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"THE "NOBEL" PRIZE THAT WASN'T"
by Hazel Henderson

 


An unusual row erupted at the recent annual Nobel Prize awards. Peter Nobel, heir of Alfred Nobel, who endowed the Prizes added his voice to the growing outrage of many scientists at the confusion over The Bank of Sweden Prize in Economic Science in Memory of Alfred Nobel. Over the years since this $1 million prize was set up by Sweden's central bank in 1969, it has become conflated with the real Nobel Prizes and is now often mis-labeled as the so-called "Nobel Memorial Prize.

The brouhaha emerged December 10th, 2004 in Sweden's main newspaper, Dagens Nyheter in an extensive Op-Ed by mathematician and member of Sweden's Royal Academy of Sciences, Peter Jager, Mans Lonnroth, Senior Lecturer in Technology and Society and former Environment minister and Johan Lonnroth, economist and a former member of the Swedish Parliament. The article pointed out in great detail how many economists including those who had been awarded the Bank of Sweden Prize - actually mis-used mathematics by creating unrealistic models of social processes. Peter Nobel, in an exclusive interview, told me that Alfred Nobel had never mentioned in any of his letters a prize in economics. Nobel added "The Swedish Riksbank has put an egg in another very decent bird's nest and thereby infringed on the trademarked name of Nobel. Two thirds of the Bank's prizes in economics have gone to US economists of the Chicago School who create mathematical models to speculate in stock markets and options - the very opposite of the purposes of Alfred Nobel to improve the human condition."

What appeared to be the last straw, which caused these objections to finally surface, was this latest award of the Bank of Sweden Prize to two more US economists, Finn E. Kydland and Edward C. Prescott. Cited was their 1977 paper describing their mathematical model which purports to prove that central banks should be independent of the influence of elected legislators - even in democracies. This has been an ideological drumbeat of central bankers, commercial banks, neoclassical economists and financial journals, including London-based The Economist. Witness the citation that went with this year's Bank of Sweden Prize, which lauded Kydland and Prescott's paper as having "had a far-reaching impact on reforms carried out in many places (such as New Zealand, Sweden, Great Britain and in the Euro area) aimed at legislated delegation of monetary policy decisions to independent central bankers."

These dubious "reforms" are precisely the problem for popularly-elected representatives in democracies, where transparency in policy decisions is highly valued. Monetary policy is at the heart of how wealth, income and opportunities are distributed in societies. An excessively tight monetary policy for example, falls heavily on workers as unemployment rises, while many small borrowers of car and home loans bear the brunt of high interest rates. Lenders and those with capital assets do well.

In my Politics of the Solar Age (1981, 1986), I documented the ideological biases of neoclassical economics and the unreality of many of the inaccurate assumptions underlying even today's economics textbooks. A new chorus of scientists in physics, mathematics, neurosciences and ecology are now joining their Swedish colleagues in calling for the Bank of Sweden Prize in Economics to either be broadened, properly labeled and disassociated from the Nobel Prizes - or simply abolished.

The objections are from the "hard" scientists who study the natural world and whose research findings are therefore subject to verification or refutation. They contend that the economics prize devalues all the real Nobel Prizes and has become an embarrassment. Scores of ecologists, biologists, natural resource experts, engineers and thermodynamicists have critiqued economics, building on the 1971 classic by Nicholas Georgescu-Roegen, The Entropy Law and the Economic Process, which I reviewed in the Harvard Business Review.

But even the growth of hybrid professions - so-called ecological economics, natural resource economics and others, cannot escape economics' fundamental errors. Many critics liken these to religious beliefs, such as the postulate of "an invisible hand" of markets. Thus, the long-standing question of whether economics is a science - or a profession has now surfaced. I have long-maintained that economics is a profession, not a science since so many of its "principles" are unlike the tested principles in physics that can guide a spaceship to the moon. For example, I showed that economics' Pareto Optimality "Principle" ignored prior distribution of wealth, power and information - and could lead to unfair social outcomes.

Dressing up such concepts in fancy mathematics tends to disguise their underlying ideologies. Professor Robert Nadeau, a distinguished historian of science at George Mason University in the USA has also examined such flaws in economics in his recent books, The Non-Local Universe (Oxford University Press 1999) and The Wealth of Nature (Columbia University Press, 2003).

The temptation to mathematize concepts and faulty assumptions in economics is understandable, because it obscures these value-laden biases. This conceals public issues as too "technical" for the public or even legislators to understand. Thus, economists gain influence with the wealthy and powerful institutions in society which usually employ them. Neither have economists been held to the same standards of accountability as other professions. If a doctor makes a patient sick, a malpractice suit can be filed. Economists' bad advice can make whole countries sick - with impunity.

Neuroscientists, biochemists and those studying the role of hormones, as well as psychologists, anthropologists, behavioral scientists and evolutionary biologists are now dealing death blows to economics' most enduring error. This lies in its model of "human nature" as the "rational economic man" who competes against all others to maximize his own self-interest. This fear and scarcity based model is that of the early reptilian brain and the territoriality of our primitive past. Neuroscientist Paul Zak at Claremont University has linked trust, which enables humans to bond and cooperate, to the reproductive hormone oxytocin.

David Loye in his Darwin's Lost Theory of Love (2000) based on re-visiting Charles Darwin's original notebooks, shows that Darwin did not focus on the "survival of the fittest" and competition as major factors in human evolution. Darwin was more interested in the human capacity to bond and trust, to cooperate and share and in the evolution of altruism as factors in human success. Game theory can lead to similar conclusions, as Robert Axelrod documents in The Evolution of Cooperation (1984), also emphasized by Robert Wright in Non Zero: The Logic of Human Destiny (2000) and Riane Eisler in The Power of Partnership (2002). Indeed, how otherwise could we humans have evolved from roving bands of nomad gatherers and hunters to create cities, corporations, The European Union and the United Nations?

Other scientists including physicist, Professor Dr. Hans Peter Durr of Germany's famed Max Planck Institute agree that economics is not a science. Durr says "economics is not even bad science because its core assumptions are incorrect." Chaos theorist and Professor of Mathematics at the University of California, Ralph Abraham believes that economics may one day become a science. Abraham is researching the new mathematics employed by some economists, by programming "agents" in computer models that are supposed to mimic human behavior.

The snag for mathematicians is that people don't behave like atoms, golf balls or guinea pigs. Unlike the economists "rational economic man" people are often irrational and their motivations are complex, with many, especially women, enjoying caring, sharing and cooperating often as unpaid volunteers. The agent-based computerized efforts to make economics more scientific may pay off in the future. One recent model "Sugarscape" simply recreated poverty gaps and trade wars. I suggested that if they had programmed half of their "agents" with the behavior females so often exhibit (by choice, or involuntarily in patriarchal societies) they might have produced different results. Economics is patriarchal to its core, which accounts for the rise of feminists economics.

The row over the Bank of Sweden Prize in Economic Science (which I hold was set up to give this profession the aura of a science) has uncovered all these deeper issues. A major academic scandal may be unfolding. It may be ignored by the World Economic Forum of business and government elites in snowy Davos, Switzerland, while becoming a major focus at the World Social Forum in sunny Porto Alegre in Brasil.


HAZEL HENDERSON, author of Building a Win-Win World and other books (www.hazelhenderson.com), co-created with the Calvert group of socially-responsible mutual funds, the Calvert-Henderson Quality of Life Indicators (updated at www.Calvert-Henderson.com). She created the financial TV series, Ethical Markets, premiering on Public Broadcasting stations in the USA in January, 2005.