“You win some, you lose some, and some you get rained out.” That pretty much sums up how economics teachers like me, who venture guesses to their students about possible Nobel laureates in economics, felt this morning.
The Nobel committee chose to award the Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel, 2000, more generally known as the Nobel Prize in economics, to two U.S. economists: James J. Heckman from the University of Chicago and Daniel L. McFadden from UC-Berkeley. Both have had very distinguished scholarly careers but generally have stayed off the public’s radar screen.
My own short list included Bill Baumol, Jagdish Bhagwati, Martin Feldstein and Paul Krugman, as well as two older economists who should have won it a decade ago, Charles Kindleberger and Vernon Ruttan, a professor emeritus at the University of Minnesota.
But I have to admit that Heckman and McFadden were not even on my long list. I had gained great credibility with 33 undergraduates five years ago when I ventured that Robert Lucas was a shoe-in to get the Nobel someday. His receipt of the 1995 award was announced the day of the next class. This year, I blew it.
Some observers argue that in as ambiguous a discipline as economics, Nobel committees hedge their bets by choosing scholars whose work is uncontroversial or by alternating from one end of a perceived philosophical or political spectra to the other.
Indeed, back in 1974, it split the award between Gunnar Myrdahl, a Swedish socialist economist, and Friedrich von Hayek, an Austrian who devoted his entire life to proving that socialism could never work. That was like simultaneously awarding one Nobel physics prize to Ptolemy for theorizing that the sun revolved around the Earth and another to Copernicus for arguing the opposite.
Last year the prize went to Robert Mundell, who was seen as the intellectual father of the euro. The euro is now in the toilet on foreign exchange markets and was roundly rejected by Danish voters in a plebiscite just two weeks ago. In 1997, it went to Robert Merton and Myron Scholes for their work in valuing derivatives.
Less than a year later, Long-Term Capital Management, a hedge fund the two were associated with, went belly-up quite dramatically during the Asian financial crisis, sparking a dramatic intervention by the Federal Reserve Bank of New York. Perhaps the committee thought it was time to play it safe.
In any case, this year’s winners are both microeconomists: That is, they focus on human behavior at the level of the individual, the household or the firm. They don’t deal with the broader national issues of inflation, unemployment, interest rates or fiscal policy. Both focused on the interplay of economic theory with statistics, particularly measuring human behavior with incomplete data. Both worked with using computers to test hypotheses about human behavior by running mathematical models involving huge amounts of data.
While both publish their work in scholarly articles with titles that are gibberish to the average layperson, such as “Nonparametric Characterization of Selection Bias using Experimental Data” or “On Selecting Regressors to Maximize their Significance,” the two are not entirely theorists. Heckman has done a great deal of work in devising methods to evaluate social programs and to understand returns to education. McFadden’s work applied to transport and communications systems.
For those who like to keep score on such things, neither is a graduate of the University of Chicago, but Heckman, a native of Illinois, currently holds an endowed chair at that school. McFadden, who has split his career between the University of California at Berkeley and Yale, currently has an endowed chair at the former. A native of North Carolina, McFadden received his Ph.D. from the University of Minnesota in 1962.
To my knowledge, this is the first University of Minnesota-produced Nobelist in economics and perhaps the first alum to win any Nobel award since crop scientist Norman Borlaug won the Peace Prize in 1970.
© 2000 Edward Lotterman
Chanarambie Consulting, Inc.