Why is the economics Nobel so endlessly fascinating? Probably because it provides a measure of legitimacy to economic ideas. In chemistry or medicine, this isn’t necessary — if a chemical reaction or medical treatment works, it doesn’t take a gold medal to prove that it works. But there are a lot fewer certainties in economics, so the Nobel and other prizes tend to act as stamps of official approval.
The Nobel committee continues to honour a diverse array of economic ideas and methods. In the past decade, prizes have been given to micro theorists and macro theorists, to behavioural economists and institutional economists, to those who theorise about trade and those who measure the factors behind asset prices. Economics is a big tent, and getting bigger all the time.
But there are a few notable things the committee has so far overlooked. Some of these seem like relatively minor omissions — for example, New Keynesian macroeconomics hasn’t yet received a prize, despite having huge influence over central banks and academic departments alike. It seems likely that economists such as Stanley Fischer, Greg Mankiw, Nobuhiro Kiyotaki, Olivier Blanchard and Michael Woodford might one day receive big gold medals for their work on how monetary policy can address recessions and inflation. If this never happens, it will be quite a surprise.
A more glaring omission, however, is the field of empirical applied microeconomics. This kind of economics now represents a very large portion of what economists do, but has failed to receive any recognition from the folks in Sweden.
By now, many people are aware of the overall shift away from pure theory and towards data and measurement in the economics profession.
As economics shifts its focus toward real-world evidence, the Nobel committee has slowly been handing out more prizes for empirical work. Bob Shiller and Gene Fama are empirical finance researchers, while Chris Sims and Tom Sargent (who won in 2011) are empirical macroeconomists. Richard Thaler and Elinor Ostrom also did work with large data components.
Then there is Angus Deaton, who won in 2015. Deaton won in part for his careful study of consumption analysis, which involved some new theory. But he was also recognised for his study of poverty, which relied crucially on the collection of better data from poor countries. His award shows that the committee is interested in giving more acknowledgement to economists who do data-heavy microeconomic work.
What the Swedes have yet to reward, however, is the “applied” part of applied micro — the direct application of empirical techniques to evaluation of economic policy, without reliance on elaborate economic theory. Applied microeconomists have studied policies like the minimum wage, the earned income tax credit and relocation vouchers. They’ve learned valuable things about how immigration and trade patterns affect workers. Many even conduct their own policy trials in poor countries, to see what works.
This kind of work used to be rare, but now it’s academic economists’ bread and butter. And beyond the walls of the ivory tower, it’s having a huge influence on economic debates and policy, which in turn affect millions of people.