Who will win the next Nobel Prize in economics?

by on October 1, 2014 at 1:10 pm in Economics, Education | Permalink

Jon Hilsenrath says Bernanke deserves one, I agree.  I would gladly see a Bernanke-Woodford-Svensson prize, perhaps working in Mark Gertler too.

But for this year’s pick, due October 13, I am predicting William J. Baumol, possibly with William G. Bowen, for work on the cost-disease.  As you probably know, this hypothesis suggested that the costs of education and health care would continue to rise in relative terms, thereby creating significant economic problems.  Not a bad prediction for 1966, and of course it has become a truly important issue.

One problem is that the initial Baumol and Bowen hypothesis focused on the performing arts, rather than health care and education.  A lot of live performance is pretty robust, although not always European high culture, and furthermore the internet has proven a much closer substitute in the minds of consumers than many people had expected.  So the cost-disease argument, in the area where it was originally formulated, hasn’t panned out but rather has evolved into a kind of merit good demand — “I wish more people were paying for Mozart rather than for sports and live music in bars.”

A second problem is whether it should be Baumol or Baumol and Bowen.  Bowen was co-author on the major and initial work, but Baumol has numerous other contributions, including contestability, operations research and economics, entrepreneurship, externalities and Pigouvian taxes, portfolio theory, and even in the older literatures on money demand and also sales maximization for business firms.  One can well imagine Baumol paired with one or two other people, perhaps from industrial organization, and the cost-disease as one but not the only reason for the prize.  Or if they give it to him and Bowen, it looks more like an “economics of education” prize, with a mention of health care tacked on.

So yes, that’s my pick.  Keep in mind people, in the past I have never, ever gotten the timing of the pick right.  Not once.  But Baumol is now ninety-two, so I think this will be his year.  Of course the Bayesian will note that last year he was ninety-one.

1 dearieme October 1, 2014 at 1:36 pm

it’s only a fauxbel: it’s not the real thing.

2 Paul October 1, 2014 at 6:25 pm

It may not be the real thing but it is a real thing. The Nobel Memorial Prize.

3 Bill October 1, 2014 at 1:37 pm

Hank Paulson, for his contributions to Modern Banking.

4 pk October 1, 2014 at 1:50 pm

Christina Romer, for creation of the ‘Jobs Created or Saved’ metric.

5 Truthis October 1, 2014 at 1:55 pm

Nobel Memorial Prize: Let us be clear on this and not hide the science envy 🙂 .

Its the clearest reflection on the economics profession that its “highest honor” cant stand on its own name, but masquerades as something as prestigious as the real Nobel prizes.

6 ricardo October 1, 2014 at 2:30 pm

yawn. That just takes longer to type. If the econ Nobel didn’t exist we would have a different lifetime achievement award and would obsess about that.

7 Truthis October 1, 2014 at 2:44 pm

Fact is, the field/profession did not choose to name its lifetime achievement award differently and that is what is telling.

Math for example chose to stand on its own legs fwiw 🙂

But, it is hard to make a man accept a truth when his livelihood is based on not believing it.

8 Art Vandelay October 1, 2014 at 3:29 pm

Apparently it is also hard for a jackass to recognize himself.

9 TruthIs October 4, 2014 at 1:49 pm

Thanks for the ad hominem. Your relying on it against the point I make is illuminating.

10 Dismalist October 1, 2014 at 9:44 pm

Only as prestigious as the Peace Prize?

11 William McGreevey October 1, 2014 at 2:06 pm

Not long back it seemed to be Piketty Time all the time. Too soon for him? Too young?
G’town Univ soon gets its first Econ Nobelist, George Akerlof. Note, too, the GU and UCBerkeley are tied in US News & Wrld Rep rankings….

12 Greg Heslop October 1, 2014 at 2:08 pm

Other old folks who might win are Gordon Tullock with Richard Posner and Anne O. Krueger. I would back that trio, and Tullock in particular, but I don’t know. Baumol seems to me a very good pick, too, and has been for many years now. Tullock is as old as Baumol, I believe.

13 DisgruntledNegro October 1, 2014 at 2:21 pm

When will Glenn Loury be awarded a Nobel Prize? The very notion of social capital, and its intersection with race/inequality was literally invented by him, and is an important analytical framework embedded in most considerations of race/inequality.

14 Scott cunningham October 2, 2014 at 8:38 am

I thought James Coleman was considered one of the architects of social capital?

15 velocipedes October 1, 2014 at 2:23 pm

If Bernanke receives a Nobel prize for economics, this only further invalidates the prize as a reward for any meaningful work.

16 Kyle October 1, 2014 at 3:15 pm

I take it you’re familiar with his academic work?

17 allan October 1, 2014 at 5:02 pm

No. We’re familiar with his work on how to destroy a major economy.

18 MetaConfused October 1, 2014 at 9:09 pm

So is his prize to be shared with Congress, the Senate, various administrations, repealers of Glass Steagall, AIG, I-Banks, ohhh! ohhh! CRA lobbyists, and of course the 3 stooges, particularly larry……

Waaait a minute… my cousin just bought a new house, of which 90% of it was financed by Wells Fargo…I’m pretty sure you cant do that in a destroyed economy…or are we discussing Saaed Bernanke of the central Bank Somalia…i’m confused

19 yanks77 October 1, 2014 at 3:57 pm

It’s a lay up…….Scott Sumner

20 The Do-Operator October 1, 2014 at 5:15 pm

There really should be a Nobel Prize for the theoretical foundations of causal inference. A prize shared between Judea Pearl, Jamie Robins and Donald Rubin is long overdue.

21 Paul October 1, 2014 at 6:27 pm

Baumol is long overdue.

22 Just Another MR Commentor October 1, 2014 at 8:24 pm

The “Prize” lost a lot of credibility in my mind when it went to Paul Krugman for writing “economics based” New York Times columns.

23 Dismalist October 1, 2014 at 9:47 pm

He did fresh, useful, compelling work before he became a political hack. Why he chose the path he did is beyond me.

24 Just Another MR Commentor October 1, 2014 at 10:05 pm

Oh that’s just an old wives tale

25 Dismalist October 1, 2014 at 11:18 pm

Alas, you are wrong. Read.

26 Pshrnk October 1, 2014 at 10:05 pm

Please!!! Comparative advantage etcetera don’t matter?

27 Dismalist October 1, 2014 at 11:19 pm

Alas, you are wrong. Read.

28 John October 1, 2014 at 8:31 pm

So there is a merit for him/them getting the prize but I’d ask this: Is the prize primarily about recognition or about an investment (isn’t there a million dollar grant that goes with the winning?) in a proven mind that may well deliver more?

29 Mesa October 1, 2014 at 10:08 pm

Soon we will have a Nobel Memorial Prize in dietary theism, climate philosophy and opinion making opinions. Wait we had those already.

30 malcolm October 1, 2014 at 10:27 pm

I used to say that if there were a God, Thomas Schelling would win a Nobel Prize. And lo! it eventually came to pass When Schelling was recognized for his contributions, I switched to hoping for Baumol — a similarly protean researcher!

31 wwjbd October 1, 2014 at 10:41 pm

Prizes are good pretexts for parties, and even academic parties can be fun , there is a big prize for almost every two letter classification in the Lib of Cong system, and lots of less big prizes. While limited, the world-wide quantity of parties associated with these prizes is not negligible, and people have fallen in love with, and married and had children with, people they connected with at such parties. Hundreds of years from now, when the Lib of Cong HA or HG prizes have long been forgotten, the great-great-grandchildren of such unions will be walking around, thinking deep thoughts, completely unaware that they would never have been born if the egalitarian economist from a country bordering on vast expanses of northern European waters had not gotten that Nobel phone call in 2014, leading to the party where their ancestors met, talking about HA and HG gossip. That is the true significance of our failed Nobel Memorial Prize predictions.

32 wwjbd October 1, 2014 at 11:02 pm

i.e. Svensson et al. is my prediction too

33 andrewm October 2, 2014 at 1:08 am

I agree that Baumol deserves the prize for more than just the cost disease arguments – he has produced a range of interesting and challenging arguments across a variety of fields in economics. As someone who relearned economics from his wonderful operations research book, I hope that your prediction is correct.

34 Ray Lopez spots a howler in TC's paper October 2, 2014 at 1:21 am

It seems that either TC or Wikipedia got the definition of Baumol’s cost disease wrong. Compare:

Wikipedia: “Baumol’s cost disease (also known as the Baumol Effect) is a phenomenon described by William J. Baumol and William G. Bowen in the 1960s.[1] It involves a rise of salaries in jobs that have experienced no increase of labor productivity in response to rising salaries in other jobs which did experience such labor productivity growth. This seemingly goes against the theory in classical economics that wages are closely tied to labor productivity changes.”

TC in his paper (page six):
“The cost-disease argument asserts that market forces will cause labor-intensive activities to contract, as a share of gross national product, in a growing economy”

Something don’t compute.

35 Larry Siegel October 2, 2014 at 4:53 am

They’re both correct. Think about it.

I like the Baumol idea; also Tullock and Posner. Time to reward these great old thinkers. (The Nobel committee wanted to honor Fischer Black at the same time as Merton and Scholes but was too slow and he died.)

36 Ray Lopez October 2, 2014 at 5:43 am

@Larry Siegel – I thought about it, and still don’t get it. Please tell me. The only thing I can think of, and if this is the answer then Baumol deserves a Nobel Prize, is that since due to Brumol’s cost disease everybody gets wage increases, regardless of how hard their job is, or how much manual effort there is, then people will gravitate towards desk jobs that do nothing but push paper and rubber stamp things, and the ‘hard’ ‘manual’ jobs will go unfilled (or perhaps filled by illegal aliens). This seems to be the pattern for the modern US economy, so if that’s the answer then hat’s off to Brumol.

37 freethinker October 2, 2014 at 7:12 am

Just Another MR Commentor says “The “Prize” lost a lot of credibility in my mind when it went to Paul Krugman for writing “economics based” New York Times columns”. It is like saying the Prize lost a lot of credibility when Friedman got the Nobel for his TV series Free To Choose. Perhaps the people in the Committee which decides the Prize are not as stupid as they are made out to be by Just Another MR Commentor

38 Asher October 2, 2014 at 9:29 am

The first time Tyler mentioned Baumol as a candidate I became confused. I was certain that Baumol was already a laureate. An amazing oversight (on my part and on that of the prize committee).

39 Wwjbd October 2, 2014 at 10:14 am

I had the same reaction (although I don’t know enough about the competition to be amazed at the oversight).

40 Tony October 2, 2014 at 11:55 am

Why is this “cost disease” called a disease? That seems unnecessarily judgmental. Isnt it appropriate that competition for labor should result in various people’s time being valued more equally, not less? How could it be otherwise?

41 Francis Kuriakose October 3, 2014 at 7:54 am

Avinash Dixit of Princeton, Kaushik Basu of Cornell and Tony Atkinson of LSE.

42 JK October 3, 2014 at 10:48 am

“So the cost-disease argument, in the area where it was originally formulated, hasn’t panned out…”

Hah, but not as bad as Akerlof’s lemons model, which in his original paper explained why used car markets could not exist.

This is an important point I make with students, about how adverse selection is overcome and markets thrive due to both market and government mechanisms aimed at reducing the asymmetric information (lemon laws, CarFax, etc).

43 DR. AHMAD FARID BIN OSMAN October 5, 2014 at 6:18 am

What about Dalimov?
He created the math theory of international economic integration: trade creation and diversion effects.
Back in 2006!
This wasn’t in place since 1950 after Viner’s publications and emergence of the theory of economic integration.

44 Stephan October 8, 2014 at 5:51 pm

Me predicts the next lunactic after Fama is Barro to win this price.

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