“Cause and Effect in the Macroeconomy”

It’s Nobel Prize time again. And what a beautiful prize this year it is!

It’s been given for having taught us “cause and effect in the macroeconomy.” Isn’t it great that we finally sorted out this relation, which had caused so much confusion? I mean, how many folks have suffered throughout the history of man from those wrong-headed decision makers unable to keep apart “cause and effect in the macroeconomy”: Are tax cuts causes of a growing GDP or causes of declining employment rates? Are central banks’ policies causes of inflation and economic instability? Are expectations of low economic performance causes of low economic performance, or the other way around? Good to finally know the answers to these questions, so that we can stop quarreling about these matters. Thank you, Tom Sargent and Chris Sims.

Cause and effect in the macroeconomy for dummies; Source: “popular information for the public”.

Well, how is that about the “macroeconomy” again? Check the dictionary: no entrance! Hmm. In fact, when my students use this word in their essays, I mark it with a special comment. What, for heavens sake, is “the macroeconomy” supposed to be? It must be that thing that macroeconomists talk about. The Swedish professors seem to commit the same awkward confusion between “economics” and “the economy” as occurs so often in European languages. Identifying the world and scientific theories is a clear sign of science becoming popularized and ingrained in our culture. What has been a murky theoretical imagination of a handful of nerds percolates into the public consciousness like a soft drug of truth. I recall vaguely someone from our historians’ guild claiming that macroeconomics resulted from the attempts of gaining greater shares in the textbooks market. Whether true or not, it was certainly a way of stabilizing a canon that plays down conflicts in research. Macroeconomics allowed for a harmonious economics curriculum consisting of partial equilibrium and IS-LM, of the Marshallian and the Hicksean cross. What once were two different ways of viewing “the economy” turned into two sub-disciplines – and now, decades later, has turned into an actual object: the macroeconomy. We are witnessing the birth of a novel object. The ontological density of this object, its objectivity as it were, is based on nothing else than the fact that nobody would want to ponder the existence of the macroeconomy after this Nobel Prize. Objects are things one does not quarrel about.

But this post was not meant to be on ontology, but on what might be the historians’ response to the yearly Nobel Prize. Isn’t the prize the beginning marker for legitimate historical research? Isn’t the Nobel Prize drawing the line between what is still debated and what is established, thus past research? Is it not now our task to go and check if credit has been properly given? Did Sargent and Sims really deserve the Prize? If this were true, one would end up writing responses akin to Arjo Klamer, who has commented on his blog about this year’s choice as the failure of economics: he links Sargent’s and Sims’s work with propagating efficient markets and thus the current crisis, blames the math that doesn’t work, and laments the lacking ambition of making sense of the “real world” – that is that thing, which comprises “social, ethical, and emotional processes”.

Arjo knows who he’s talking about. Back in the early 1980s, he interviewed Sargent - a nice, but arrogant guy, he says. I admire Arjo for having started conversations with economists, giving historians a different language from the one that is imposed by economists. Economics in conversation is indeed very different from economics in models. Theoretical concepts usually don’t really flow in natural language – such as the macroeconomy. A great lesson indeed, and there is still much to gain from oral history.

But what Arjo, and he is not the only one, misses about the award is that it was only thanks to the culture he laments that there was a “Nobel Prize” for economics in the first place. It was thanks to mathematics that the culture of economics became so elevated that it appears to be worthy of a Nobel Prize. (We’ve heard Phil Mirowski saying that the Nobel was part of the strategy to establish this culture in Europe.) Note that it was the same elevated culture that required a separate sub-discipline called “history of economics”. It is not by chance that there are only five years between the first Bank of Sweden Prize for Economic Science in Memory of Alfred Nobel in 1969 and the creation of the History of Economics Society in 1974. The Nobel Prize was the end of a process of economics becoming a science, and thus freeing itself from history. Thus, prizes like this year’s prize are necessary for the reproduction of the institutions of economics. Think of it: if we had laureates like Hayek, North, Sen, Krugman, or Ostrom year after year, economists who value literary quality in their work, one would have to rename the Prize into the Memorial Prize for Political Science, or for Sociology, or for Psychology after only a few years. I’m afraid there is no alternative. Arjo could have learned this from a slightly lengthy piece that I produced during my days in the Netherlands and that he had the chance to read.

The Nobel Prize is the instantiation of the historical consciousness of economists: it is a historical judgment and assigns credit for what is now understood as good science. By means of the antiquated symbol of the exemplary scientist it allows economists to feel good about a harmonious past and a bright future. The Nobel Prize is monumental history – history that is sanctified, and standardized. It celebrates oblivion.

For historians, there is thus nothing to say about the legitimacy of the decisions of the Nobel committee. It’s not up to the historian to assign credit, but to describe the culture within which credit is given. Otherwise historians would write history that has always already come too late. Raging against the Nobel is to lose one’s face as a historian.

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