The Nobel Prize in Economics does not exist. It does not figure in the will of Alfred Nobel (1833-1896), whose prosperity lay in the war industry. In 1894 he established a reward for outstanding personalities each year in Medicine, Physics, Chemistry, Literature and those who had worked for peace. The first delivery was in 1901. Since then, there have been successes, errors and oversights in the attribution of such medals.
It was only in 1968 that the Central Bank of Sweden decided to establish the Bank of Sweden Prize for Economic Sciences in Memory of Alfred Nobel. Managed by the Nobel Foundation, it is financed by funds from the bank itself. It seems that there was a need to give a social science like economics the rigor of hard science awards, the elegance of literature, the disinterest of peace.
This year’s winners come from the neoliberal view, as in most cases. They are Ben Bernanke, Douglas Diamond and Philip Dybvig. In the recitals of the decision, we read that they have “significantly improved our understanding of the role of banks in the economy, particularly during financial crises, as well as how to regulate financial markets.”
Diamond and Dybvig observed that when the state at least partially guarantees bank deposits, savers do not take as much risk when withdrawing their money. Bernake was hit by the 2008 crisis as chairman of the United States Federal Reserve. It seems that the Central Bank of Sweden decided to reward the saviors of the financial sector and the mechanism of socializing the losses of the big banks. When the Lehman Brothers crisis erupted, Paul Krugman – one of the few less orthodox recipients of the pseudonobel – wrote that “that night, many would be reading Minsky.”
Contrary to the beliefs of the financial establishment, Hyman Minsky (1919-1996) showed that during periods of prosperity in an economy, financial regulation tends to be more lax, allowing the financial sector to design and market “innovative” products, whose speculative nature puts the economy as a whole at risk. That results in a crisis.
There are two reasons why this happens. The first is that political institutions may think that the era of prosperity allows them to relax their surveillance of the financial sector. The other is that bankers, as entrepreneurs, seek to maximize profits through innovative businesses, which the regulation does not foresee. When the speculative bubble bursts, caused both by the relaxation of the rules and by the greed of the bankers, there is a return to stricter regulation. Controlling speculative flows enables renewed prosperity…until the next crisis.
Minsky maintains that central banks should not make decisions a priori, but act according to the circumstances: each financial crisis originates from the deregulation of financial markets, but requires different policies depending on the case. He also affirms that a firm financial regulation is as important as having a strong State, good social security, unions that defend workers’ rights, and effective salary protection, considered as stabilizing elements of the economy. A reflection that could well inspire the economic policy for our lands. «
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The Nobel Prize in Economics does not exist