Paul Samuelson: The Father of 'Modern Economics' Dies

All those who have studied economics for the past 50 years or so have heard about Samuelson – Foundations of Economic Analysis, Samuelson-Stopler theorem, Factor-price equalisation theorem, revealed preference theory, Bergson-Samuelson social welfare functions, non-substitution theorem, linear programming in economics, etc. The first one is his 1947 book which dominates economics teaching even today, directly or indirectly. Samuelson transformed economics into some sort of science (pseudo-science, as some call it)-social physics. [For more on this, go here]

Robert Lucas on Samuelson:

‘Samuelson was the Julia Child of economics, somehow teaching you the basics and giving you the feeling of becoming an insider in a complex culture all at the same time. I loved the Foundations. Like so many others in my cohort, I internalized its view that if I couldn’t formulate a problem in economic theory mathematically, I didn’t know what I was doing. I came to the position that mathematical analysis is not one of many ways of doing economic theory: It is the only way. Economic theory is mathematical analysis. Everything else is just pictures and talk.’ [Marginal Revolution and here]

SCARY!

In his Foundations, he is supposed to have popularised the views of Keynes. In fact, what he popularised is the neo-classical synthesis (IS-LM curves, which were created by Hicks). Hence, what we learn in most macroeconomics texts is not what Keynes said. Post-Keynesian economics is more closer to what Keynes said.

Despite his ‘ideas of good economics’, one needs to appreciate the works he carried out in different areas in economics – macroeconomics, public finance, international trade, consumer theory, capital theory and general equilibrium, etc.

In his initial editions of the Foundations, one could find a few pages devoted to the 1960 capital theory debates. However, with passage of time, the debate was relegated to footnotes. Now, in mainstream textbooks, capital theory is entirely omitted. In fact, Samuelson admitted the problems neoclassical microeconomics and general equilibrium run into because of their notion of capital. [More here]

I end with two questions.
Is mathematics the only way of studying economics and analysing economies’ [We mostly use calculus and game theory. Should we employ other kinds of mathematics’]

How reliable are textbooks’ It makes learning easy, but probably, a bit too easy.

2009 (Nobel) Prize in Economics

The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel was established in 1968. Technically, there is no ‘Nobel’ prize in Economics; on the website of Nobel foundation, amongst Nobel Prize in Physics, Chemistry, Medicine, Literature and the Nobel Peace Prize, we have our ‘Prize in Economics’. The prize will be announced on the following Monday, the 12th of October. As always, consensus is impossible, for economics has given birth to too many sub-disciplines in the past few decades.

A brief round-up on the web seems to suggest/predict the following winners:

1) Thomson Reuters has predicted 6 winners- William D Nordhaus and Martin L Weitzman being two of the predicted winners. I have highlighted them, for it is their work in ‘environmental economics’ which is considered to be pioneering. The other economists who are mentioned have contributed to behavioral economics and monetary economics. Amol Agrawal at Mostly Economics, provides his views on the Reuters prediction.

2) Eugene Fama ‘ for his ‘contributions’ to portfolio theory and asset pricing. It has to be a joke! (See the Wall Street Journal and Chris F. Masse at Midas Oracle, a blog about ‘predictions’.)

3) Inflation Targeting, according to Ajay Shah is path-breaking, and if given a chance, he would vote for J B Taylor and M Woodford.

4) And, comments on blog posts that discuss the ‘Nobel’ prize in economics show that each commenter wants/feels a particular economist should win the Prize, which is natural. Not much is spoken about Jagdish Bhagwati this time.

5) Robert Vienneau writes that Luigi Pasinetti and Paul Davidson should win the Prize, but they wont. For it is not surprising that Nobel prizes have not been awarded to heterodox economists. Yes, the prize winners in Economics have mostly worked within the Neoclassical framework, although, they have extended and utilized microeconomics and neoclassical general equilibrium by modifying it to a variety of problems – health, environment, behaviour, neuroscience, geography, etc. Hence, economics now is not only related to employment and poverty, but also to issues of climate change, complexities in human behaviour, legal theory (via law and economics) and so on and so forth.

I think it would be a right time to award the prize to a heterodox economist. There seems to be some problem (a lot of problems) with mainstream theory ‘ a version of neoclassical theory. However, awarding it to an economist who has pointed out (and who still point out like Davidson, Garegnani, Pasinetti and many others) logical inconsistencies or unrealistic assumptions will be a bad move; as it will undermine the entire research programme of neoclassical economics. Hence, the award could go to an economist who uses neoclassical tools more or less, but in an unconventional way. For instance, for contributions to a theory of technical progress (Paul Romer), for research conducted in green accounting (William Nordhaus), using neuroscience to understand economic (read human) behaviour ‘ neuroeconomics (Ernst Fehr), etc.

What is a Laureate’
A Laureate is a recipient of honour or recognition for achievement in an art or science. [FAQ, Nobelprize.org]

Achievement: Is there an ‘objective’ way of deciding’ No. Note that most of the predictions made are based on citations of the economists’ works. In any case, let us see what Monday brings forth!

More on Nobel Prize in Economics

G Omkarnath, Nobel Economics, The Hindu, 2003.

Jayati Ghosh, The Nobel prize for economics may need its own bailout, Guardian.co.uk, 2009.