Prize In Economics A Latecomer To Nobel Lineup

Transcript

STEVE INSKEEP, HOST:

Later this morning, the winner of the Nobel Prize in Economics will be announced in Sweden. Unlike some other Nobel Prizes we've heard about in recent days, this one comes with an asterisk. And NPR's Robert Smith is covering the story. He's in New York. Hi, Robert.

ROBERT SMITH, BYLINE: Hey, it's good to be here.

INSKEEP: Why is there an asterisk over the Nobel Prize in Economics?

SMITH: Here at Planet Money we call it the so-called Nobel Prize, because you know the official ones - physics, medicine - those were created more than 100 years ago by the will of Alfred Nobel. But then in 1968, Sweden's Central Bank - they were having their 300th anniversary and they needed sort of a promotional gimmick, and they said, hey, we should have a Nobel Prize in economics. So this one's only been around for, whatever, 45 years. And they gave the money for it, so the winner gets the same amount of money as the other Nobel Prizes. But officially do not say the Nobel Prize in Economics. You should say the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel.

INSKEEP: What do some of the past winners tell us? What do the names of some of the past winners tell us?

SMITH: Well, I mean it tells you that there's like a lot of ways to go about economics. There's basically three kinds of people who win this so-called Nobel Prize. I mean they're the big idea people, and these are the people who have these whole sort of political philosophies. Milton Friedman won. Friedrich Hayek, who is, you know, loved by libertarians - he won a Nobel Prize. So they win for sort of this body of work.

INSKEEP: Right.

SMITH: And then there's the experimental folks, and these are the ones that I love, because they're out there in the world trying to figure economics out. Because as you know, you can't do an experiment, really. You can't start an economy and then say let's try this or let's try that. You're sort of dealt these cards. And so the experimental folks, they spend a lot of time trying to find natural experiments, places where maybe they tried something in one country but a very similar country they tried something completely different, and they can use these natural experiments to figure out how the world works.

And the third class I have nothing to say about. They're math guys. They do econometrics. They figure out the sort of inner workings of economy, and I just can't do the math.

INSKEEP: Okay, fine, fine.

SMITH: They deserve it though.

INSKEEP: You just have to trust them that they did something worthy. Now, wait a minute, you said math guys. Have the winners of the Nobel Prize in Economics mostly been men?

SMITH: Every single one has been a man, except for one woman, Elinor Ostrom, and she just died last year, and she was an amazing economist. But no, it's been this short history of this prize, and somewhere around 85 percent of the winners have been American, and all but one men. So - so far the economics prize is not showing a lot of diversity.

INSKEEP: Chance of some more diversity this year?

SMITH: Well, you never know. But most of the names bandied about have been American men. For instance, Alan Krueger. And you may know his name because he was, until last August, the chair of the Council of Economic Advisors for President Obama. But you don't get a Nobel for government work. He did a great study on education. And there's always this big question of, if you have more education will you end up making more money? Which seems a little bit like a no-brainer. But you can't actually make someone drop out. You can't have a control group to see if, oh, I'm going to make this person leave high school and let's see if they have a terrible life.

But what he did was, he found a group of students who had all quit school at 16, and some of them had birthdays earlier in the year, some of them had birthdays later in the year. And so because of the school calendar, some had a few more months of education than the other students. And he figured out that it was a tiny effect, but indeed just a little bit more education did mean that you made more money down the line.

INSKEEP: Okay, so that's one possibility. One more, quickly?

SMITH: Yeah, another big name - Richard Posner. He's a judge on the U.S. Court of Appeals, but he's also done a lot of work on government regulation. And really some counterintuitive work that says sometimes businesses really want to be regulated, because government regulation can protect a business, can basically eliminate your competitors if you play it right.

INSKEEP: NPR's Robert Smith of our Planet Money team, thanks very much.

SMITH: You're welcome.

INSKEEP: This is NPR News. Transcript provided by NPR, Copyright NPR.