Nobel prize in economics: will financial crisis adjustment theory win the day?

Those in the know hope Nobel committee makes choice in 2013 that reflects the seismic changes of the past five years

After five years in which many of the pillars of economic theory have been swept away by a financial hurricane that went largely unpredicted by the majority of practitioners of the dismal science, it may be hard to believe anyone deserves to crowned with a Nobel prize in the subject.

But the winner of the Sveriges Riksbank prize in economic sciences in memory of Alfred Nobel, as it is officially called, is due to be announced on Monday, and bookmakers have come up with a packed field of runners and riders.

Yales's Robert Shiller has been high up the list for some years. He wrote a prescient book, Irrational Exuberance, published in 2000, about the stock market bubble, and followed it up with a second edition in 2005, which took the then unfashionable view that US housing looked dangerously overvalued. "If I was a betting man, I would think it had to be Shiller," said TUC economist Duncan Weldon.

Sir Tony Atkinson, of Nuffield College, Oxford, who has long worked on inequality and income distribution – seen as increasingly relevant in recent years – is also frequently mentioned. Inequality has also been a consistent concern of another much-mentioned Brit, Angus Deaton.

A more mainstream choice for the judges might be Robert Barro, of Harvard, who is in the mould of classic, free market, anti-big state economics.

But those who have been fighting for a revolution in the way economics is taught in schools and universities would like to see the Nobel committee make a choice that reflects the seismic changes of the past five years.

Wendy Carlin, of University College London, who is working on a project to shake up the economics curriculum in Britain, favours South Korean-born Hyun Song Shin, of Princeton, for example. Even before the crisis, Shin was studying the importance of leverage in the global financial system.

Carlin said there were encouraging signs that economists were adjusting to changing times. "There's a feeling that at least the occasion of the crisis has led people to think that we should be teaching economics differently," she said.

While physicists can pelt particles around the Large Hadron Collider in search of the Higgs boson, economists have to test their theories by watching messy events and unpredictable human beings in the real world.

Diane Coyle, of consultancy Enlightenment Economics, said in the light of the battering many of their prized theories have taken over the past five years or so, economists needed to switch from building big, mathematical models, to "microeconomics", which studies how firms, individuals and particular markets behave. "Let's confess that we just don't know how the macroeconomy works, and we need to have a bit of a think about that," she said.


Heather Stewart

The GuardianTramp

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