The Breakdown

Explaining Southern California's economy

Econ 474: Will a University of Southern California professor win the Nobel Prize in economics?

UPDATE: I had a conversation with KPCC's Brian Watt about this, and while talking about "saltwater" (East Coast) and "freshwater" (Chicago School, free market) economists, it occurred to me that Easterlin could create a whole new school, should he win. He's in California, he studies happiness. Therefore, he's a "sunshine" economist! Just sayin'...

You've probably noticed that Nobel Prizes are being announced this week. There's even been a minor Nobel controversy, as one of this year's winners for medicine, Ralph Steinman, was actually dead before the Nobel committee made its announcement. They weren't aware of his death, however, so the award, normally given only to living persons, stands.

The economics winner is still to be announced. As you might expect, there's been some handicapping. Reuters has a list of possible winners. So does Olaf Storbeck, who writes a great blog called Economics Intelligence

Olaf and Reuters intersect on one name, Anne Krueger, whose work on rent-seeking behavior, according to Storbeck, is highly regarded and not particularly controversial. Also, she's a woman. Laureates in economics have been named since 1969, but only one woman, Elinor Ostrom, has previously won, in 2009, and she shared the award with a male economist.

"Rent-seeking" is a term that Krueger coined in 1974 and that relates to an economic idea that some participants in capitalists and pre-capitalists systems try to set things up so that they can benefit not from expanding the supply of wealth through productive activity — such as by starting Google, creating the iPhone, building the Model T, or inventing the horse-drawn plow— but by profiting by leasing access to property, money, and so on. 

In our current era, the rentiers are the creditors and those they rent to are debtors. So, you know…banks...that issue mortgages to, um…people...who...can't afford to pay them. Except that those people are compelled to pay anyway. Or they get foreclosed. And then the rentiers find someone new to put in debt to buy the house.

I'm exaggerating, but that's exactly why Krueger's work on rent-seeking now seems very contemporary. To put it in terms of Occupy Wall Street or Occupy LA, the rentiers are the 1%. And the rest? We are the 99%.

Another candidate that Storbeck names is Richard Easterlin (in fact, he calls him his favorite). An Easterlin win would be a big deal for Southern California because…Richard Easterlin is an economics professor at USC

He's also a pioneer of a relatively new type of economics, focused on happiness. He's known for the "Easterlin Paradox," which has been summarized as follows:

  1. Within a society, rich people tend to be much happier than poor people.
  2. But, rich societies tend not to be happier than poor societies (or not by much).
  3. As countries get richer, they do not get happier.

If economics often sounds like something that happens in the brains of aliens from deep space, then Easterlin may be your guy. As Stoebeck puts it:

A prize for Easterlin would be a prize for an unorthodox approach in economics. From the perspective of the committee, this can be used as an argument in favour of him as well as an argument against him. If the committee wants to make the point that economists deal with topics that ordinary humans can understand, Easterlin would be a good choice.

Follow Matthew DeBord and the DeBord Report on Twitter.

Photo: Getty Images/AFP

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