption, insider influence, and
self-dealing, rigged markets priced derivatives catastrophically
wrong, enriching traders, crashing the economy, and devastating
homeowners. Institutions indeed matter.

Writing in _The American Prospect_ in 2019
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about how Barack Obama’s neoliberal team handled the collapse.
“The financial sector was saved, largely intact, by unprecedented
government support,” he wrote. “If homeowners had received the
same level of support in 2008-2009—for example, in the form of cheap
refinanced mortgages—what would have happened? The American economy
would have recovered, house prices would have risen, and everyone
involved would have looked like a genius.”

AP Photo

Pictured from left: Economist Daron Acemoglu in Athens, Greece;
economist Simon Johnson in Washington; and economist James A. Robinson
in Chicago

He was also spot-on when it came to the aftermath. “The result, in
rough chronological order, was: mass unemployment, greater inequality,
collapsed opportunity, confused anger, and President Trump. The
efforts put into financial reform—making sure this could not happen
again—by Messrs. Bernanke, Geithner, and Paulson were weak.”

Those insights, surely, are worthy of a Nobel. For a couple of
decades, the Nobel committee has been working its way through
noteworthy economists whose work has challenged the conceits of
free-market theory.

Claudia Goldin was awarded the Nobel in 2023 for her pioneering work
on gender inequality. David Card was given the prize in 2021 for labor
economics; his most famous empirical work, a book co-authored with the
late Alan Krueger titled _Myth and Measurement_, refuted the claim
that higher minimum wages necessarily lead to increased unemployment.

Yale’s William Nordhaus won in 2018 for incorporating the costs of
environmental degradation into macro models. Richard Thaler of Cornell
was the laureate in 2017 recognizing his work challenging the
behavioral assumptions of the orthodox model.

In 2015, the prize went to Princeton’s Angus Deaton, who has written
about poverty and the increase in “deaths of despair.”

And in 2001, Joseph George Akerlof, Michael Spence, and Joseph
Stiglitz were lauded for their contributions pointing out that in the
real world, contrary to standard models, there are major disparities
of information and bargaining power between buyer and seller, manager
and worker.

I could go on, but you get the idea. What all of these awards had in
common were that they were recognitions of economics as political
economy, and not as isolated individual transactions in a social or
historical vacuum.

The Nobel committee has come a long way since they bestowed the prize
on Milton Friedman in 1976. So has the profession.

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Robert Kuttner is co-founder and co-editor of The American Prospect,
and professor at Brandeis University’s Heller School.

* Nobel Prize in Economics; Daron Acemoglu; Simon Johnson; James
Robinson;
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