by From Steven Klees I am quite sure that this year’s three Nobel Laureates in economics — Daron Acemoglu, Simon Johnson and James Robinson – are very competent new institutionalist economists. Lars Syll offers a thoughtful critique of their substantive arguments, but he misses the main point for me. New institutional economics, by and large, is nonsense. We used to have many sensible institutional economists who offered a qualitative, sociological-type analysis of the role of economic institutions. We still have them in the Association of Evolutionary Economics and their Journal of Economic Issues. They have declined in number after their stronghold in labor economics was folded into neoclassical theory by the advent of human capital theory turning Labor into a tractable commodity.
Topics:
Editor considers the following as important: Economics, economy, news, Nobel Prize, politics, Uncategorized
This could be interesting, too:
Lars Pålsson Syll writes Central bank independence — a convenient illusion
Lars Pålsson Syll writes Finanspolitiska myter II
John Quiggin writes The end of US democracy: a flowchart
Bill Haskell writes After Pandemic, Health Insurance for Those Losing Medicaid Results in Employer Coverage
from Steven Klees
I am quite sure that this year’s three Nobel Laureates in economics — Daron Acemoglu, Simon Johnson and James Robinson – are very competent new institutionalist economists. Lars Syll offers a thoughtful critique of their substantive arguments, but he misses the main point for me. New institutional economics, by and large, is nonsense. We used to have many sensible institutional economists who offered a qualitative, sociological-type analysis of the role of economic institutions. We still have them in the Association of Evolutionary Economics and their Journal of Economic Issues. They have declined in number after their stronghold in labor economics was folded into neoclassical theory by the advent of human capital theory turning Labor into a tractable commodity.
I suppose the new institutionalists deserve some credit for at least thinking about institutions which has rarely been part of neoclassical thinking and sometimes paying attention to history which is even rarer. (It is appalling that in many economics PhD programs economic history is not a required subject.) But new institutionalist economics is firmly rooted in neoclassical economic theory and in the methods of econometrics. As Lars Syll, myself, and many others writing on the RWER blog have argued, neoclassical theory is so problematic as to be bankrupt and regression analysis methods are as well.
To think, as our three Nobel Laureates do, that one can capture the nature of colonial institutions in a variable or two and then “control” for and essentially dismiss an array of other causal explanations of GDP growth – “including religion, distance from the equator, temperature, humidity, availability of resources, whether the country is landlocked, and the identity of the colonial power” – is sheer nonsense! It may well be that there is something interesting about the differences between more and less extractive colonial powers, but all were extractive of the human and natural wealth of their colonies. But to call some of those colonial power institutions “inclusive” and to say they are a major explanation of future growth, equity, and democracy is an absurd and insulting apology for colonialism. This probably wasn’t intended but to find any good in the plunder and exploitation of the Global South should be anathema.
In the Nobel group’s (more accurately, “The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel Committee for the Prize in Economic Sciences”) “scientific background” to their award, they conclude with “The new literature on the historical determinants of contemporary economic prosperity, often labeled historical persistence studies, has offered new and valuable evidence and has opened up a new arena for interchange between economists and economic historians.” The historical and current determinants of economic history are a very complicated and debated topic and neither the 2024 Nobel Laureates nor new institutional economics as a whole sheds any light on the topic. Unfortunately, this is generally true of these Nobel-like prizes in economics, awarded almost exclusively to neoclassical economists who use problematic theories and methods to bolster a problematic economic system. For a more in-depth critique of the work of these three Nobel Laureates and the need to abolish this prize altogether see Dawa Sherpa’s wonderful blog.