The Economics Nobel has always been somewhat of an oddity compared to its more illustrious (or should I say, less dismal) counterparts in the natural sciences, literature and peace. First and foremost, it really isn’t a true Nobel Prize: it is awarded by the Swedish Central Bank in memory of Albert Nobel, for Mr Nobel himself didn’t see the need to give an economist such grand an accolade. But more curiously, it is the one prize in which two people can be awarded the prize for saying the exact opposite thing since economics, by its virtue of a social science, is essentially never right (and as more than one economist would like to think, never wrong either). This happened early in the prize’s history when Gunnar Myrdal, one of the foremost social-democratic thinkers of his time, shared it in 1974 with none other than F. A. von Hayek, the intellectual godfather of the Austrian school of free-market loving economists. Fast forward to 2013 and history has repeated itself, this time even more blatantly by giving it to Eugene Fama who authored the Efficient Market Hypothesis, and Robert J. Shiller who has spent his academic career destroying it.
Perhaps all that the Nobel Committee wanted was to stir some controversy. It has after all, given the Nobel Peace Prize to President Barack Obama because he wasn’t George W. Bush, even if he ended up conducting an even more intense drone strike campaign than Dubya himself. It also gave it to the European Union for not annihilating itself, since that has been the norm in Europe since the collapse of the Roman Empire. This year’s dubious recipient seemed to be yet again the Peace Prize, awarded the Organization for the Prohibition of Chemical Weapons, probably because giving it to Vladimir Putin directly would have been even too appalling for the fellows in Oslo. Yet in my view, giving Eugene Fama the Economics Nobel came nearly as bad. I will certainly not deny that the Efficient Markets Hypothesis has been one of the basic frameworks upon which financial economics has rested since Fama’s seminal 1970’s paper that formalized it. Yet at the same time, it may well have been one of the biggest intellectual frauds ever imposed on (and by) the economics profession. Continue reading