The Long FAQ on Liberalism
A Critique of the Chicago School of Economics:
ALL THOSE NOBELS
To date, the Chicago School of Economics has garnered eight
Nobel prizes -- an odds-defying achievement, given that there
are thousands of economic departments around the world. "I'm
astonished," said Robert Lucas after he picked up his prize.
"They keep coming back to us. I'm sure there will be more."
There will be more if Assar Lindbeck has anything to do with it.
Lindbeck is the Swedish economist who has chaired the Nobel selection
committee for economics since 1980. (He has been on the committee
since its inception in 1969.) At the start of his career, Lindbeck's
politics were slightly right of center, but over the decades he
has become increasingly conservative. His working papers today
make arguments typically associated with the Chicago School's.
In 1994 he published a book entitled Turning Sweden Around,
which called for drastic cutbacks in Sweden's welfare state. (2)
As Lindbeck's politics have marched to the right, so has the selection
of prize winners. In its early days, leftist economists like Paul
Samuelson and Gunnar Myrdal could occasionally win the prize.
But between 1990 and 1995, the Nobel has gone to someone from
the University of Chicago five out of six times.
What is the relationship between Lindbeck and the University of
Chicago? By all accounts, it is a cozy one. This alone does not
prove impropriety, of course, but when an award is as distinguished
as the Nobel prize, even the appearance of impropriety
should be avoided. Lindbeck not only ignores this rule, but flouts
For over twenty-five years, Lindbeck has served as head of the
Institute for International Economic Studies, a prestigious research
center that is both publicly and privately funded. Seven of "Assar's
Ten Commandments" for running (and presumably funding) a
successful research program call for establishing international
contacts. His fourth commandment calls for these contacts to be
based on "intense individual interaction." (3) Along
these lines, Lindbeck has forged close working relationships with
many of the Chicago economists to whom his committee has awarded
Nobel prizes. For example, Lindbeck joined Nobel laureates Milton
Friedman, Gary Becker, and Douglass North in a long-running project
to construct an "Economic Freedom Index." The purpose
of this project was to rank developing nations by the level of
government interference in their economies. It was funded by the
Center for International Private Enterprise, a far-right think
tank designed to promote the international business interests
of its affiliate, the U.S. Chamber of Commerce. (4)
On a certain level, Lindbeck's actions can be defended: he is
a respected economist, and it is only normal that he should write
papers, attend conferences and cooperate in projects with other
respected economists. However, the possibility of incestuous relationships
between awarders and awardees means that the selection process
should be carefully designed to avoid this pitfall. The award
process for economics is not so designed. Consequently, not a
few economists agree with Edward Herman's charge that the Chicago
School's growing number of "awards has increased its leverage
in the award process." (5)
The history and award process of the Nobel prize
The Nobel prize for economics is not one of the five original
prizes that Alfred Nobel created in his 1895 will. The economics
prize was added in 1969, but not by any of the Nobel prize-awarding
institutions (such as the Swedish Academy, the Norwegian parliament,
etc.). It was actually created by the Bank of Sweden. For this
reason, it is not really the "Nobel Prize for Economics."
It's real name is "The Bank of Sweden Prize in Economic Sciences
in Memory of Alfred Nobel." The prize money does not come
out of the Nobel inheritance, but is paid for by the Bank of Sweden.
The creation of a Nobel prize in economics has raised many criticisms.
Some protest that the Bank of Sweden has no legal or moral right
to use Nobel's name. Others argue that a radical idealist like
Alfred Nobel would have never approved of an award defending capitalist
economics. Others claim that the award was created to legitimize
capitalism at a time of great social protest against it. These
are, to be sure, superficial criticisms, but there are more substantial
ones that can be leveled at the Nobel newcomer.
Perhaps the most troubling is that the selection process for economics
does not resemble the other five. Although the economics committee
boasts that it uses the same procedures, a closer look reveals
this to be untrue. In the other five categories, the process starts
by gathering nominations from as many as 3,000 scientists, which
are then assessed by 15-member prize committees. The committees
must then argue their own selections before a Nobel Assembly of
50 scientists before reaching a final decision. Usually the discussion
of a prize lasts from 5 to 10 years before the prize is awarded.
There is a potentially weak link in this process: the 15-member
prize committee. It is free to select any nominations it wishes
-- and with thousands of scientists making the nominations, it
basically has its choice. And the committee is more expert in
its scientific category than the Nobel Assembly, so whatever case
it makes is bound to be persuasive. At any rate, the Nobel Assembly
has generally rubber-stamped the committee's recommendations.
Where the economics committee differs from the others is that
it does not seat 15 members, but only six -- nearly two-thirds
smaller. This greatly increases the possibility of bias. How much
so becomes apparent in Assar Lindbeck's own description of his
committee's selection process:
"So far, the proposals of the prize committee to the [Swedish]
Academy have been unanimous. A consensus has in fact developed
quite 'automatically' within the committee, as if by some kind
of invisible hand." (6)
This is an astonishing admission, for two reasons. First, the
"invisible hand" is one of the most famous and sacred
economic concepts of the far right, and to say that an invisible
hand guides the committee's consensus is an open taunt to the
left. Second, there is probably no field of science as wracked
by controversy as economics. For the committee to advance unanimous
recommendations year after year is possible only if a perfect
bias exists in the committee. And even then, were six libertarians
to sit on the committee, it is still implausible that their proposals
should be unanimous -- even libertarians have bitter disputes.
What is more likely is that the "invisible hand" guiding
the committee is the iron hand of Lindbeck himself.
Why would committee members defer to Lindbeck? Because Lindbeck's
positions create a conflict of interest. Lindbeck serves in two powerful positions:
both as head of the Nobel committee and the prestigious Institute
for International Economic Studies. If you are a Swedish economist
and are serving either on the Nobel committee or in the Nobel
Assembly, you must kowtow to Lindbeck if you want your research
funded or your career advanced.
Circumstantial evidence? You bet. But the chain of implausibilities
required to believe that the committee is acting without bias
is too long to be seriously believed. And at any rate, even if
it were, the Bank of Sweden needs to initiate immediate
reforms to correct a very strong appearance of bias.
The extent of the bias
None of this is meant to suggest that the economists who've
won Nobels haven't been leaders in their fields. They have. (As
for the validity of those fields, well
) The point is that
in any given year, the number of economists eligible for a Nobel
runs in the dozens. These economists span the political spectrum,
and hail from many different schools of thought. Much of their
work has an "apples and oranges" quality, ranging from
the economics of slavery to the economics of bumblebees. Lining
up their work and picking out "number one" is therefore
impossible; the committee actually has a group of possible candidates,
and selecting one is a judgment call. That the reward, then, should
go repeatedly to the Chicago School is a strong indication of
Could it be that the Chicago School is simply better than the
others? But as Robert Lucas himself has admitted, "The Keynesian
orthodoxy hasn't been replaced by anything yet." (7) One
would think, therefore, that Keynesians were well-represented
in the Nobel department. That is not so. Only a few neo-Keynesians
have been honored, like Paul Samuelson, James Tobin and Robert
Solow. Other great Keynesians, like Joan Robinson, Sir Roy Harrod
and Nicholas Kaldor, have been conspicuously blackballed. Also
ignored have been distinguished institutionalists like Hyman Minsky,
Charles Kindleberger and Raymond Vernon.
But the bias exists on numerous other levels than just the political.
Some of these are quite unseemly, like the fact that the prize
has been perfectly Eurocentric. In his original will, Alfred Nobel
wrote: "It is my express wish that in awarding the prizes
no consideration whatever shall be given to the nationality of
the candidates, but
that the most worthy shall receive the prize, whether he be a
Scandinavian or not." Unfortunately, no Japanese economist
has ever won the Nobel, even though the Japanese have built one
of the most highly functioning economies in the world. Why? Apparently
results in the real world do not count as much as the fact that
the Japanese do not generally subscribe to neoclassical theory.
Another bias: the disproportionate number of winners who come
not from mainstream economics, but from the fringes. Examples
include James Buchanan, Herbert Simon, Ronald Coase, Douglass
North, Friedrich von Hayek and Gunnar Myrdal. What is revealing
is that even after these individuals won their Nobels and received
a world-wide burst of academic attention, their ideas still
remained on the fringe.
Sometimes it's not even the same fringe. As the old joke goes,
"Economics is the only field in which two people can win
a Nobel Prize for saying exactly the opposite thing." And
this is no joke: the libertarian Hayek shared his 1974
Nobel with the socialist Myrdal, both for their theories
on the business cycle. Ronald Simon won the Nobel for his
theories on "Bounded Rationality," which essentially notes that people
are not walking calculators and statistics manuals. But then
Lucas won a Nobel for "Rational Expectations," which presumed
One would think that those economists who have forged a consensus
would be natural candidates for a Nobel prize. Awarding the prize
to fringe candidates suggests that the Nobel committee is judging
economic theory by a different yardstick than academia uses. But
if this yardstick were truly better, then the Nobel committee
would be awarding itself prizes.
Also curious is the timing of the Nobels, relative to the shifting
winds of consensus. During the 70s and 80s, when Rational Expectations
was all the rage, the committee steadfastly ignored Robert Lucas.
Instead, they waited until his theory had fallen out of favor
with academia, and then they awarded him the Nobel.
Lucas's award prompted the following Reuters news report:
"The Swedish daily Svenska Dagbladet, tipping Lucas
as the winner in its Tuesday edition, quoted an economist as saying
such an award would be very controversial, although Lucas's theories
have dominated many governments' recent economic policies."
At this point, one wonders just what the Nobel committee's criteria
are. If it is awarding prizes for theories that A) have fallen
out of favor with mainstream economists; B) are controversial
and C) are widely practiced by the world's governments, then it
is a wonder why more Soviet economists have not been awarded
The shifting of academic consensus highlights the problem of even
having a Nobel prize for economics. There are many different schools
of thought, all opposed to each other, and many have enjoyed their
different heydays. This suggests that economics hasn't really
advanced to the stage yet where we can call any one of them undeniably
true. So what is the purpose of awarding a Nobel?
In his original will, Alfred Nobel stipulated that the awards
should be given to those scientists who have "conferred the
greatest benefit on mankind." In other words, those who bring
practical results to the real world. Economics fails this criterion.
Of course, it is unlikely that any false theory could bring benefit
to the world, and if various economic theories pass in and out
of academic fashion, it is impossible that they could all be true
and therefore beneficial.
The bias favoring useless theoretical models is just as bad as
the bias favoring right-wing economics. Samuelson -- himself a
conservative -- has an excellent suggestion for making the prize
a "more fitting memorial to Alfred Nobel:"
"Give it to people, not necessarily economists, who have
improved a nation's -- or the world's -- economic well-being.
Among Americans, why not ennobel former Federal Reserve chairman
Paul Volcker for ending double-digit inflation, Ralph Nader for
making corporations more responsive to consumers, or engineer
Jack Kilby for co-inventing the integrated circuit?" (9)
The beauty of this suggestion is that it would force economists
to address real economic problems, if they were to continue winning
Nobels at all. Unfortunately, that would force economists to come
to grips with their methodology, as well as answer the hard questions
about their field's limitations. In other words, Samuelson's enlightened
proposal doesn't stand a chance.
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1. Reuters News Service, "Economics Prize 1995," October
2. Assar Lindbeck et. al., Turning Sweden Around (Cambridge,
Massachusetts: The MIT Press, 1994).
3. Assar Lindbeck, "Principles For Successful Research: Assar's
Ten Commandments," Institute for International Economic Studies,
4. James Gwartney and Robert Lawson, "Economic Freedom and
the Growth of Less Developed Countries" Economic Reform
Today no. 2, 1996,
A publication of the Center for International Private Enterprise.
5. Edward Herman, Triumph of the Market (Boston: South
End Press, 1995), p. 41.
6. Quoted in Robert Kuttner, "The Visible Hand Guiding the
Nobel Prize in Economics," Business Week, November
12, 1990, p. 20.
7. Steven Pearlstein, "Chicago Economist Wins Nobel Prize:
Lucas has Focused on Theoretical Issues," San Jose Mercury
News, Wednesday, October 11, 1995, p. 4A.
8. Reuters News Service, "Nobel Economics Prize 1995,"
October 10, 1995.
9. Robert Samuelson, "Booby Prize," The New Republic,
December 3, 1990, p. 18..