The Nobel Prize for Economics Is a Farce

Brett Arends writes:

If anyone ever doubted that the Nobel Prize for Economics was a farce, Monday’s announcement of the latest winners should put the matter to rest.

To honor their contributions to the understanding of markets and asset prices, the Nobel committee has awarded prizes to three American economists.

One is the University of Chicago’s Eugene Fama, who says the stock market is rational. The other is Yale’s Robert Shiller, who basically (I exaggerate) says it isn’t. (The third prize went to Fama’s Chicago colleague Lars Peter Hansen, an econometrician).

Fama questions whether “bubbles” exist. Shiller says they are common, and easy to see. Fama said U.S. house prices weren’t in a bubble in 2006, even in retrospect. Shiller warned that they were—even before the crash. (He also correctly warned of a stock-market bubble in the late 1990s).

Fama thinks you should never try to time the market, because future returns are completely unpredictable and stocks will follow a “random walk.”

Shiller says that for most of the past century or more you could have timed the market quite easily.[...]

In other words, the Nobel committee has awarded its prize to the man best known for saying you can’t beat the market, and at the same time to the man best known for saying you can.

I have a simple question for the Nobel committee.

Are you kidding?[...]

Joan Robinson should have lived to see this[...] She noted, one year the Nobel committee would give the prize to a liberal economist like James Tobin, and at other times to a conservative economist like Milton Friedman.

Imagine, she said, the Nobel committee giving the physics prize one year to a physicist who says the Earth is round, and then giving it next year to one who says the Earth is flat.

It’s a farce. By definition, they cannot both be right.