Presentiments of Nobel Future

Two books that bear heavily on problems in the world today are The Guidance of an Enterprise Economy (MIT, 2016), by Martin Shubik, of Yale University, and Eric Smith, of George Mason University; and Identity and Control (Princeton, 2008), by Harrison White, of Columbia University.  Guidance deals with the role of money and financial institutions in industrial democracies, Identity and Control, a revised edition of a book that first appeared in 1992, is especially relevant to understanding the situation of present-day Russia.

The first is highly mathematical, though the authors have marked out a good clear path through the argument in natural language as well. The second contains nothing but words, but plenty of them (plus a handful of diagrams). I’ve had both on my desk for months, looking for an opportunity to write about first one, then the other. Each describes a broad conceptual lens whose refinement will probably be worthy of a Nobel Prize in the economics sciences eventually – sometime in the next fifty or a hundred years. If only the authors could wait!   Shubik is 90, White is 87.

The ideas in these books must wait a little longer, even to be dumbed-down here. The subject today is The Nobel Factor: The Prize in Economics, Social Democracy, and the Market Turn (Princeton, 2016), by Avner Offer, of All Souls College, Oxford University, and Gabriel Söderberg, of Uppsala University. Their book, too, contains a fundamental insight. It, too is sufficiently profound enough that one might wish it would become – sooner, perhaps, than the others – the kind of wholly reliable knowledge that the newest Nobel Prize in economics was created to recognize. But Offer and Söderberg’s truth is stated more casually than those of the others, and thus is easier to miss.

The Nobel Factor owes its existence to the Institute for New Economic Thinking, the research network conceived and funded by George Soros, though Britain’s Leverhulme Trust contributed support as well. Originally the book was to have had three authors; historian Philip Mirowski, of Notre Dame University, peeled off and presumably will report separately. Even with just two authors, the book offers a regular smorgåsbord of points of view.

The basic frame is that of a history of a post-World War II competition between the program of social democracy and a rival credo variously called market liberalism, neoliberalism, neoclassical economics, or, often, simply “economics.” “The temper of the times changed around 1970,” the book begins. “In the rich societies of the West, two golden decades of full employment gave way to hard times and hard faces.”

This is the “market turn” of the subtitle. According to the authors, what happened in 1970 had little or nothing to do with the integration of world markets – the rise of Japan and the economies of Singapore, Hong Kong, Korea and Taiwan, much less the entry of China into the global trading system after 1978 and the subsequent collapse of the Soviet empire. Still less was it a matter of the bureaucratic sclerosis in the economies of the industrial democracies that became a popular diagnosis in the 1970s.

Instead it was a product of persuasion, they say, beginning with the Mont Pélerin Society. This is a familiar argument, especially to readers of The Great Persuasion: Reinventing Free Markets since the Great Depression (Harvard, 2015) by Angus Burgin, of Johns Hopkins University. And, indeed, a significant political movement has drawn inspiration from foundational tracts by Mont Pélerin founders Friedrich Hayek (The Road to Serfdom) and Milton Friedman (Capitalism and Freedom).

The Nobel Prize enters the story as a propaganda device, the product of “the strife between social democracy and business elites in Sweden.” Differences of opinion about Swedish monetary policy in the 1950s became battles over control of the central bank and its revenues in the 1960s, the authors write.

Seeking to enhance its prestige and buttress its claim to independence, the Swedish Riksbank seized on the idea of a “jubilee” to celebrate the three-hundredth  anniversary of its founding and persuaded to Nobel Foundation to accept the gift of money to create a “new” Nobel prize – the Swedish Central Bank Prize in Economic Sciences in Memory of Alfred Nobel.  So much for the intellectual impact of the Keynesian revolution. These stories of Swedish politics are very interesting and suggestive, but not always persuasive.

Finally, there is the authors’ underlying premise that economics should conceive of itself as more nearly resembling literature than physics – that is, as a repository of many sorts of truth rather than a scientific enterprise in pursuit of single one.  Offer and Söderberg acknowledge that the prize awarders have recognized a certain diversity of approaches over the years – theorists, measurement economists, historians, experimentalists have been cited – but they consider the omission of Joan Robinson and John Kenneth Galbraith to have been cardinal sins.  There are, of course, other awards designed to mark the frontiers of economic knowledge. The best of these, I think, is the Leontief Prize, named for Nobel laureate Wassily Leontief and funded, in principled anonymity, by Neva Goodwin, one of David Rockefeller’s several children. But after seventeen years, the program has yet to command much attention. Sample winners:  Paul Streeten, Dani Rodrik, Alice Amsden, Samuel Bowles, Robert Wade, Duncan Foley, Nancy Folbre. The overlaps so far with the Nobel roster are Amartya Sen, Daniel Kahneman, and Angus Deaton.

The Offer/Söderberg critique won’t convince many who aren’t already persuaded of the illegitimacy of a Nobel prize in economic sciences. Many of the rest of us consider that a hundred years or more of research in social science that lie ahead.  A broader discussion of the situation is to be found in The Three Cultures: Natural Sciences, Social Sciences and the Humanities in the 21st Century (Cambridge, 2009), by Jerome Kagan, of Harvard University.  A developmental psychologist, Kagan takes account of the somewhat breathtaking developments in the fifty years since C.P. Snow drew a sharp distinction in an influential set of lectures between natural science and the humanities.

Social scientists, whom Snow simply ignored in 1959, have risen to a commanding position in the academy, Kagan notes, on the strength of twin streams of government funding and student demand; humanities scholars in the same period have seen their fiefs shrink dramatically. He concludes, “It is time for the members of the three cultures to adopt a posture of greater humility for, like tigers, hawks and sharks, each group is potent in its own territory but impotent in the territory of the other.”

The reason the Nobel prizes have worked so well in the hundred years since their procedures were fashioned in consequence of Alfred Nobel’s surprising bequest is that they constitute a careful if somewhat skewed and historically conditioned audit of the expanding frontiers of knowledge and, in the case of the prizes for literature and peace, accomplishment. The awards that will be presented in Stockholm this week are representative:

In the natural sciences, to three physicists, “for theoretical discoveries of topological phase transitions and topological phases of matter”; to three chemists, “for the design and synthesis of molecular machines”; and to cell biologist Yoshinori Ohsumi for, “for his discoveries of mechanisms for autophagy” at the juncture of physiology and medicine.

In the economic sciences, to economists Oliver Hart and Bengt Holmström, “for their contributions to contract theory.”

In the humanities, to singer Bob Dylan (prospectively), in literature, “for having created new poetic expressions within the great American song tradition”; and, in Peace, to Colombian President Juan Manuel Santos, “for his resolute efforts to bring the country’s more than 50-year-long civil war to an end.”

It was inevitable that Hayek and Friedman should have been among the first seventy-eight persons to be recognized with the prize in economic sciences. They helped shape the field, though not necessarily in the ways their citations stressed.  Offer and Söderberg quote a revealing letter from Friedman to a friend in 1985:

The threat to a free society that we envisaged at the founding meeting of the Mont Pélerin society was very different from the threat to a free society that has developed over the intervening period. Out initial fear was of central planning and extensive nationalization.  The developing threat has been via the welfare state and redistribution.  Unfortunately the threat did not disappear but simply changed its character.

Today, the Friedman program is at the center of attacks on the welfare state that continue to emerge in the United States – on public education, the Social Security retirement system, single-payer Medicare and Medicaid health insurance. Sometimes these arguments are presented as possessing the authority of “scientific economics.” But the campaigns are political propositions, not economic ones.

And that leads back to the fundamental truth possessed by Offer and Söderberg’s book – the one, I think, that were it accompanied by an unassailable proof, would merit a Nobel Prize?  Simply this:  that economics is no substitute for politics.  Arguments about justice are conducted in the domains of philosophy, history, literature, law, and politics. In analyzing the consequences of a particular policy, questions of justice may require an assist from economics.  Never, however, can economics hope to resolve the issue. The pursuits we call the humanities are required for that.

Ironically, nowhere in Offer’s work can this truth be seen more clearly than in Burn Mark: A Photographic History of the Six Day War, his remarkable evocation pictures of life – and death – in a small reconnaissance unit of the Israeli Army before, during and after the battle for control of Jerusalem, and especially, its Temple Mount. Offer was a young Israeli soldier in those days. He carried a camera as well as a weapon. His photographs were exhibited in the Tel Aviv Museum of Art, in 1968; Cornell Capa sought a publisher for them and the accompanying text; but there were complications.

Offer didn’t publish the book until 2014, when tensions in the West Bank emphasized the continuing relevance of its images of Palestinian dismay. Burn Mark is literature and art, not economics.  It demonstrates as conclusively as one could wish that the human condition includes a very great deal more than market transactions.

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