Economists Shape Our World, And Luckily the Nobel Prize Committee Understands Them | OPINION

In 2005, Stephen J. Dubner and Steven Levitt wrote "Freakonomics." It was a layman's version of Levitt's economic research. The book was sufficiently fascinating that one of my colleagues, who has a PhD in math from Michigan, was compelled to buy some of Levitt's original papers on which the book was based. My colleague couldn't get through the first page. The complexity of the math lost him.

Economics has become the most complex and esoteric of sciences. So when I read today that Abhijit Banerjee, Esther Duflo and Michael Kremer, of MIT, MIT, and Harvard respectively, won the Nobel Prize for their experimental approaches to alleviating global poverty, I could only shrug. Unless they write a dumbed-down bestseller, I'll never have any idea what they did or why it's special. And even then, should I try to repeat their arguments back to a real economist, she'll shake her head and patiently explain to me why my understanding is cockeyed.

Nobel Prize Economics 2019 Banerjee Duflo Kremer
The Nobel Committee announces the 2019 prize in Economic Science JONATHAN NACKSTRAND/AFP/Getty

Economics started out as a branch of philosophy. There was math involved, but not a lot of it, because there wasn't a lot of data around and even less computing power. Instead, economic arguments were made with logical arguments and simple diagrams. It didn't involve a lot of statistics because Karl Pearson hadn't invented mathematical statistics yet. The philosophical approach to economics proved extraordinarily powerful in shaping the modern world. Adam Smith's (1723-1790) invisible hand argument laid the basis for capitalism, the dominant economic system in the world today. We live in a global economy because David Ricardo (1772-1823) put the case for free trade so powerfully. Ibn Khaldun (1332-1406) hypothesized a relationship between tax rate and tax revenues, what we now know as the Laffer Curve, that's guided Republican economic policy for 45 years.

What made those ideas so very powerful was that they were understandable. (Of course, some were also wrong, e.g., Karl Marx (1818-1883.)) Normal people could argue them over a cup of coffee. Those days are long gone. Mathematical economics is more complex than rocket science. In astrophysics, bodies move in predictable ways. Economics is the study of human behavior. All of us who've had teenage kids know how predictable that is.

Karl marx
The 'zero Euro' bill being sold to commentate Karl Marx's 200th birthday in the German city of Trier. Tourist-Info Trier

Which begs the question, "Does economics really matter any more?" I mean, if most us still struggle to understand the much simpler arguments made centuries ago. (I'm looking at you, Robert Lighthizer and Steven Mnuchin, President Trump's top trade negotiator and treasury secretary, respectively) what good are these new mathematically-based arguments that even fewer can understand?

Perhaps it's like electromagnetism. I don't really understand it, but I benefit from the research that has gone into the laws of electromagnetism because that knowledge is embedded into devices that I can use. Perhaps the work done by Banerjee, Duflo and Kremer will become embedded into economic models used by the IMF and World Bank and will shape the way more developed nations try to help less developed ones. Like my iPhone, just because I don't understand how their theory works doesn't mean it won't be incredibly useful. Maybe.

Just because economics may not be useful doesn't mean the Nobel Prize in Economics isn't. At a very minimum it helps us sort out the geniuses like F.A. Hayek and Paul Krugman from the charlatans. (Arthur Laffer never won one. Just saying.) It tells us who we should be listening to. We may not be able to apply their work, but they can, and we can trust them because the Committee has certified them.

So here's to you, Professors Banerjee, Duflo and Kremer. Congratulations. Thanks for all your hard work. Now tell me whether we should increase or decrease aid to developing nations. Using very short words, please.

The views expressed in this essay are the author's own.

Economists Shape Our World, And Luckily the Nobel Prize Committee Understands Them | OPINION | Opinion