The Economics Nobel Is a Gold Disk, Not a Crystal Ball
Politicizing the Economics Nobel is bad for the Nobel and bad for economics
For those who trust markets, businesses, and individuals more than government, there’s plenty to dislike in the economic policies of both Joe Biden and Donald Trump. That said, the most unhelpful piece of campaign literature this year is from the Biden side, not so much for its content, but rather because it undermines the scientific reputation of economics and the integrity of its highest honor—the Economics Nobel. It’s a letter from sixteen Nobelists arguing that, “Joe Biden’s economic agenda is vastly superior to Donald Trump’s.” The letter offers ideologically skewed ad hockery as economics and commandeers the Nobel’s prestige. (The letter is here.)
The letter says Biden would bring Americans lower inflation, stronger growth, and greater stability than Trump. Biden repeatedly whispers of his endorsement by “Sixteen NOBEL prizewinning economists … … SIXXTEEEN.” His reverential tone recalls some clergyman proclaiming, “The Bible refers to God by SIXXTEEEN different names,” and the press plays the role of enraptured congregants.
The Nobelists’ letter deserves no more attention than would a similar letter from sixteen winners of the Nobel Prize in Chemistry, or sixteen dentists, or sixteen poets at a kombucha bar in Greenwich Village. I say that as one who has the highest respect possible for the Economics Nobel and confidence that all sixteen signatories deserved their prizes.
The Economics Nobel possesses a rare degree of intellectual integrity, relatively free of ideological bias. However, neither the prize nor the skill set that earns one the prize reflects any ability to forecast macroeconomic variables—particularly not those contingent upon election promises. The Biden signatories are politically left-of-center, so it’s not surprising that they favor the economics of the candidate who imagines that climate change initiatives will enhance productivity and reduce inflation. One signatory is married Biden’s Treasury Secretary.
Unfortunately, Nobel economists, including most of the signatories of this letter, regularly issue partisan economic predictions that prove dead wrong, and the press treats the predictions as profound. Doing so gives lay readers the false impression that economics and the Nobel are skewed leftward—a grave disservice to the profession and the prize.
The Biden letter employs internally inconsistent or highly contorted logic (e.g., Trump’s deficits are inflationary, whereas Biden’s deficits are disinflationary). As two scholars cited below note, these economists could have performed a real service by ennumerating the serious shortcomings of both the Trump and Biden economic platforms.
THE ECONOMICS NOBEL IS TRULY GOLD
The five original Nobels have been marred by undeserving recipients and eye-opening nonrecipients. Not so with the Economics Nobel.
Yasser Arafat’s Nobel Peace Prize came during a lull in his murderous pogroms, but the Nobel Committee declined to honor Mahatma Gandhi, Eleanor Roosevelt, Václav Havel, Corazon Aquino, Ken Saro-Wiwa, or Pope John Paul II.
A slew of obscure, forgotten writers won the Literature Prize, but Nobels never went to W. H. Auden, Jorge Luis Borges, Anton Chekhov, Joseph Conrad, Graham Greene, Thomas Hardy, Henrik Ibsen, Henry James, James Joyce, Vladimir Nabokov, Marcel Proust, Leo Tolstoy, Mark Twain, or Virginia Woolf.
António Caetano de Abreu Freire Egas Moniz won the Physiology/Medicine Prize for pioneering the prefrontal lobotomy, but the committee spurned Jonas Salk.
The Economics Nobel, in contrast, has a pristine history. Ninety-three individuals have received the prize, formally known as the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel. I can’t name one who didn’t deserve it, nor can I name any clearly-deserving giant who was denied it. (The most talked-about omission, as I’ve noted before, may be my long-ago professor, Jagdish Bhagwati, whose failure to win the prize has generated so much chatter that it was parodied on The Simpsons.)
Economics laureates come from across the political spectrum. Many (including most of the 16 Biden-letter signatories) are left-of-center. Others, like Milton Friedman, Friedrich von Hayek, James Buchanan, Vernon Smith, Robert Mundell, and Elinor Ostrom, have been conservative, libertarian, or influential in those circles. David Henderson notes that the Economics Nobel was arguably created to elevate the status of free-market economists in a field dominated by social democrats (e.g., “Western socialists”).
ALL THAT GLITTERS IS NOT GOLD
Economics Nobels honor extraordinary accomplishments in narrow, specialized slivers of economic analysis, with a heavy emphasis on theory. The Biden signatories won theirs for insights into fields like contract theory, women’s earnings, auction design, household behavior, financial markets, technological innovation, and investment decision-making—not for skills in macroeconomic forecasting.
Great economists often run aground when acting as real-world prognosticators. Weeks before the Great Crash of 1929, Irving Fisher, then America’s premier economist, declared that:
“Stock prices have reached what looks like a permanently high plateau.”
Robert Merton and Myron Scholes, who shared the 1997 prize, revolutionized financial risk-management. But a year later, both were central figures in the collapse of Long-Term Capital Management—a catastrophe that threatened global financial stability.
Following the 2016 election, Nobelist-turned-pundit Paul Krugman predicted that Trump’s election meant:
“we are very probably looking at a global recession, with no end in sight.”
Krugman’s prognostication received enormous coverage, but proved completely wrong. Economic growth was robust in the Trump years until the exogenous shock of COVID.
In “Nobel Laureates’ Letter Is Partisanship not Economics,” Cato Institute scholars Ryan Bourne and Jai Kedia wrote:
“A lot of these economists, we suspect, support Biden for reasons other than his record on inflation. Yet because their expertise is in economics, they likely feel they must address this issue. Unfortunately, the partisan way they’ve gone about evaluating the candidates on inflation risks sullying economists’ reputation for providing worthwhile apolitical analysis.”
Bourne and Kedia note that the Sixteen make “some rather strange claims about inflation”:
“the letter implies that large fiscal deficits in a future under President Trump would risk higher inflation. Yet it also claims that President Biden’s actual high deficits were nothing but positive, helping secure a strong labor market recovery and supposedly increasing the economy’s productive capacity, so lowering long-term inflationary pressure. … Got that? Donald Trump’s potential deficits: bad, unproductive, inflationary. Biden’s actual deficits: good, productive, disinflationary.”
Bourne and Kedia suggest that the Sixteen could have performed a real public service by listing the both the Biden and Trump proposals likely to fuel inflation. They mentioned Biden’s American Rescue Plan; green energy subsidies; CHIPS Act; “wildly misnamed” Inflation Reduction Act; narratives about “greedflation,” “shrinkflation,” “monopoly power,” “junk fees,” and debt accumulation. They similarly mention Trump’s enthusiasm for tariffs; federal debt accumulation; and politicization of the Federal Reserve.
I taught signatory George Akerlof’s 1970 paper, “The Market for ‘Lemons’: Quality Uncertainty and the Market Mechanism,” to hundreds of doctors and other healthcare professionals to help them understand the peculiar dynamics of their industry. Akerlof’s specialty, however, is far removed from forecasting inflation and economic growth. However sincerely he may believe the Biden letter, Akerlof isn’t a disinterested party. His wife is Treasury Secretary Janet Yellen—an architect of Biden’s policies.
Joseph Stiglitz originated the letter, and his central role is problematic. Like Akerlof, Stiglitz’s specialty is information theory, and the two shared the 2001 prize with with a third economist. Afterward, Stiglitz carved out a public persona of surly hyperpartisanship. In “Stiglitz: When Good Minds Seek Fools’ Favor”, Duke University economist/political scientist Michael Munger suggests that Stiglitz and the Krugman:
“are proving Adam Smith’s famous claim that celebrities, once they have tasted fame, become addicted and are willing to commit increasingly egregious intellectual indignities to retain the favor of the frivolous.”
GOLD OR FOOL’S GOLD?
The 16 signatories’ track records as seers are poor. In “The Nobel Laureates Strike Out,” the Manhattan Institute’s James Piereson notes that in 2021:
“15 of these same economists … signed a similar public letter endorsing Biden’s Build Back Better agenda, which contained spending proposals for climate initiatives, health-care subsidies, schools, housing, and other causes. That bill eventually passed Congress with a $1.9 trillion price tag. Several pieces of a pared-back plan were eventually incorporated into the so-called Inflation Reduction Act of 2022, with an estimated cost of around $800 billion.” … …
… … The expert economists were badly mistaken on inflation. They said that Biden’s spending packages would ‘ease inflationary pressures,’ but everyone understands today that those same policies stoked inflation. When they signed their 2021 letter, the consumer price index stood at 273; since then, it has surged by at least 15 percent, to its recent level of 313. This is called ‘being wrong.’
Interest rates have also surged since then, much to the detriment of prospective homebuyers and those planning large expenditures for autos, home appliances, and school and college tuitions. The interest rate on 30-year mortgages has more than doubled since the 2021 letter, from 2.8 percent to above 7 percent today. The prime lending rate, used by banks for most loans, swelled from 3.2 percent in 2021 to 8.5 percent today. The economists would do well to ponder their performance as forecasters.”
Curiously, in their letter, the sixteen eminent prizewinners defer to the authority of nameless analysts at financial companies and think tanks, referring to them as “nonpartisan”:
“Nonpartisan researchers, including at Evercore, Allianz, Oxford Economics, and the Peterson Institute, predict that if Donald Trump successfully enacts his agenda, it will increase inflation.”
The institutions mentioned are technically nonpartisan, but that doesn’t mean their analysts or forecasting models are. A quick glance at one, Evercore, reveals two things. First, its founder and senior chairman, Roger Altman, was a political appointee in the Carter and Clinton administrations. And, according to OpenSecrets.com, 93% of the political contributions to congressional campaigns by Evercore employees in 2024 have gone to Democrats. Perhaps one should be cautious about citing these institutions as “nonpartisan” data sources.
The presidential debate and chaos that ensued afterward have further marred the sixteen economists’ thesis. Their letter stated:
“Among the most important determinants of economic success are the rule of law and economic and political certainty. For a country like the U.S., which is embedded in deep relationships with other countries, conforming to international norms and having normal and stable relationships with other countries is also an imperative. Donald Trump and the vagaries of his actions and policies threaten this stability and the U.S.’s standing in the world.”
No doubt, Donald Trump’s mercurial behavior begets uncertainty and vagaries. However, the June 27th debate and the chaotic aftermath for the Democratic Party have profoundly undermined the perception that Joe Biden represents greater certainty and stability. Economic models are not designed to forecast the future behavior and perceptions of individual politicians—and presuming otherwise is perilous.
Perhaps most disturbingly, after the debate, Biden began floating the idea of nationwide rent controls. Given Biden’s reverence for the Economics Nobels, it’s worth noting that Assar Lindbeck, who was instrumental in creating the prize, said rent control:
“appears to be the most efficient technique presently known to destroy a city—except for bombing.”
If one city’s rent control is the economic equivalent of bombing, then national rent control would be the economic equivalent of nuclear war—a guaranteed device for wrecking the national economy. It would be fascinating to ask the sixteen Nobelists their thoughts on this latest proposal by their favored candidate.
NOBEL TAKEDOWN
The first two minutes of this video are a joy to behold. Professor Pedro Schwartz, appearing onstage with Nobelist Paul Krugman, praises Krugman’s Nobel and then plunges into a devastating critique of Nobelists who feign expertise in areas where they have little or no skills or expertise.
“I'm very honored to have been asked to take part in discussion with such a distinguished economist, and I especially appreciate it because he deservedly was awarded the Nobel Prize in Economics in 2008 for creating the new international trade theory and the new economic geography …
… Now the trouble with what we've just heard … is that often, Nobel Prize winners are tempted to pontificate on matters that are outside the speciality in which they have excelled. And they have this mantle of authority, whereby whatever they say, whether it's sensible or perhaps a bit outré, is accepted with resignation from some and enthusiasm by others now. … I thought what he said was intelligent, practical, but exactly what usually is the case with economists of this kind—which is, they got us into this mess and now WE have to sacrifice our principles so that they can get out of this mess.”
Why only sixteen Nobel winners? It took 51 former intelligence officials to explain to us how the Russians put Trump into office.
Great column! I laughed at several points.