The Nobel in economics is sort of the step-cousin of the Nobel family.
It came about nearly 70 years after its literature and sciences counterparts, in 1969, and is technically called the "Sveriges Riksbank Prize in Economic Sciences." It is awarded by the Swedish central bank, in honor of the namesake renaissance man Alfred Nobel who established the prizes.
Some scholars really dislike the economics prize, including one of Nobel's own descendants, who dismissed it as a "PR coup by economists."
But hey, it still comes with a cash prize. It's also pretty useful in reminding the world that economics as an academic field is, frankly, a barely understood hodge-podge of studies that is constantly evolving and so variable it's almost useless outside of academia. (And I mean that with the utmost respect to economists, who, not unlike journalists, knew what they were doing when they chose their life of suffering.)
Here's the thing: Ben Bernanke, the former Federal Reserve chairman who guided the US economy through the 2008 financial crisis and subsequent recession, was awarded the Nobel in economics along with two other economists, Douglas Diamond and Philip Dybvig. (Congrats to all the winners, with apologies to Doug and Phil, who will forever be referred to in headlines about the Nobel as "and two other economists.")
Bernanke, who previously taught at Princeton and earned his Ph.D from MIT, received the award for his research on the Great Depression. In short, his work demonstrates that banks' failures are often a cause, not merely a consequence, of financial crises.
That was groundbreaking when he published it in 1983. Today, it's conventional wisdom.
WHY IT MATTERS
The timing is everything here. The Nobel committee has been known to play politics (see: that time Barack Obama was awarded the Nobel Peace Prize after being in office for just eight months). And right now, it is using its spotlight to call attention to the high-stakes gamble playing out at central banks around the world, most notably the Fed.
The rapid run-up in interest rates, led by the US central bank, is causing markets around the world to go haywire. That's especially bad news for emerging economies whose currencies are tumbling against the dollar.
Monetary tightening — especially when it is aggressive and synchronized across wealthy nations — could inflict worse damage globally than the 2008 financial crisis and the 2020 pandemic, a United Nations agency warned earlier this month. It called the Fed's policy "imprudent gamble" with the lives of those less fortunate.
LESSONS FROM HISTORY
On Monday, Diamond, one of the three newly minted Nobel laureates, acknowledged that the rate moves around the world were causing market instability.
But he believes the system is more resilient than it used to be because of hard lessons learned from the 2008 crash, my colleague Julia Horowitz reports.
"Recent memories of that crisis and improvements in regulatory policies around the world have left the system much, much less vulnerable," Diamond said.
Let's hope he's right.
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