2013 Nobel Prize in Economics: An Opportunity Missed
- Kamran Mofid
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The Big, Exciting News of the week- just in case you missed it- was that the winner of the Sveriges Riksbank prize in economic science in memory of Alfred Nobel, as it is officially called, was announced on Monday, 14 October 2013.
After five years in which many of the pillars of economic theory have been swept away by a financial tsunami that went largely unpredicted by the majority of practitioners and teachers of the “dismal science”, it may be hard to believe anyone deserves to be warded a Nobel prize in the subject.
Those of us who have been fighting for a revolution in the way economics is taught in schools and universities would have liked to see the Nobel committee make a choice that reflects the seismic changes of the past five years and more.
I, for one, was hoping that the Prize Committee would demonstrate their wisdom by acknowledging the fact that we should be teaching economics differently. That the economists needed to switch from building big, complicated mathematical models that nobody understands anymore, to models which will return the “dismal science” to its true position: a subject of beauty, wisdom and virtue.
And then, the Committee shattered all our dreams.
The three economists, Eugene F. Fama, Robert J. Shiller and Lars Peter Hansen, all Americans, were announced as joint winners. According to the Royal Swedish Academy of Sciences, which selects the winner, they “laid the foundation for the current understanding of asset prices”, which “relies in part on fluctuations in risk and risk attitudes, and in part on behavioral biases and market frictions.”
I don’t know about you, but for me, since hearing this announcement, the world has become a far better place, more beautiful, more loving! Now I can sleep much sounder and better at night!
No need to worry anymore about the global crises in politics, economics, finance, banking, energy, food, environment, wars and terrorism, healthcare, housing, education, and more. No more worries about inequality, injustice, poverty, 1% and 99%, environmental vandalism and degradation, consumerism, materialism, individualism, racism and much more: all destroying the fabric of society and catastrophically weakening the ethical, moral and spiritual dimensions of our communities.
Now all will be well. Now I can relax a bit and leave it all to these three “great” and “exceptional” gentlemen from the United States of America that have “laid the foundation for the current understanding of asset prices”, which “relies in part on fluctuations in risk and risk attitudes, and in part on behavioral biases and market frictions,” to make my world a better place!
You see, as well as the above, there is also a more sinister and serious point- worthy of our reflection- about this year’s Prize.
Two of the recipients, namely, Fama and Lars are from the ultra-conservative Chicago school and ardent followers and disciples of Milton Friedman’s free-market fundamentalism.
As noted by the Guardian, Fama is notorious for denying financial bubbles exist and asserting recessions are a largely inexplicable feature of capitalism that should be allowed to take their course. His research has examined how external factors such as insider trading and government regulation can distort the workings of financial markets.
In the years before the crash he joined other disciples of Friedman, including former Federal Reserve boss Alan Greenspan, in defending the efficient-markets hypothesis that underpinned the deregulation of the banking system. "The financial markets were a casualty of the recession, not a cause of it," he told the New Yorker in 2010.
Hansen, is best known for his work modelling how economic actors cope with risk and changing environments.
Fama and Hansen join 87 other Nobel Prize winners affiliated with Chicago University. Their success means eight Nobel winners will be working at the faculty, including six in economics.
Given the above, this blog posting will not be complete without a word or two about Miltion Friedman, Chicago school and the Boys from Chicago.
According to the Real-World Economics Review, Milton Friedman propagated the delusion, through his misunderstanding of the scientific method, that an economy can be accurately modeled using counterfactual propositions about its nature. This, together with his simplistic model of money, encouraged the development of the financial theories with unrealistic assumptions that facilitated the Global Financial Crash (GFC). In short, he opened the door for everyone subsequently to theorize without fear of having to be attached to reality.
Moreover, they noted that Alan Greenspan, as Chairman of the Federal Reserve System from 1987 to 2006, both led the over expansion of money and credit that created the bubble that burst, and aggressively promoted the view that financial markets are naturally efficient and in no need of regulation. Before a Congressional committee on 28 October 2008 Greenspan confessed that his theoretical beliefs of 40 years were now proven to be without foundation, hence his total confusion and failure at his job.
Friedman and Greenspan together with Larry Summers, whom as US Secretary of the Treasury (formerly an economist at Harvard and the World Bank), worked successfully for the repeal of the Glass-Steagall Act, which since the Great Crash of 1929 had kept deposit banking separate from casino banking, were jointly awarded the Dynamite Prize in Economics by the Real-World Economics Review on 22 February 2010.
In awarding the Prize, Edward Fullbrook, editor of the Real World Economics Review, noted that “They have been judged to be the three economists most responsible for the Global Financial Crisis. More figuratively, they are the three economists most responsible for blowing up the global economy.” And then, the Nobel Prize in Economics is given to two of their followers! What a disgrace. What a travesty of justice and common sense.
And now to the Boys from Chicago. This is how I had described them in an article a few years ago:
‘Now is the time to change capitalism and globalisation for good’
‘…In the last few weeks the greed of Wall Street and the City (London financial district) has been under the spotlight. The Archbishop of York recently and in my view correctly, called some of the traders ‘bank robbers’. ‘We find ourselves in a market system which seems to have taken its rules of trade from Alice in Wonderland’ the Archbishop remarked. The Archbishop of Canterbury has also criticized ‘trading of the debts of others without accountability’ and compared unfettered belief in the market with fundamentalism. This last word ‘fundamentalism’ used by the Archbishop means a lot to me. It is the fundamentalism of economics, its teaching and MBA programmes that is, in my view, the shifting sand upon which we have built this house of cards, called economic globalisation, which has now come home to roost. The Chicago Boys School of Economic thought has proven to be an Emperor with no clothes! As long as this curse persists, there will be no possibility of reaching the Promised Land: where we can have justice, peace, happiness and contentment.
The Curse of Chicago Boys
‘As it has been noted, the so-called ‘famous school of economics at the University of Chicago led by the late Milton Friedman spread its market fundamentalism worldwide. Greed, selfishness, individualism and short-termism were conflated with freedom and democracy and elevated to the status of moral philosophy. The fatal flaws of this ideology have fueled the reckless risk-taking, greed and arrogance that led to Wall Street’s downfall and the loss of confidence in financial/banking sectors the world over.
‘The Chicago Boys and their clones inspired the Reagan and Thatcher era and the Washington Consensus of deregulation, privatisation, driving today’s form of economic globalisation.
‘Let us recall Milton Friedman’s infamous single bottom line: the only purpose of private enterprise and corporations is to make as much money as possible for shareholders. In the last few decades academics have created “free market” curricula, and business schools reaped grants from corporations and from conservative and gullible liberal foundations. Media joined in promoting the “animal spirits” of individual entrepreneurs, the glorification of business leaders and the “wealth” of Wall Street raiders, hedge fund titans and private equity kings. Money was seen as the only form of wealth.
‘I believe this must be highlighted, as without this understanding we cannot provide any solution or an alternative. It is immoral and an affront to humanity to spend the taxpayer’s money on this bail-out, without admitting what has caused the calamity to begin with. After Enron and WorldCom we were told never again - how wrong they were and how naive we were. For the last few years I have been arguing against economic/money-driven/fundamentalist/neo-liberal globalisation.
‘As Albert Einstein has reminded us, “The world cannot get out of its current state of crisis with the same thinking that got it there in the first place”. Therefore, we must change from the ideas and values of the Chicago Boys, currently the dominant or the only philosophy used in the teaching of economics and MBA programmes the world over, to a sacred and spiritual teaching of economics, rooted in ethics, morality, spirituality and the common good’…
There you have it. I hope you will agree with me that the 2013 Nobel Prize in Economics was an opportunity missed.
Read more and note the original sources:
“Today’s Good News: Larry Summers withdraws name for Fed chair job”
‘Now is the time to change capitalism and globalisation for good’
“American trio share Nobel economics prize for work on asset prices”