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Why Are Nobel Economists So Darned Useless?
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Nobel prize winners are supposed to have done something useful. Marie Curie discovered radioactivity – and thus gave us, among other things, X-rays. As for Albert Einstein, even before he became famous for his theory of relativity, he won a Nobel for describing photons, whose most familiar latter-day application is in optical fiber communications. Meanwhile Sir Alexander Fleming gave us penicillin, which opened the door to a universe of life-saving antibiotics.

But what have Nobel prize-winning economists ever done? Beats me. The dismal science’s latest Nobel winner, announced this morning, follows in a long tradition of establishmentarian mediocrity. He is Jean Tirole, a French expert on corporate regulation and banking.

Judging by this morning’s citation, Tirole’s main claim is that he has posited that different industries should be regulated differently. So a Silicon Valley behemoth like Google, say, shouldn’t be regulated the same way as the Russian nuclear power industry. Quelle surprise! Maybe for an encore he will advise the global shoe industry that one size doesn’t fit all.

For all his alleged expertise in banking, Tirole seems hitherto to have done little to challenge that industry’s toxic practices. Certainly, although he has been mildly critical of late of the bonus culture in investment banking, he seems not to have warned the world in advance of the abusive power, not to mention the outright charlatanism, of the likes of Goldman Sachs, Morgan Stanley, JPMorgan Chase, Bank of America, or Deutsche Bank.

Is this too harsh? Perhaps – but, for all his alleged expertise, Tirole’s sage comments on banking have mainly been after the fact.

Jean Tirole: platitudes. (Photo credit: Wikipedia)

For those of us who follow East Asia, Tirole’s work seems particularly wanting. The fact is that if economics is to be regarded as a legitimate science – that is, a discipline founded ultimately on empirical observations – by far the most important empirical observation of the last sixty years is the spectacular rise of East Asia. The region, after all, has boosted its share of world output from less than 5 percent to nearly 25 percent. The region poses a fatal challenge to Nobel-style economics. The fact is that far from getting prices right, as the Anglophone economics profession advised, the region has assiduously set out, in James Fallows’s phrase, to get prices wrong. Tirole, like virtually every other Nobel economics laureate, has shown little curiosity about the region’s remarkable outperformance. His most recent book — on corporate finance — has a few platitudinous references to Japan but has essentially nothing to say about Korea and Taiwan, let alone China.

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Let’s be clear: economics, at least the sort that wins Nobels, is less a science than a religion. As John Kenneth Galbraith observed as far back as the 1960s, there is almost nothing worth saying in economics that cannot be said in plain English. A few of the discipline’s simpler and oldest established ideas are certainly useful: supply and demand curves, for instance. Also, in similar vein, the concepts of marginal costs and marginal prices. Yet the modern economics profession insists on dressing up its ideas in advanced algebra the better to hide what a void lies underneath.

It is time the economics profession’s bluff was called — and the Swedish Academy found a better use for its money.

Eamonn Fingleton is the author of In Praise of Hard Industries: Why Manufacturing, Not the Information Economy, Is the Key To Future Prosperity (Boston: Houghton Mifflin, 1999).

(Republished from Forbes by permission of author or representative)
 
• Category: Economics • Tags: Free Trade, Nobel Prize 
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