Two Swedes on the New Economics Nobel

[On Monday, October 9, the Royal Swedish Academy awarded the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel to Claudia Goldin of Harvard University. Two Swedish expatriates reflect on the meaning of the Prize and this year’s recipient.]

Per Bylund

As an Austrian economist, the announcement of the economics prize—often misleadingly referred to as the economics Nobel Prize—is a matter of not knowing whether to laugh or cry (or both). Rather than awarding the prize to an economist doing work in line with the long and sound tradition of economic reasoning, the Royal Swedish Academy typically awards the prize to lifelong academics who have made nothing but inconsequential or discoveries from inductive data mining or contributions to mathematical games. Or, much worse and not rare enough, the prize is awarded to work that appears to facilitate or prop up interventionist policy.

Needless to say, the economics “Nobel” generally does more harm than good.

But this year’s prize turned out to be unusual in many ways: it’s been awarded to a single person rather than being shared (as is now the norm), to a woman rather than a man, and for work that isn’t terrible. The former two are rather uninteresting from an economics perspective, but the latter warrants explanation and a comment.

The economics prize is rarely awarded for work that Austrians in the Misesian tradition would consider economics (i.e., deductive economic theorizing). This approach to figuring out the true causalities of economic phenomena is hopelessly out of fashion and has since given way to the modern cult of pseudo-Popperian scientism, in which science means searching through datasets for surprising patterns and making them out to be statistically significant. Nobody, including Austrians, expects the prize to be awarded to what used to be economics proper.

However, Austrian economics is not only theory or theorizing. Praxeology sets a higher bar than mainstream “theorizing”: it is true, not merely justifiable or nonfalsified—and is therefore also more limiting. Much more is left to nontheory: economic history, the applying of economic theory to observable phenomena to make sense of them, has a larger scope in Austrian economics than in mainstream economics. Of course, to be worth its salt, economic history cannot be done untheoretically but must instead apply theory to the data to uncover what actually happened. Murray N. Rothbard, for example, has done great work in this area, uncovering the nature and causes of several economic crises.

This year’s prize, as University of Gothenburg professor Randi Hjalmarsson described it during the announcement, is much closer to the Austrian approach to economic history than one would expect from mainstream economists. Officially awarded to Harvard’s Claudia Goldin for “for having advanced our understanding of women’s labour market outcomes,” Professor Hjalmarsson noted that Goldin was awarded the prize for “digging through the archives” to find new (previously not existing) data on women’s labor market participation and wages and then showing that an economics framework can be used to explain those data. That latter point should be no surprise to any serious economist (but most economists nowadays arguably aren’t), but it is promising that the Royal Swedish Academy thought this worthy not only of mention but of emphasis during the announcement.

I’m hardly an expert on Goldin’s work, but it sounds like the economics “Nobel” this year was actually awarded to someone doing economics, although it was of course economic history and not economic theory. This is not only a relief, but rather promising. Perhaps it is an indication that mainstream economics has finally run out of cute games and is slowly finding its way back to doing proper economics?

I’m not holding my breath.

Joakim Book

I’m usually not happy or relieved when the Economic Sciences Prize Committee announces the winner of the economics prize; it’s all too often some hyped-up, garbage economist whose research fits with the committee’s turncoat values.

This time, their woke and less-than-professional due diligence might have failed, and I found myself breathing a sigh of relief. Goldin is a decent choice for a discipline that’s become almost entirely economic history.

In this, Professor Bylund is entirely right.

Whatever its filthy origin (the economics prize isn’t funded by Alfred Nobel’s endowed fortune but by general revenues from the Sveriges Riksbank; i.e., seigniorage), the prize is the discipline’s most respected, its highest formal honor. It’s a stamp of approval and a sign that your research (topic) is worthy of the wider public’s attention.

This isn’t a prize in economics as Austrians understand the word, but in economic history. (Switch the labels, then, and we’re all good . . . ?) Few things that take place in economics departments are economics in the Austrian sense. Austrians often complain that the prize isn’t given to “actual” economics . . . fair enough. Name some pure improvements in (Austrian) economic theory in the past twelve months—worthy of a prize with Alfred Nobel’s name on it. So maybe we shouldn’t have an economics Nobel awarded by a central bank roughly as a popularity contest? Okay, you go petition the Swedes. But given that there’s a cute little industry prize with a fair bit of fiat change (around $1 million dollars, most of which will end up with Uncle Sam unless Ms. Goldin donates it), it has to be given to someone.

God knows there are plenty of awful candidates for the Royal Swedish Academy to choose from. Last year, the committee gave the prize to a single, oft-refuted paper from the 1980s. It tried to show how deposit insurance and lender-of-last-resort functions made bank runs theoretically impossible. This paper won the prize just a few months before some of the largest bank runs in US history took place in March 2023. And the policies behind the fragilities in the American banking system (quantitative easing and subsequent central bank activism)—the worst monetary policy mistake in modern history—were put in place fifteen years ago by one of the corecipients of the prize, Ben Bernanke.

Some other highlights of this prize’s pretty recent sordid past include virtue-signaling development economists and their marginal (read: unimportant) experiments (2019); silly psychology experiments that don’t hold up outside the lab (2017); and long-run macroanalysis, including fancy models that “incorporate” climate change, even though the predictions of climate scientists might rival those of economists in inaccuracy (2018).

And if you delve into Goldin’s work, it’s pretty good economic history too. My suggestion is her 2014 American Economic Review article, “A Grand Gender Convergence” (where she admittedly argues with the wind: she laments that firms and society value long hours and hard work—boohoo). But when last did you see someone suggest, in the pages of the most prestigious economic journal, that “the solution does not (necessarily) have to involve government intervention” and that “as women have increased their productivity enhancing characteristics and as they ‘look’ more like men, the human capital part of the wage difference has been squeezed out. What remains is largely how firms reward individuals who differ in their desire for various amenities” (read: flexible work and time off).

Over history, differences in earnings and profession between the sexes have come from technology and individual choice—not bigotry or government policies.

Given how good Goldin’s research is, and how many other bad choices the committee could have opted for, her win is a victory. Besides, whenever someone hurls “gender pay gap” at you in the next few months, you won’t just have obscure research or opinion pieces at libertarian and conservative outlets to show them, but a goddamned Nobel laureate to back you up.

Repeat after me: there is no gender discrimination; the gender pay gap arises from rational, sane, nonmaleficent lifestyle choices. That’s the wonderful takeaway from Goldin’s prize.