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
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
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.