Business

Nobel prize winners meet to discuss the world economy

Nobelist Myron Scholes (l) and questioners
Image caption Nobelist Myron Scholes (l) is one of the prize-winners sharing their knowledge at the meeting

Can a group of economists and Nobel prize winners reach agreement on the state of the world's finances?

Some of the world's great minds meet every four years in the old Bavarian town of Lindau, a mediaeval island on Lake Constance in Southern Germany.

In a place where shimmering Swiss mountains loom in the distance, the church bell has just tolled for 18:00.

It sounds idyllic, but there is a little downside: prevailing gloom.

In 1951, a distinguished local Count took up the bright idea of two local doctors for an international conference where Nobel Prize winners in various disciplines could lecture and interact with the best and the brightest under-30s in their fields from all over the world.

Physics, chemistry, medicine: they all came here to meet and inspire each other.

Economics is a relative newcomer to the conference series, as it is to the Nobel process itself.

In fact the Nobel Prize for Economics is not quite the same thing as the other Nobels.

The main Nobel Prizes were endowed by Alfred Nobel who established five prizes, the three subjects above, plus literature and peace or world fraternity.

The economics Nobel Prize came later; it was was created more than 70 years later by the Swedish Central Bank in 1968 to celebrate the Bank's 300th anniversary.

So far 67 people have shared in 42 Nobel Economics Prizes.

Only one of them has been a woman.

The prize even attracts criticism from those who are awarded it.

The Swedish economist and Nobelist Gunnar Myrdal later advocated its abolition on the ground that it had also been awarded to "reactionaries" such as the Austrian Friedrich Hayek and Professor Milton Friedman of Chicago.

Funnily enough, both Myrdal and Hayek shared the 1974 Prize.

Even more curious, in his speech at the prize dinner, Hayek said that if he had been asked about the establishment of a Nobel Economics Prize, he would have decidedly advised against it.

Hayek's speech is a cautionary tale.

Image caption Not everyone in Lindau welcomes the Nobel laureates' presence

"The Nobel Prize confers on an individual an authority which in economics no man ought to possess," he said.

"This does not matter in the natural sciences. Here the influence exercised by an individual is chiefly an influence on his fellow experts; and they will soon cut him down to size if he exceeds his competence.

"But the influence of the economist that mainly matters is an influence over laymen: politicians, journalists, civil servants and the public generally."

This is a sobering thought.

Frustration

The world seems to be in a terrible economic mess, underpinned by a huge borrowing binge in the west partly financed by vast Chinese savings.

Overseas earnings, developing currency wars and turmoil in financial markets have led some people to question the apparent economic assumption that efficient markets display important economic truths about countries and companies.

As one friend puts it: "We are living on a living on a hinge of history."

In fact she puts it rather more precisely than most of the Nobelists.

They win their awards for groundbreaking but largely theoretical work. They use the economists' word "asymmetry" a lot.

It describes a situation whereby some people (for example those in a particular marketplace) have better information than others.

Asymmetry is a fairly new concept in economics.

The real world is full of frictions and imperfections; asymmetries, if you like.

One of the Lindau Nobelists, Joseph Stiglitz from Columbia University in New York got his prize for his work on these asymmetries.

Addressing this meeting, he observed that the previous one took place in 2007 just as the crisis was beginning as the credit market froze over.

"Wasn't mentioned here at all," he pointed out, in exasperation with his profession.

"There ought to be a crisis in economics," Professor Stiglitz added.

Diversity of views

The old joke is that if you laid all the economists in the world end to end they would still fail to reach a conclusion.

Frustrating though that is for a man with a microphone seeking big ideas that may save the world from its current crisis, the diversity of views in economics is in fact probably a great strength.

And most of the economists trotted out by the media for sound-bitey commentary on the events of the day have a particular perspective.

They earn their living in the financial markets, and what they say is influenced by normally short-term market views.

Where is the long-term perspective, the joining up of the millions of dots of market data?

Why are we supposed routinely to get excited about Christmas shop sales?

Why do we wait for the economic data to confirm a trend we have been living through for several months before it has been number-crunched by the statistics people?

A PhD student talking to a fellow under-30 economist used the word "correlation".

That is a word not normally much heard in lunch tents.

In Lindau, there are not a lot of conclusions, pointers or solutions.

The world will have to learn to muddle through what look like tough, asymmetrical, times for some time to come.

That is how things seem in Correlation Street.

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