Nobel Prize of Economics and the Penchant for Math Constants

The announcement of latest winners of the Nobel Prize in economics, particularly Alvin Roth and Lloyd Shapley seems a yawner.

Critiques Andrew Coulson at the Cato Institute Blog (bold mine)

As the Nobel organization’s website explains, the original algorithm was developed by Shapley and David Gale to optimally match pairs of individuals who could only each be matched with one other person. For instance, optimally marrying-off 10 men and 10 women based on their relative levels of interest in one another. Over the past decade, it has come to be used to match students to places in local public schools (by Roth).

The problem is that this approach to “school choice” correctly assumes that the better public schools have a fixed number of places and cannot expand to meet increased demand. So it’s about finding the least-awful allocation of students to a static set of schools—a process that does nothing to improve school quality.

Meanwhile, there is something called a “market” which not only allows consumers and producers to connect, it creates the freedoms and incentives necessary for the best providers to grow in response to rising demand and crowd-out the inferior ones. It also provides incentives for innovation and efficiency. But instead of advocating the use of market freedoms and incentives to improve education, some of our top economists are spending their skill and energy tinkering with the increasingly inefficient, pedagogically stagnant status quo.

Forehead… meet desk.

I am reminded of the great Professor Ludwig von Mises who rebuked mainstream economic practitioners for their penchant to falsely model human action into a subset of natural science.

Professor Mises (From Theory and History): (bold mine)

But it is not permissible to argue in an analogous way with regard to the quantities we observe in the field of human action. These quantities are manifestly variable. Changes occurring in them plainly affect the result of our actions. Every quantity that we can observe is a historical event, a fact which cannot be fully described without specifying the time and geographical point.

The econometrician is unable to disprove this fact, which cuts the ground from under his reasoning. He cannot help admitting that there are no "behavior constants." Nonetheless he wants to introduce some numbers, arbitrarily chosen on the basis of a historical fact, as "unknown behavior constants." The sole excuse he advances is that his hypotheses are "saying only that these unknown numbers remain reasonably constant through a period of years."  Now whether such a period of supposed constancy of a definite number is still lasting or whether a change in the number has already occurred can only be established later on. In retrospect it may be possible, although in rare cases only, to declare that over a (probably rather short) period an approximately stable ratio--which the econometrician chooses to call a "reasonably" constant ratio-prevailed between the numerical values of two factors. But this is something fundamentally different from the constants of physics. It is the assertion of a historical fact, not of a constant that can be resorted to in attempts to predict future events.

Well such so called ‘prestigious’ recognitions have seemingly been directed to the ideas and symbolisms (e.g. European Union as awardee for Peace) which promotes the interests of the establishment.

European Union wins Nobel Prize for Peace

Surprise.  The Nobel Prize for peace has been awarded to the crisis stricken European Union.

Ironically, the award of prestige has been focused on the long historical role even when the panel of judges appear to be substantially concerned with present political conditions

Reports the New York Times 

Thorbjorn Jagland, the former Norwegian prime minister who is chairman of the panel awarding the prize, said there had been deep concern about Europe’s destiny as it faces the debt-driven woes that have placed the future of the single currency in jeopardy.

“There is a great danger,” he said in an interview in Oslo. “We see already now an increase of extremism and nationalistic attitudes. There is a real danger that Europe will start disintegrating. Therefore, we should focus again on the fundamental aims of the organization.”

Asked if the euro currency would survive, he replied: “That I don’t know. What I know is that if the euro fails, then the danger is that many other things will disintegrate as well, like the internal market and free borders. Then you will get nationalistic policies again. So it may set in motion a process which most Europeans would dislike.”

In announcing the award, Mr. Jagland described it as a signal focusing on the union’s historical role binding France and Germany together after World War II and its perceived impact in spreading reconciliation and democracy beyond the Iron Curtain that once divided Europe and on to the Balkans. “The stabilizing part played by the E.U. has helped to transform most of Europe from a continent of war to a continent of peace,” he said.

I have pointed out that increasing capital controls and rising political tensions from bailouts have led to increasing border controls. 

Nevertheless UK Independent Party’s Nigel Farage has a stirring rebuke on this. 

"You only have to open your eyes to see the increasing violence and division within the EU which is caused by the Euro project" he said.

"Spain is on the verge of a bail-out, with senior military figures warning that the Army may have to intervene in Catalonia. In Greece people are starving and abandoning their children through desperate poverty and never a week goes by that we don't see riots and protests in capital cities against the troika and the economic prison they have imposed.

"The next stage is to abandon the Nation state: the awarding of this prize to the EU brings it into disrepute."

Mr Farage added, " The last attempt in Europe to impose a new flag, currency and nationality on separate states was called Yugoslavia. The EU is repeating the same tragic mistake.

"Rather than bring peace and harmony, the EU will cause insurgency and violence."

Let me add that interventionism, inflationism, protectionism, and all other coming government or political –isms from EU politicians and the bureaucracy will signify as seeds to political and social conflicts. 

If social conflict should arise, the Nobel Prize would further erode its credibility.