Nobel Prize in economics 2023: Second successive year for economic history

This year’s Nobel Prize in Economic Sciences in Memory of Alfred Nobel has been awarded to Claudia Goldin for her work on women participation in labor markets.

Prof Goldin uses the tools and understanding of economic history to understand the women labor markets. As per Nobel citation:

By combining innovative methods in economic history with an economic approach, Goldin has demonstrated that several diferent factors have historically infuenced – and still infuence – the supply of and demand for female labour. These include women’s opportunities for combining paid work and a family, decisions relating to education and childrearing, technical innovations, laws and norms, and the structural transformation of the economy. In turn, her results have enabled a better understanding of how and why rates of employment and pay difer between women and men. To achieve these insights, Goldin looked back over two hundred years.

….

Over the last few centuries, society has experienced signifcant political, social and technological changes. Contemporary industrialised countries have enjoyed steady economic growth since the industrial revolution. It would be easy to believe that women’s participation in the labour force would follow the same trend, but Goldin’s research has shown that this is not the case.

Looking in the rearview mirror, she has created an understanding of how women’s circumstances changed as the economy was transformed from a traditional agrarian economy to contemporary society. However, some parts of this mirror were smudged, due to women’s work being underreported in historical sources, and these smudges needed wiping away. When this was done, Goldin could allow the overall picture to emerge by analysing both the corrected and new historical data.

When she zoomed in on US history, this picture became crystal clear – she was able to identify groundbreaking patterns that have not only challenged existing knowledge, but which have also changed the view of women’s historical and contemporary roles in the labour market. One of these patterns looked like the letter U.

Last year, Ben Bernanke was awarded the prize and much of Bernanke’s work also draws from economic history:

Through statistical analysis and historical source research, Bernanke demonstrated how failing banks played a decisive role in the global depression of the 1930s, the worst economic crisis in modern history. The collapse of the banking system explains why the downturn was not only deep, but also long-lasting.

Nice to see scholars being recongnised for their work on economic history..

Economics Nobel 2023: Claudia Goldin

The Royal Swedish Academy of Sciences has decided to award the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2023 to Claudia Goldin Harvard University, Cambridge, MA, USA “for having advanced our understanding of women’s labour market outcomes”.

An inspiring choice. Perhaps one of the most relevant economics prizes in recent years.

Here is a general primer on the award and a more scientific explanation.

Reflections on the 2022 Economics Nobel Memorial Prize: Based on obsolete ideas

Jens van ‘t Klooster of University of Amsterdam reflects on the 2022 Economics Nobel Prize on Banks and Bank runs: 

My reflections are structured as follows. First, I review the existing literature on the political role of the prize in promoting academics who favour market-based solutions to societal problems. Next, I turn to the Committee’s scientific background study to identify the vision of the fi-nancial system that informs the 2022 prize. As I illustrate, however, these ideas have become largely obsolete. This sets the stage for discussing how financial policy has also been shaped by a profound rethinking of human-nature relations in the ‘Anthropocene’. First, I set out how the academic disciplines of economics and finance continue to lag behind recent devel-opments in the broader social sciences. Then, I discuss how regulators have rethought their approach to the environment in recent years.

Rest in Peace Prof Robert Lucas

Prof Robert Lucas of Univ of Chicago passed away.  He was one of the giants who shaped the subject of macroeconomics.

This story on his Nobel prize is quite something. His wife in her divorce settlement had said that if he does win the Nobel Prize she should get half the prize money.  Lucas did get the prize and the ex-wife half the money. One of those rare instances, when the wife had a high impression of husbabd’s abilities.

Rest in Peace Sir.

Nobel prize in economics for 2022 explainer: Why Ben Bernanke’s economics Nobel for bank crisis work is creating a storm

I explain the Nobel prize in economics for 2022  in moneycontrol.

Econonomics nobel 2022 to Ben S. Bernanke, Douglas W. Diamond and Philip H. Dybvig

Interesting choices which will lead to lots of debates.

The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2022 was awarded to Ben S. Bernanke, Douglas W. Diamond, Philip H. Dybvig “for research on banks and financial crises”.

Modern banking research clarifies why we have banks, how to make them less vulnerable in crises and how bank collapses exacerbate financial crises. The foundations of this research were laid by Ben Bernanke, Douglas Diamond and Philip Dybvig in the early 1980s. Their analyses have been of great practical importance in regulating financial markets and dealing with financial crises.

For the economy to function, savings must be channelled to investments. However, there is a conflict here: savers want instant access to their money in case of unexpected outlays, while businesses and homeowners need to know they will not be forced to repay their loans prematurely. In their theory, Diamond and Dybvig show how banks offer an optimal solution to this problem. By acting as intermediaries that accept deposits from many savers, banks can allow depositors to access their money when they wish, while also offering long-term loans to borrowers.

However, their analysis also showed how the combination of these two activities makes banks vulnerable to rumours about their imminent collapse. If a large number of savers simultaneously run to the bank to withdraw their money, the rumour may become a self-fulfilling prophecy – a bank run occurs and the bank collapses. These dangerous dynamics can be prevented through the government providing deposit insurance and acting as a lender of last resort to banks.

Diamond demonstrated how banks perform another societally important function. As intermediaries between many savers and borrowers, banks are better suited to assessing borrowers’ creditworthiness and ensuring that loans are used for good investments.

Ben Bernanke analysed the Great Depression of the 1930s, the worst economic crisis in modern history. Among other things, he showed how bank runs were a decisive factor in the crisis becoming so deep and prolonged. When the banks collapsed, valuable information about borrowers was lost and could not be recreated quickly. Society’s ability to channel savings to productive investments was thus severely diminished.

“The laureates’ insights have improved our ability to avoid both serious crises and expensive bailouts,” says Tore Ellingsen, Chair of the Committee for the Prize in Economic Sciences.

Nobel prize in economics 2022: predictions

Clarivate Citations has put up its predictions of nobel prize in economics for 2022

Interesting choices this time around from economics of institutons to happiness to reciprocity/fairness.

Fischer Black Prize 2021 awarded to Matteo Maggiori

Fischer Black Prize is awarded to promising young financial economists under age 40. It is the finance equivalent of John Bates Clark Medal given to economists under 40.

Fischer Black Prize for 2021 is given to Prof Maateo Maggiori of Stanford Univ:

Matteo Maggiori has been selected by the AFA to receive the 2021 Fischer Black Prize for an outstanding financial economist under age 40.  He is Associate Professor of Finance at the Stanford Graduate School of Business, where he has taught since 2019. Before joining Stanford, Matteo taught at Harvard University and New York University. His research topics have included the analysis of exchange rate dynamics, global capital flows, the international financial system, the role of the dollar as a reserve currency, tax havens, bubbles, expectations and portfolio investment, and very long-run discount rates.

He is Research Associate at the NBER in the Asset Pricing, Economics Fluctuation and Growth, International Finance, and Macroeconomics Programs. He is also Research Fellow at the CEPR. He currently serves as Associate Editor at the Journal of the European Economic Association and Associate Editor at the Journal of International Economics. He received his Ph.D. from the Haas School of Business at the University of California, Berkeley in 2012.

He could have got the Clark Medal too as his work is so much about Macro.  Prof Maggiori’s page is here.

Economic Sciences Nobel: Auctions, they’re all around us

My new piece in MC on the 2020 Riksbank Prize in Economics.

The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2020: Paul Milgrom and Robert Wilson for auction theory

The announcement just came in:

The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2020 was awarded jointly to Paul R. Milgrom and Robert B. Wilson “for improvements to auction theory and inventions of new auction formats.”

People have always sold things to the highest bidder, or bought them from whoever makes the cheapest offer. Nowadays, objects worth astronomical sums of money change hands every day in auctions, not only household objects, art and antiquities, but also securities, minerals and energy. Public procurements can also be conducted as auctions.

Using auction theory, researchers try to understand the outcomes of different rules for bidding and final prices, the auction format. The analysis is difficult, because bidders behave strategically, based on the available information. They take into consideration both what they know themselves and what they believe other bidders to know.

Robert Wilson developed the theory for auctions of objects with a common value – a value which is uncertain beforehand but, in the end, is the same for everyone. Examples include the future value of radio frequencies or the volume of minerals in a particular area. Wilson showed why rational bidders tend to place bids below their own best estimate of the common value: they are worried about the winner’s curse – that is, about paying too much and losing out.

Paul Milgrom formulated a more general theory of auctions that not only allows common values, but also private values that vary from bidder to bidder. He analysed the bidding strategies in a number of well-known auction formats, demonstrating that a format will give the seller higher expected revenue when bidders learn more about each other’s estimated values during bidding.

 

Nobel Economics Podcast series: Dialogue with Nobel Economics Awardees

Podcast is becoming the new cool thing.

Nobel Committee has started a new podcasts series,  The first speaker is who else but Richard Thaler!

This week Nobel Prize Conversations launches – a new biweekly podcast series where the listener gets the chance to know some of the individuals who have been awarded the Prize in Economic Sciences a little better. The conversations focus on motivation, creativity and choices in life – large and small. The first episode features behavioural economist Richard H. Thaler. 

The Nobel Prize Conversations podcast series premieres on Thursday 30 January and runs during spring 2020. It consists of ten programmes and will be available for listening via Acast and major podcast platforms and on nobelprize.org, the official website of the Nobel Prize. The host for this podcast series is Adam Smith, who also has the happy task of interviewing new laureates just after they have received the news of their prize.

These easily-accessible conversations delve into how these personalities found their research fields, how they view collaboration, curiosity and failure, and what keeps them going. The laureates share what they have learned from their career and what they like to do outside of their work – from music to fly-fishing and horseback riding. The discussions flow freely, resulting in richly varied stories on topics ranging from poverty prevention to markets for kidney exchange to nudging in behavioural economics.

The first episode is a conversation with Richard H. Thaler – awarded the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel in 2017 – on nudges, sludges, and the connection between stubbornness and success. His work has helped us understand how people make choices in the real world and has also given us tools to nudge people towards better decisions. 

“We are very excited to launch this new podcast. These conversations have a clear in-depth ambition and take an informal approach. It is fascinating to learn more about the laureates’ life and work and how things can take unexpected turns,” says Magnus Gylje, Editor-in-Chief for the Nobel Prize’s digital channels.

Other laureate conversations to come are Angus Deaton (2015 Economic Sciences laureate), Paul M. Romer (2018 Economic Sciences laureate), Alvin E. Roth (2012 Economic Sciences laureate) and more.

The podcast is produced by production company Filt Hinterland together with Nobel Media. The producer is journalist Fanny Härgestam, co-author of the Hans Rosling biography. The series is brought to you with support from the Riksbank. The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel (Prize in Economic Sciences) was instituted in 1968, at the tercentenary of the bank. 

Superb stuff..

Economics Nobel 2019 – Hail the trio, but the real party can wait!

My piece in moneycontrol reviewing the 2019 economics nobel.

Not the Nobel Prize: Finding fresh economics ideas for the 21st century

Promoting Economic Pluralism is an organisation aiming promote pluralism in economics.

It has instituted a new award – Not the Nobel Prize– which will be awarded on 3 October 2019, ahead of Nobel economics which is on 14 Oct. It says that Nobel prizes have been given to ideas which has led to ecological breakdown:

Our economic system is driving us towards a perfect storm. We are facing ecological breakdown. Rising debt is threatening a new financial crash. Inequality is pulling societies apart.

For 50 years, the scientific prestige of the Nobel Prize has given authority to economic ideas at the heart of this system. And even though the stark consequences of the 2008 financial crisis are still felt today, these out-dated ideas remain dominant.

We urgently need to reroute society away from this catastrophic path. That starts with fresh economic thinking.

Who are the thinkers and doers finding the economic solutions we need to meet the challenges of the 21st century? Help us find them and celebrate them.

And join the discussion about whether economics, as it stands today, is worthy of a Nobel Prize.

They have put up a list of new ideas which could be in contention for the prize on 3 October 2019.

Why did Milton Friedman win the Nobel Prize?

The  Committee awarded Milton Friedman the prize for his work on:

“fields of consumption analysis, monetary history and theory and for his demonstration of the complexity of stabilization policy.”

Profs. James Forder and  Hugo Monnery of University of Oxford (Balliol College) in this paper review the prize to Friedman. They say his work on consumption analysis and monetary history are well known. It is third one on stabilization policy which needs explanation:

The citation for Milton Friedman’s Nobel Prize of 1976 points to three contributions. In two cases, the principal works the Committee must have had in mind are easy to identify. The question of what was intended by the third – ‘his demonstration of the complexity of stabilization policy’ – is considered. It is argued that, contrary to what might be suspected, this does not refer to any work on the Phillips curve; but the work to which it does refer is identified. The reasons that particular work is less well-remembered than the other work mentioned in the citation are considered.

Reflections from a Nobel winner: Scientists need time to make discoveries

Nice piece from Prof Donna Strickland  of University of Waterloo who received the Physics Nobel for 2018:

In many cases, the practical applications lag several years or even decades behind the original findings.

Albert Einstein created the equations for the laser in 1917, but wasn’t until 1960 that Theodore Maiman first demonstrated the laser. Isidor Rabi first measured nuclear magnetic resonance in 1938. He received the Nobel Prize for Physics in 1944 for his research, which led to the invention of magnetic resonance imaging, or MRI. The first MRI exam on a human patient took place in 1977.

Certainly, applications deserve a lot of attention. Before you can get to them though, researchers first have to understand the basic questions behind them.

The term fundamental science may give some the false impression that it doesn’t really affect their lives because it seems far removed from anything relatable to them. What’s more, the term basic has the non-scientific definition of simple that undermines its importance in the context of basic science.

We must give scientists the opportunity through funding and time to pursue curiosity-based, long-term, basic-science research. Work that does not have direct ramifications for industry or our economy is also worthy. There’s no telling what can come from supporting a curious mind trying to discover something new.

Perhaps applies to all subjects…

Why Nordhaus and Romer deserve the Economics Prize for 2018?

My 2 paise on the economics prize for 2018.

Reblogging and reminiscing: Before Thaler there was Pai

I cannot help but reblog this article I wrote reflecting on last year’s Economics Prize.

The recipient was Richard Thaler for his amazing and inspirational work on behavioral economics.  His Nobel lecture is really inspirational on getting ideas and then pursue them despite all adversity. Thaler even mocked himself saying on completing his thesis, his adviser famoulsy said:” We didn’t expect much of him”.

Having said that, we have barely engaged with Indian financial history in a meaningful way. I wrote how Dr TMA Pai of Syndicate Bank had not just thought about the financial nudge idea but even implemented it very successfully at his bank via pigmy deposits way back in late 1920s. Sidin the editor of Mint Sunday paper not just agreed to publish it right away but also gave it a teasing title “Before Thaler there was Pai”. 🙂

I am still amazed how little we learnt from Pigmy Deposits gives our focus on financial inclusion. It helped open bank accounts across the region, encourage savings, mobilise deposits for the bank and most importantly generated enormous trust amidst bank’s customers. It was a huge win-win for all the stakeholders. But still never got the traction it deserved..

The economics prize 2018 to William Nordhaus and Paul Romer

Interesting choices.

• William Nordhaus for integrating climate change into long run economic analysis
• Paul Romer for integrating technological innovations into long run macroeconomic analysis

Both were on the wait list for a long time.

More links to follow. Nobel guys will put up a lot of basic info.

Update:

• Press release
• popular information: Integrating nature and knowledge into economics
• scientific background: Economic growth, technological change, and climate change

 

Reading Hayek on the Economics Prize day…

Just in one and a half hours, we are going to learn of the recipient of ‘The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel’ for the year 2018.

I had read Hayek’s Prize lecture (received the prize in 1974) but saw this Banquet speech recently (HT: Conversable Economist Blog)

Your Majesty, Your Royal Highnesses, Ladies and Gentlemen,

Now that the Nobel Memorial Prize for economic science has been created, one can only be profoundly grateful for having been selected as one of its joint recipients, and the economists certainly have every reason for being grateful to the Swedish Riksbank for regarding their subject as worthy of this high honour.

Yet I must confess that if I had been consulted whether to establish a Nobel Prize in economics, I should have decidedly advised against it.

One reason was that I feared that such a prize, as I believe is true of the activities of some of the great scientific foundations, would tend to accentuate the swings of scientific fashion.

This apprehension the selection committee has brilliantly refuted by awarding the prize to one whose views are as unfashionable as mine are.

I do not yet feel equally reassured concerning my second cause of apprehension. It is that the Nobel Prize confers on an individual an authority which in economics no man ought to possess. 

This does not matter in the natural sciences. Here the influence exercised by an individual is chiefly an influence on his fellow experts; and they will soon cut him down to size if he exceeds his competence.

But the influence of the economist that mainly matters is an influence over laymen: politicians, journalists, civil servants and the public generally. There is no reason why a man who has made a distinctive contribution to economic science should be omnicompetent on all problems of society – as the press tends to treat him till in the end he may himself be persuaded to believe.

One is even made to feel it a public duty to pronounce on problems to which one may not have devoted special attention.

I am not sure that it is desirable to strengthen the influence of a few individual economists by such a ceremonial and eye-catching recognition of achievements, perhaps of the distant past. I am therefore almost inclined to suggest that you require from your laureates an oath of humility, a sort of hippocratic oath, never to exceed in public pronouncements the limits of their competence.

Or you ought at least, on confering the prize, remind the recipient of the sage counsel of one of the great men in our subject, Alfred Marshall, who wrote: “Students of social science, must fear popular approval: Evil is with them when all men speak well of them”.

Wish Hayek had declined the economics prize with these words! That would have set a benchmark of sorts..

 

I will spend it irrationally!

Talk about wit and Richard Thaler definitely has it. He as is widely known by now is the recipient of the The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2017. He was asked that how would he spend the Prize money and he nicely said” I will spend it irrationally!” This article on how he came about doing behavioral work is interesting.

It is not a prize gives as per Alfred Nobel wishes as is still presumed by many. Infact the prize came as a result of the tiff between the central bank and the government over policy decisions.

This blog was initially excited by these prizes but not anymore. One has realised the follies of the Economics Prize and is not at all in the league of the other Prizes in Sciences. Infact it has made the entire subject suffer from even more hubris and arrogance.

But to see the 2017 Prize being given to Richard Thaler does bring a smile. After all, he is one of the few who has questioned this edifice of economics built so strongly on neoclassical economics. This blog has for long been a fan of behavioral economics as it provides an alternate way of thinking. It is something which one sees more often around us with people being so predictably irrational. The rationality model as is often taught and on which much of economics is built, is hardly there to see.

Likes of Thaler have been advocating Nudging units which will try and tilt policy to a more favored outcome. The idea is people are anyways being nudged into making choices so why not nudge them into the right choice? Some countries have set up their units as well (like in UK) and doing fair bit of research on these matters.

But then taken to an extreme this could be behavioral economics undoing as well. As the question is who decides what is the right choice? We are back to full circle debate between government fiat and private choices. The debate between libertarians and libertarian paternalism is far from settled.

The beauty of behavioral economics was pointing to this unpredictable human being and its irrational ways. At some level we have to accept it and let people learn from mistakes. Too much tinkering with this behavior could lead to all kinds of unintended consequences and put us under similar predicament as in a neoclassical framework.

As behavioral economics continues to become popular and more so post this prize, it has to guard itself against this very popularity.

Having said all this, will behavioral approach become part of economics curriculum? The Prizes in 2002 and 2013 for behavioral work have not been able to change the curriculum. It remains to be seen whether 2017 will make some impact. We surely need plurality in economic thinking and introducing behavioral economics should have already been done. It beats you why it remains an elective in most colleges. One obvious problem is there are not many professors around who can teach the subject.

Now this becomes a chicken and egg problem. How do we teach when we do not have enough professors? We need some rational solution towards this irrational problem…:-)