Faux Nobels

23 October, 1993

Economic Correctness (EC) has done many times more than political correctness ever will. EC pivots on the prejudice that unless one agrees with the free-trading privateers, then one has no right to express an opinion on economic matters. Bias within the debate over social questions can be seen by comparing the Everest of ridicule that has landed on PC while EC has wrought its horrors under the false label of economic rationalism.

EC is more than the spleen of newspaper columnists or the self-interest of currency speculators. EC has been institutionalised throughout the economics profession so that only its clones need apply for jobs with key ministries and universities.

Worse, EC acts as a bar against entry to teaching positions in universities. With few exceptions, the tertiary purveyors of economics in Australia follow EC scripts. Academic freedom in this case means the freedom to brainwash undergraduates with formulae for determining the price of apples. Critically minded first-year students drop out because they soon grow bored with the irrelevance of EC assumptions regarding the realties of Australia’s difficulties.

EC professors declare that the near unanimity within their profession is proof that they are right to conduct their inquisition against sceptics. Although an intellectual discipline requires energetic debate over fundamentals, the Economically Correct do no more than bicker at the margins. If the health of any species depends on its ability to generate varieties, then the economics profession is in danger of extinction.

Ideas about social policies do not prevail because they represent the most accurate picture of how the world is. To become dominant, ideas need the backing of powerful interest groups gathered around bureaucracies. One means by which EC has been marketed to consumers is by the promotion of misleading testimonials.

A prime instance is the so-called Nobel Prize for Economics. This piece of propaganda is an imposition on the public and should be referred to the Trade Practices Commission. A Nobel Prize for Economics does not exist. Alfred Nobel provided funds for only five prizes: chemistry, physics, physiology or medicine, peace and literature. The first awards were made in 1901.

Public recognition of the Nobel awards has left mathematicians, among others, envious that they do not share in the annual glory, which is almost as welcome as the $1m prize money. Only economists have had the clout to filch Nobel’s seal of approval for their practices. How?

In 1968, the Central Bank of Sweden (Sveriges Riksbank) celebrated its 300th anniversary by initiating a new award with the official title of the ‘Central Bank of Sweden Prize in Economic Science in Memory of Alfred Nobel’. To make the Nobel brand label stick, the bank had to win over the Swedish Academy which administers the genuine Nobel prizes. Economists among the academicians pushed for endorsement in the expectation that they would be early recipients. The schemers prospered and the Bank of Sweden’s first awards were announced in 1969.

Although based in one of the world’s oldest social democracies, the Bank of Sweden remained an enclave of right-wing thinkers. The choice of recipients for the bank’s ideological gong (aka Nobel Prize) has long been a scandal.

One notorious instance came in 1974 with an award to the Austrian godhead of the ultra-deregulators, Friedrich von Hayek, who wanted even the issue of currency to be left to market forces. One hurdle to overcome before giving the prize to von Hayek was that he had not published in the field of so-called ‘economic science’ for nearly forty years. His postwar fame depended on social philosophy as the author of capitalist manifestos. To accommodate von Hayek, the committee had to stretch is already rubbery definition of ‘economic science’ to embrace ‘the interdependence of economic, social and institutional phenomena’.

After a decade or so of self-congratulation, the economists had run out of great colleagues to honour. Since then, they have been either scraping the bottom of the barrel or acknowledging EC mavericks such as George Stigler in 1982. Typical of Stigler’s style was his defence of monopolies on the ground that a perfect market is one in which there is perfect knowledge of all the selling prices and that condition is best achieved with a single seller.

The following year, the award slumped to a nadir with the choice of Gerard Debreu. His achievement had been to apply to the core doctrine of the free marketeers aspects of calculus at a level long required from first-year university students in mathematics. Debreu’s discovery could be made to apply only after he had set down so many assumptions for his model that any outcome had to be a tautology, as useless as it is superficially elegant.

The 1970 recipient, Paul Samuelson, of textbook fame, remains skeptical about the prize and about the ‘baroque preciousness’ of EC’s mathematical delusions, which pursue complexity at the expense of lucidity. Samuelson is also critical of the so-called Nobel’s political biases, which blocked Joan Robinson, a woman, an irritant and a leftie.

When next you hear that someone has a Nobel Prize for Economics you will have more reason than ever to savour Stigler’s paradox that the most frequent error in economics is to believe economists.