Clawback for Nobel Laureates in Economics

Trevor Pinch, coauthor of Living in a Material World: Economic Sociology and Technology Studies weighs in on the accuracy of research by Nobel Laureates in Economics and offers some interesting solutions. 

N. Gregory Mankiw Harvard Professor of economics writing in a recent New York Times article reminds us of economists’ dismal record at predicting events. At the time of the Great Depression leading economists from Harvard and Yale ran rival economic forecasting services but neither predicted the severity or length of the Great Depression. Worse, economists armed with today’s supposedly much more sophisticated forecasting tools would, according to Mankiw, have scarcely done better. “Duuh, we missed that?” Economics we all know is the dismal science – but aren’t economists revered, the people we turn to and depend on for economic policy, and don’t we award them a Nobel prize every year?

Macro economic forecasting in particular has a dismal record. Don’t get me wrong, some of my best friends are economists, and I actually favor having economists informing government – let’s face it they are going to do a better job than, say, Sarah Palin.  They can impart wisdom even if they can’t turn a prediction and they are still needed to react to what is happening. Also economists are needed for a more subtle reason, as Michel Callon and his colleagues have famously argued. The machinery of economics – the ways markets and financial instruments are set up and perform, - actually have the economic thinking of the day embedded within them. This makes it even more crucial to examine why and under what circumstances economics works, why it fails, and what is missing from economics.

If you’re a sociologist, like I am, it was particularly annoying to see the 1997 Nobel prize for economics handed out to Robert K Merton’s son – also called Robert Merton - while the father who founded a whole sub-discipline of sociology, (the sociology of science) wrote a marvelous book on the self-fulfilling prophecy (isn’t that sorta relevant to events of today?), and was without question one of the greatest modern sociologists, never got a Nobel, because sociology presumably isn’t a science. And what did Robert Junior get the prize for?  The Black-Scholes formula. And what little financial wizardry is that the basis of? You’ve got it – options. And what company did Robert Merton Jr sit on the board of that nearly brought down the world economy a decade ago until the Feds organized a bail out for what now seems a paltry 3.65 billion dollars? Long Term Capital Management. Which brings me to my idea – Clawback!
 
Let’s have a special Nobel Prize Clawback committee that tests all Nobel Prize winning research, say at ten yearly intervals. If the research doesn’t stand the test of time, they have to give back their Nobel prize!

And in case you think I’m being unfair to economists, sociologists should make predictions as well. And they do. Charles Perrow, having studied the Three Man Island nuclear accident predicted that a nuclear accident in an uncontained light water-cooled nuclear reactor was a real possibility. Diane Vaughan, after studying the Challenger accident, warned about the safety culture at NASA which could lead to another shuttle accident, before the Columbia tragedy. And I’m told there really was a political scientist somewhere who predicted the collapse of Communism. He or she clearly should have had a Nobel Prize long ago.

So let’s see if economics really stands up to its pretensions a science and examine all the predictions the Nobel laureates in economics have made and figure out who got it right and who didn’t, and lastly (if we can find a reliable economist to work on the problem) how much it has cost us!