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October 14, 2008

U of C faculty passed over for econ Nobel

It might be presumptuous to even raise the question, but at the U of C, Nobel Prizes aren’t a linchpin of school humility. So it may be worth asking: Why were U of C professors passed over for this year’s Nobel Prize in economics?

Paul Krugman, the Princeton economist, New York Times columnist and self-proclaimed liberal, was announced yesterday as the newest economics laureate. The news surprised many observers, who had counted at least three more likely contenders at the U of C. The possibilities included economics professors Eugene Fama and Lars Peter Hansen and GSB professor Richard Thaler.

Fama was widely mentioned as the front-runner for the prize. The British betting firm LaBrokes placed him with two-to-one odds for winning, while Hansen had six-to-one odds. Krugman, on the other hand, was less frequently seen as a contender.

And if any economics department is used to raking in Nobel prizes, it’s the U of C’s. Of the 59 men who have won the Nobel Prize in economics since its inception in 1968, twenty-five of them have been affiliated with the U of C, including 10 faculty members. As Columbia professor and 2001 economics laureate Joseph Stiglitz put it to the Agence France-Presse, “There was a period when there was a joke about a Stockholm Chicago express.”

So, what might explain this year’s loss?

One popular explanation is an obvious one: Everyone—no matter how accomplished—is a long shot for the Nobel Prize, since only one or a handful of people are named laureates each year.

But other theories have emerged among U of C faculty.

“I think politics entered into it,” said economics lecturer Allen Sanderson in an e-mail interview. “If there were going to be an ‘anti-Chicago prize,’ Krugman’s was it, which also worked to the detriment—that and the current state of the financial markets—of Eugene Fama and possibly other Chicago scholars in economics, business, or law.”

Sanderson wasn’t the only one who linked the U of C’s empty-handed contenders to the struggling economy. The prize comes at a moment when the unbridled free market has been frequently blamed for global economic instability. Did the political climate tilt the Nobel committee against professors from the bastion of free-market economics?

“I think the message the Nobel Committee delivered is abundantly clear: the age of post-Keynesian, laissez-faire, excess is over; ditto that of the theorists who served as advocates for it,” Bruce Lincoln, a divinity school professor, wrote in an e-mail interview.

Economics assistant professor Thomas Chaney did not rule out the possibility that politics played a role. He saw Fama’s research area as a potential tough sell this year.

“In the wake of a major financial crisis, it may not have been wise to reward work on financial economics and on the efficiency of financial markets,” he said.

For some, the U of C’s loss was no disappointment. Statistics professor Yali Amit welcomed the possibility that the loss illustrates a larger movement in mainstream economics away from staunch free-market views.

“I want to believe that,” he said. “I think [the shift] has been happening for over a decade…. You hear many more economists in the main stream, from top universities, questioning the [free-market] dogma and looking at things in a little more broad-minded way.”

While Krugman officially won for his research on trade, there is speculation that his chances were improved by predictions he made that economy was in trouble.

“If you read Krugman or Stiglitz, you see that they were warning about this thing before this year,” Amit said.

In a 2005 column, Krugman wrote, “There are signs that the housing market either has peaked already or soon will.” He predicted, “[T]here’s a rough ride ahead for the U.S. economy.”

Economics professor James Heckman, a Nobel laureate himself, didn’t think the fiscal crisis had an impact in Stockholm—on the prize, at least.

“I have no special knowledge, but I doubt that the committee was opposed to anyone because of market conditions,” he said.

But he noted that current events sometimes play a role.

“Mundell did get the prize, it’s true, in 1999, to celebrate the euro,” he said, of the Columbia economist whose research was seminal in the euro’s introduction that same year. “But that seems rare.”