Mohan Guruswamy | Who’ll be awarded the next Nobel Prize in Economics?

This is a time of great excitement in the ivory towers of economics faculties in the world’s storied universities when the long list of nominations for the “Economics Nobel” is winnowed to a small number, and it is in September every year when one or a few are chosen for immortality. Undoubtedly, there are Indians like Raghuram Rajan (Chicago) and Raj Chetty (Harvard) who will figure, but no Indian institutions will figure among them. Raj Chetty is the William A. Ackman Professor of Public Economics at Harvard University and is considered among the brightest stars in the world economics firmament, and is my pick for a Nobel. The calibre of Indian economics faculties is much to be desired and in our hothouses only mediocrity breeds.

The mediocrity of our universities, despite the extension of higher education, is possibly Jawaharlal Nehru’s single great failure. The exceptions were way back in the last century when scientists like Jagadish Chandra Bose and C.V. Raman independently inquired into the mysteries of nature. In 1930, Sir C.V. Raman was awarded the Nobel Prize in Physics for discovering that when light traverses a transparent material, the deflected light changes its wavelength and frequency.

All the other Nobel Prizes in areas of academic excellence were awarded to Indians working abroad such as Hargobind Khorana (genetics), S. Chandrashekhar (astrophysics), Amartya Sen (economics), V. Ramakrishnan (chemistry), and Abhijit Vinayak Banerjee (economics). Then of course we have Rabindranath Tagore, who won it in 1913 for literature.

Englishman Ronald Ross received the Nobel Prize in Medicine in 1902 for his work in Secunderabad on the transmission of malaria, and that unrepentant imperialist Rudyard Kipling received it in 1907 for literature, mostly about India.

The other two Indian Nobels were for “Peace”, which are voted for by the Norwegian Parliament, the “Storting”. It’s a political award and an assortment of undeserving people like Menachem Begin, Anwar Sadat and Henry Kissinger too have been found fit, while Mahatma Gandhi, despite being nominated six times was found undeserving. I do not consider the Peace Prizes to Mother Teresa or Kailash Satyarthi to be of any significance to the world of ideas and discovery.
In recent years, the Nobel Prize for Economics, the last of the Nobels instituted, has acquired a special value. The original four Nobels are chosen by committees (for Physics, Chemistry, Medicine/Physiology and Literature), which are working bodies within their prize-awarding institutions, the Royal Swedish Academy of Sciences, the Karolinska Institute and the Swedish Academy. These four Nobel committees only propose laureates, while the final decision is taken by a larger assembly. The process for choosing awardees for the Economics Nobel is very different.

In September each year, the Economics Prize Committee sends out confidential forms to around 3,000 individuals globally — selected professors at top universities worldwide, laureates in Economics, and members of the Royal Swedish Academy of Sciences, among others. The completed nominations are screened by the Economics Prize Committee and whittled down to about 250-300. This committee prepares a report with recommendations to the academy. In early October, the Academy of Sciences selects the laureates in Economics through a majority vote.

The winners of the Economics Prizes often acquire the voice of God in the intellectual discourse of nations.

What is thought of as the Economics Nobel is officially the Sveriges Riksbank Prize in Economic Sciences in memory of the late Alfred Nobel. The prize was established in 1968 by a donation from Sweden’s central bank to commemorate its 300th anniversary. It is now easily the most awaited of the Nobels.

Last year the Economics Nobel was shared by Ben S. Bernanke, former head of the US Federal Reserve and now with the Brookings Institution, and Professors Douglas W. Diamond and Philip H. Dybvig for their work on banking and particularly on central bank regulation (or the lack of it). Diamond and Dybvig developed models that explained why banks exist, and their vulnerabilities to rumours and speculation. This work led to the creation of deposit insurance to shore up confidence in banking institutions. Bernanke’s research was more focused on the role of central banks in keeping order in banking during normal times and during crises. Whether their work was deserving of a Nobel can be questioned, but it was undoubtedly significant.

In 2020, it was given Robert Wilson and Paul Milgrom for their contribution to auction theory. Humans have been selling things to the highest bidder or buying things from the cheapest source for thousands of years and sellers for the highest price they can get. These days, goods and services change hands for astronomical values at auctions daily, not just at Sotheby’s or Christie’s but also by nation states selling natural resources. Wilson and Milgrom translated their theories into practice and created new auctions for goods and services that are difficult to sell through traditional means, such as radio frequencies. Their discoveries have benefited sellers, buyers and taxpayers around the world. I am sure their work would have knocked the stuffing out of Vinod Rai’s absurd projections of 2G values.

The winners in 2019, the husband-and-wife duo of Abhijit Banerjee and Esther Duflo, won it ironically enough for their study in eastern Odisha of one the most spectacular development economic bombs of recent times. It was a scheme to replace open-fire cooking used by three billion of the world’s poorest people with more efficient, less polluting stoves. The $400 million project was backed by the United Nations and was launched by former US secretary of state Hillary Clinton in 2010. It set out to reduce indoor air pollution, which kills two million people a year, while empowering women and helping the environment. After initial success, millions of stoves built in India were largely abandoned within four years.

Banerjee and Duflo studied the reasons for it and told the world why such an altruistic and even rational project flopped. The reasons were quite mundane, something which the world’s finest development economics and policymaking minds didn’t anticipate. The new stoves were prone to breaking down and took longer to cook food. They couldn’t be moved because they were tethered to fixed chimneys, sending the smoke outside. I don’t think Prime Minister Narendra Modi’s genius factored the more mundane considerations when the Government of India launched its colossal public toilets scheme, which we know now is also a spectacular flop.

Open defecation is once again rampant. It’s little wonder that Mr Modi has given the duo a big avoid.