Greenspan, Friedman and Summers win Dynamite Prize in Economics
Alan Greenspan has been judged the
economist most responsible for causing the Global Financial
Crisis. He and 2nd and 3rd place finishers Milton
Friedman and Larry Summers, have won
the first–and hopefully last—Dynamite Prize in
Economics.
They have been judged to be the three economists most
responsible for the Global Financial Crisis. More
figuratively, they are the three economists most responsible
for blowing up the global economy.
Most than 7,500 people voted—most of
whom were economists themselves from the 11,000 subscribers to
the real-world
economics review. With a maximum of three
votes per voter, a total of 18,531 votes were
cast. The poll was conducted by PollDaddy. Cookies were
used to prevent repeat voting.
Dynamite Prize Citations
Alan Greenspan (5,061 votes): As Chairman
of the Federal Reserve System from 1987 to 2006, Alan
Greenspan both led the over expansion of money and credit that
created the bubble that burst and aggressively promoted the
view that financial markets are naturally efficient and in no
need of regulation.
Milton Friedman (3,349 votes): Friedman
propagated the delusion, through his misunderstanding of the
scientific method, that an economy can be accurately modeled
using counterfactual propositions about its nature. This,
together with his simplistic model of money, encouraged the
development of fantasy-based theories of economics and finance
that facilitated the Global Financial Collapse.
Larry Summers (3,023 votes): As US
Secretary of the Treasury (formerly an economist at Harvard
and the World Bank), Summers worked successfully for the
repeal of the Glass-Steagall Act, which since the Great Crash
of 1929 had kept deposit banking separate from casino banking.
He also helped Greenspan and Wall Street torpedo efforts to
regulate derivatives.
The vote totals for the other finalists were:
Fischer Black and Myron Scholes 2,016
Eugene Fama 1,668
Paul Samuelson 1,291
Robert Lucas 912
Richard Portes 433
Edward Prescott and Finn E. Kydland 403
Assar Lindbeck 375
This blog established the prize in response to attempts by
economists to evade responsibility for the crisis by calling
it an unpredictable, “Black Swan” event. In reality, the
public perception that economic theories and policies helped
cause the crisis is correct.
But of course not all economists are to blame. It is the
delusional mindset of ‘neoclassical’ economists that
caused the GFC. There are realist approaches to economics but
which through power politics have been suppressed in
universities and excluded from government policy making.
Some practitioners of these other approaches did what
neoclassical economists falsely claimed was impossible: they
foresaw the Global Financial Crisis and warned the public of
its approach. In their honour, this blog now calls for
nominations for the inaugural Revere
Award in Economics, named in honour of
Paul Revere and his famous ride. It will be awarded to the 3
economists who saw the GFC coming, and whose work is most
likely to prevent another GFC in the future.”
Nominations
for the Revere Award in Economics
Press
Release
Dossiers
of short-listed of nominees for the Dynamite
Prize for Economics
Fischer
Black and
Myron Scholes
They
jointly developed the Black-Scholes model which led to
the explosive growth of financial derivatives. The
importance given to their hypothetical calculation of derivative
prices was baneful not just because it was bogus, but also because
it meant that relevant and often urgent real-world economic
research was widely neglected by the profession.
Eugene
Fama
His
“efficient market theory” provided the moral umbrella for all
sorts of greed, predatory behaviour and incompetent corporate
management. It also
provided the rationale for deregulation.
And his theory’s widespread acceptance meant that
“discussion of
investor irrationality, of bubbles, of destructive speculation had
virtually disappeared from academic discourse.” In
these three ways Fama’s work created the environment which made
possible the GFC.
Milton
Friedman
He
propagated the delusion, through his misunderstanding of the
scientific method, that an economy can be accurately modeled using
counterfactual propositions about its nature.
This, together with his simplistic model of money,
encouraged the development of the financial theories with
unrealistic assumptions that facilitated the GFC. In
short, he opened
the door for everyone subsequently to theorize without fear of
having to be attached to reality.
Alan
Greenspan
As
Chairman of the Federal Reserve System from 1987 to 2006, he
both
led the over expansion of money and credit that created the bubble
that burst and aggressively promoted the view that financial
markets are naturally efficient and in no need of regulation.
Before a Congressional committee on 28 October 2008
Greenspan confessed that his theoretical beliefs of 40 years were
now proven to be without foundation, hence his total confusion and
failure at his job.
Assar
Lindbeck
By
working to make the Riksbank Prize in Economic Sciences (“Nobel
Prize in Economics”) almost exclusively a prize for neoclassical
economists, this Swedish economist has contributed significantly
to the conversion of the economics profession and of world public
opinion to market fundamentalism.
Robert
Lucas
His
development of the rational expectations hypothesis, which defined
rationality as the capacity to accurately predict the future, both
served to maintain Friedman's proposition that monetary factors do
not affect the real economy and, in the name of “rigor”,
distanced economics even further from reality than Friedman had
thought possible.
Richard
Portes
As
Secretary-General of the Royal Economic Society from 1992-2008, he
helped suppress worries expressed by non-mainstream economists
about developments in the financial sector. In 2007 he wrote
a Report for the Icelandic Chamber of Commerce giving a clean bill
of health to Icelandic banks only a few months before they
collapsed. When investigators called attention to the real
state of Icelandic banking, he wrote a series of letters to the Financial
Times defending the soundness of Icelandic banks and imputing
professional incompetence to those who doubted it.
Edward
Prescott and
Finn Kydland
For
jointly developing and popularizing “Real Business Cycle”
theory, which by omitting the role of credit greatly diminished
the economics profession’s understanding
of dynamic macroeconomic processes.
Paul
Samuelson
Through
his textbook Economics: An
Introductory Analysis (19 English language editions and
translated into 40 languages), he popularized neoclassical
economics, contributing more than any other economist to its
diffusion and thereby to the deregulation of financial markets
which made possible the GFC.
Larry
Summers
As
US Secretary of the Treasury (formerly an economist at Harvard and
the World Bank), he worked successfully for the repeal of the
Glass-Steagall Act, which since the Great Crash of 1929 had kept
deposit banking separate from casino banking.
He also worked with Greenspan and Wall Street interests to
torpedo efforts to regulate derivatives.
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