Who will win the next Nobel Prize in economics?

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.