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Then came the economist

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Nobelprisdag is a special day in Sweden. Stockholm city centre stops while the prizewinners are shunted from the Grand Hotel to the Concert House for the awards, then on to the City Hall for the dinner, followed by the laureates’ speeches, and a ball. All this is fully covered on Swedish television, preceded by the Peace Prize ceremony relayed from Oslo. It starts on SVT2 at midday, and goes on into the small hours.

The speeches started this year with Saul Perlmutter’s on behalf of himself and the other winners of the Physics Prize. It was a model of the genre: explaining his research (on the size of the universe), conveying the excitement of his pursuit of it, modest in his claims both for it and for his personal contribution, and generous towards his co-workers. All the science contributions were like that. So were the three Peace Prize speeches – by Ellen Johnson Sirleaf, Leymah Gbowee and Tawakkol Karman – from Oslo. The Literature laureate, Tomas Tranströmer, was unable to speak for himself – he has had a stroke – and so was represented by his wife and collaborator Monica. So far, so good – even inspiring. Then, however, came the economist.

Economics was not one of the original disciplines named for a prize under the terms of Alfred Nobel’s will. Indeed, it isn’t strictly a Nobel Prize at all, but the ‘Sveriges Riksbank Prize in Memory of Alfred Nobel’. It was instituted in 1968, bought, effectively, by a group of Swedish bankers, who then somehow managed to persuade the Royal Swedish Academy of Sciences to take it under their wing. Perhaps it was the money. Its place in the roster of ‘Nobel Prizes’ is controversial in Sweden today. It certainly isn’t valued as highly as the others.

From Saturday night’s event, one can see why. Thomas Sargent, speaking for himself and the other Economics winner, Christopher Sims, decided, in effect, to tell the Swedes (and everyone else) to lower their taxes and cut their social spending, in obedience to what are coming to appear more and more discredited free market theories. They must remember, he said, that ‘there is a trade-off between equality and efficiency’. But this is just what the Swedes over the years have shown to be untrue. Sweden is both more equal and more efficient than (say) the USA. Most Swedes would say the two qualities are connected. The mean, narrow dogmatism of Sargent’s contribution contrasted vividly with the breadth and humility of the natural scientists’. If the purchase of a ‘Nobel Prize’ for themselves was intended to enhance the public reputation of economists, this speech will have done their cause no good.

Comments on “Then came the economist”

  1. NM says:

    This seems a rather “mean, narrow” reading of Sargent’s remarks. What he really said (if the following link is accurate, http://www.nobelprize.org/nobel_prizes/economics/laureates/2011/sargent-speech.html), was

    “Chris Sims and I thank you for recognizing the many women and men like us who use statistics and economic theory to understand how governments and markets can improve peoples’ lives. I state 7 practical lessons taught by my beautiful subject, which investigates the consequences of time and chance and cooperation and competition and foresight and incentives.

    1. Many things that are desirable are not feasible.

    2. There are tradeoffs between equality and efficiency.

    3. Other people have more information about their abilities, their efforts, and their preferences than you do.

    4. Everyone responds to incentives, including people you want to help. That is why social safety nets don’t always work as intended.

    5. When a government spends, its citizens eventually pay, either today or tomorrow, either through explicit taxes or implicit ones like inflation and defaults on debts.

    6. Most people want other people to pay for public goods and government transfers (especially transfers to themselves).

    7. It is feasible for one generation to shift costs to subsequent ones. National government debts and the U.S. social security system do that (but not the social security system of Singapore).”

    This seems quite humble (“thank you for recognizing the many women and men…”; not all that is desirable is feasible; other people know much more about themselves than you do). It also doesn’t, to me, by any means imply that Swedes (or anyone else) should cut taxation and social expenditure. I’d read it as saying something more along the lines of

    - incentives matter, so make sure you get the incentives right when constructing a social welfare system, otherwise negative unintended consequences might follow. (cf. Point 4)

    - social security systems must be paid for, people generally prefer to get others to pay for their own benefits, and politicians are liable to cater to this, by shifting the bill to future generations and/or by financing the system through stealth (inflation, debt, default) rather than through some sort of upfront tax. The latter is obviously preferable to the former, being more honest and less prone to abuse. (cf. Pts. 5, 6, 7)

    Nothing in those remarks, to me, says that you should cut tax (if anything, Pts. 6, 7 would imply the opposite) or do away with the social welfare system. (Certain Neo-Marxist sociologists have made many of the same points, e.g. Wolfgang Streeck.) The point about the trade-off between equality and efficiency that seems to have so annoyed Mr Porter is either a truism or trivial, or perhaps both, and again doesn’t come with any obvious political implications. Choosing equality over efficiency makes a lot of sense in some situations, much less in others. Denying that such a trade-off exists in many – but not all – situations makes no sense at all.

    • Geoff Roberts says:

      Economics may be ‘beautiful’ but why do economists always get it wrong? Or has there been an economist who correctly foretold the turbulences of the past five years? You feed the data into the computer, consult Hayek or Friedman and then make a guess. It may be beautiful to you but it’s the dismal science – dismal because it gets most things wrong.

      • outofdate says:

        I once read a funny hard-boiled thriller, can’t remember by whom, where particularly stupid and inept criminals were described as ‘philosophers.’ By the same token economics is a science.

    • cigar says:

      “5. When a government spends, its citizens eventually pay, either today or tomorrow, either through explicit taxes or implicit ones like inflation and defaults on debts.”

      This ignores that if a government spends during a recession it will at least go some way towards making up for the fall in consumption by businesses and their employees, so helping kick start the economy and in the long term lowering risk aversion by banks both foreign and domestic. And what is a debt deafult doing here? Argentinians chose not to pay their onerous foreign debt, and now their economy has been booming for close to a decade. Ecuador did the same, then bought back its debt at a huge discount, and their economy is doing better than when the IMF was pushing them around. Maybe the problem is that if you are an economist you don’t get a Nobel for saying these things: you get switched from the tenure track to one leading to the obscurity of an adjunct post in a college in Alaska or Guam.

      “6. Most people want other people to pay for public goods and government transfers (especially transfers to themselves).”

      But this is not the same as saying, ‘Most people consider it only fair that everyone should pay a decent share of their income for public goods…’. Most economists are experts at deceiving other people by dressing generalizations with fancy maths and dubious statistics, to make it all look like exact science instead of the pseudoscience it really is. This particular specimen of his rotten, criminal profession, aware that he is addressing what he considers laymen untrained in the black arts of disinformation in which he excells, has chosen instead to play with language. That explains that parentheses at the end, which brings to mind the cocodrile smile Milton Friedman liked to wear while whitewashing dictatorship and mass murder, the one he widened when he was heckled about his support for Pinochet while getting his own Nobel. With the typically smug arrogance of the self-made businessman (most often just lucky, and many times the recipient of government subsidies and tax cuts), this proud winner of a banker-funded prize tells us that people who support social security are just lazy free riders. Considering the phenomenon of the bailout queen, of the banker who supports free markets and the dismantling of the state while living large at the taxpayer’s expense, I would rewrite this folksy, winking slogan as:

      ‘There’s a 1% of a 1% of people who want all the rest to pay for their bad casino bets, and to boot that they should get a big fat bonus for bringing their business to the very edge of bankruptcy.’

      and

      ‘If you are an economist you will get a better chance at tenure and a Nobel if you churn out bad research and bad policy that will help the 1% of 1% that lives off at the taxpayer’s expense.’

    • RB says:

      All these propositions are either empty or unscientific, which is why they naturally qualify for the Nobel in Economics.
      Point 1 didn’t need any economic research, and it seems a foolish statement to make in such a grand occasion. I won’t ever marry Cary Grant or fly like the birds, yet people just roll their eyes when I tell them, instead of marveling at the deep truths Tom and I have discovered.
      Point 2 could also be dismissed as tautological, but Sargent was probably hinting that there are always (or mostly) trade-offs between equality and efficiency, which is the very type of unquantifiable, unscientific proposition these lads adore.
      Point 3 is interesting to non-economists, as it shows the intellectual poverty of our discipline: abilities, efforts and preferences are never developed, discovered or trained in contact with others; they are the eternal attributes of those who possess them. As it happens, I did not know I had the skills, desire or wish to read, but someone knew best and send me to school.
      Point 4 seems terribly one-sided. It could be supplemented by “this is why free markets (as advocated by myself) don’t always work as intended either”, but that would probably have been too humble.
      Point 5 is untrue. Unless full employment is assumed to be continously achieved without interference -or particular behavioural constraints are imposed- an expansion of government spending will be creating jobs and output that were not there before. I am willing to concede that an expansion of public expenditure may be matched by some decrease in final demand (be it consumption, investment or exports), or fully wasted on new imports, but it may also stimulate new investment, consumption etc., so that the direction of present and future effects cannot be known in a general manner.
      Point 6 is (again) not generally true. Attachment to the NHS in Britain is strong even amongst people who could probably save by switching to a private insurance system. Worse still, it is irrelevant as far as public spending is concerned under certain conditions e.g. current public deficits in the UK, bought (or “paid”) by the Government itself through BoE’s money-priting, do not require any contribution from private agents (a true “free lunch”, then).
      Point 7 is particularly misleading. Current pensions are paid by current contributions to Social Security. There is no intertemporal dismension to it: whatever needs or rights old people may have, they can only be satisfied by output produced when they are old, as one cannot eat his stocks or banknotes, stored in a jar in their early youth. Therefore, there is no difference in principle between the US and Singapore’s social security, since how the system operates needs not have any effect on the output path (see point 5).
      It is indeed puzzling that someone would make such blatantly ideological satements without any political aim in mind… Yet you argue this is the case: it would still be possible to advocate State interventionism in society, even if an enlightened public would know (thanks to Sargent) that such a policy will either backfire (point 4) or will come at a cost to others, now or in the future (points 5, 7) –though people, being self-centered (point 6) probably won’t care at all, as long as their share is protected.
      Yet, for those of us that live as if we weren’t just a bunch of sociopaths, there is some policy advice in offer: since the State, at its best, can’t help and, insofar as it exists, it is a testimony to the selfishness of some particular interest, one should work to demolish it for the better: individuals knows best (point 3), there is no such thing as society etc. Good thing the Swedes haven’t been paying much attention…

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