The Nobel Prize in Economics arose during a changing time for the world’s markets. Was this a coincidence? Avner Offer and Gabriel Söderberg say no. In The Nobel Factor: The Prize in Economics, Social Democracy and the Market Turn, Offer and Söderberg detail how the prize, which was first awarded to economists Jan Tinbergen and Ragnar Frisch in 1969, was created by the Swedish central bank to enhance the central bank authority and the prestige of market-friendly economics. Offer and Söderberg have taken some time to answer questions about the origins of this esteemed prize and how it emerged from a conflict between central bank orthodoxy and social democracy.
What is the core argument of this book?
AO & GS: Since the 1970s, academic economics and social democracy have disputed how society should be managed. The challenge is those parts of the life cycle when people have little market power, the contingencies of motherhood, education, illness, disability, unemployment, and old age. Economics claims that it is best to buy protection in financial markets, by means of saving, borrowing and insurance. This is backed up by the supposed authority of science, symbolized by the Nobel Prize in Economics. It is also the objective of business and finance in their quest to capture profit from everybody’s income streams. Social democracy deals with dependency by means of transfers from producers to dependents, providing education, healthcare, pensions, physical infrastructure and culture, and pooling the individual risks by means of taxation and transfers. We question the claims of economics to impartiality and superior reason.
Why does the Prize in Economics matter?
AO & GS: Nobel prize-winners provide a high-quality sample of economics. The prize has a halo that makes economics credible to the wider public, for policies which are often inimical to the public interest. It arose out of the long conflict between the interests of the wealthy in stable prices, and of everyone else in social and material improvement. Between the wars, this conflict became focused in central banks, which became a brake on social democracy. After the Second World War, the Swedish Central Bank clashed repeatedly with the social democratic government over financing the welfare state, and extracted the prize as a concession. The prize was then captured by conservative Swedish economists, who used it to provide credibility for sustained resistance to social democracy. This story shows how ideas and arguments work through society and politics, and how the prestige of science has been mobilised for political ends.
Who is this book for?
AO & GS: It enlarges understanding of economic and social development with a wealth of new findings that will engage students and academics in economics, social science, and history. This includes the two-thirds of economists who hold onto social-democratic values, at odds with their professional indoctrination. Policy makers in government, business, finance, and voluntary organizations may find that the concepts on which they rely are not well founded. The argument is written to be attractive to read for anyone interested in current affairs, economic policy, and the future of society, all over the world.
After the financial crisis many new books have criticized mainstream economics. How is this book different?
AO & GS: One rebuttal by economists is that critics have no alternative to offer. But economics is not in fact hegemonic: public policy is dominated by a pervasive, pragmatic and effective system of social democracy which allocates about 30 percent of GDP in most advanced countries (lower in the USA due to a private health system). ‘It works in practice, but will it work in theory?’ is the challenge of economics. It imagines a world of self-interested, rational persons whose choices scale up to a benign equilibrium, as if by an invisible hand. But this vision is arbitrary, difficult to apply, and not even consistent. Economics has turned its back to social democracy, and has also missed the buildup to the recent financial crisis.
Many Americans regard social democracy as something exclusively European. Why should Americans be interested?
AO & GS: This is delusive, like the tea party member who asked the government to take its hands off his medicare. The United States deploys a broad range of social democratic arrangements: free public schools up to eighteen, a public higher education system; health services for the indigent, the old, and military veterans; unemployment benefits, some income and disability support, and a reasonable system of old-age pensions (social security). Much of its other spending (fiscal and other subsidies, especially the mortgage interest offset against tax) is regressive and misdirected. Americans are becoming aware of the cost of their dysfunctional and expensive medical system. Educational debt is a crisis in the making. Private retirement arrangements are failing. Bernie Sanders, a self-proclaimed democratic socialist, has mounted a formidable challenge in the Democratic primaries. The other candidates have joined him in advocating more social security and free higher education; like the tea party member, the supporters of Trump are also responding to the weakness of American social democracy.
Many commentators in Europe are discussing the crisis of social democracy in terms of lack of vision and declining support. What do you think is the future of social democracy and how must it adapt to survive and flourish in the future?
AO & GS: The problems of social democracy arise partly from its success. It developed as a one-size-fits-all solution for male manual wage-earners, and was difficult to adapt to a more diverse, educated, and affluent society, and to service economies that employ men and women in almost equal proportions. Social democracy is still the bedrock of personal security. Its objectives and methods are not fully understood by its practitioners and advocates, and hardly at all by those who benefit. Centre-left politicians, beguiled by market rhetoric, have not served it well. The values of reciprocity and solidarity underpin social democracy: they are more attractive ethically than unbridled greed, but also more effective and efficient. The ‘market turn’ held out the prospect of moving beyond social democracy to private ‘nest egg’ provision for economic security. Home ownership promised wealth for everybody. Driven by easy credit and mounting debt, this seemed to work for a while but has now built up inequality, social exclusion and financial crisis. The advocates of self-regulating markets did not anticipate such a precarious outcome.
Avner Offer is Chichele Professor Emeritus of Economic History at the University of Oxford in Oxford, England. He is a fellow of All Souls College, Oxford and the British Academy. His books include The Challenge of Affluence. Gabriel Söderberg is a researcher in the Department of Economic History at Uppsala University in Uppsala, Sweden. The two recently collaborated on the book The Nobel Factor: The Prize in Economics, Social Democracy and the Market Turn.