And the (Economics) Awardsđ Go To...
And the (Economics) Awardsđ Go To...
At the start of 2021, everyone was talking about award season! Oscar Who? Emmy what? Actually, maybe people werenât really talking about those awards since so few people watched them. Everyone in my social circle has been talking about an even more important lifetime achievement award. Thatâs right, this past week weâve seen a lot of news coverage on the three economists who earned the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel. That doesnât quite roll off the tongue the way it should, does it? Itâs such a mouthful that we usually just call it the Nobel Prize in Economics.
Letâs get it out of the way no: no, itâs not a ârealâ Nobel Prize. Itâs a prize in economic sciences in memory of the man the Nobel prize was named after. Thatâs close enough if you ask me! Recent winners of the prize have done some incredible work and have been incredibly influential in improving the credibility of economics as a science. One day I would love to teach a course on the Economics Nobel Laureates, but until then Iâll write you a newsletter on the three newest members:
There are a number of informal betting pools each year on who will win the prize, and these three were heavily favored by many. This wasnât too surprising because these three (or some combination that included one of these three) have had their names brought up for years already. This issue will provide a brief rundown of each personâs contributions to the field of economics. These awards are lifetime achievement awards so a lot of the work they became famous for comes from the 1990s. Decades of researchers since then have built on this work or used this work to expand the field even further. If youâre not really into the economic research behind their wins, Iâve also includable a fun anecdote about each one.
David Card (UC Berkeley)
If you read the announcement carefully, you may have picked up on the fact that half of the Nobel prize was awarded to David Card and the other half was split between Angrist and Imbens. Card (along with Alan Krueger) produced one of the most revolutionary papers in economics with their 1994 publication on minimum wage. They looked at a 1992 minimum wage increase in New Jersey and studied how employment changed compared to border counties in Pennsylvania, which didnât see an increase in its minimum wage. They found no statistically significant change in restaurant employment following the minimum wage increase. This may not seem all that surprising today, but it rocked the field when it was published in the 1990s. Today, the evidence seems more credible than it did 30 years ago, but many economists are still concerned that a $15 minimum wage would be too big of an increase.
This is the credibility argument of the award this year. Unlike in a field like medicine, itâs hard for economists to actually run large experiments. We canât randomly assign some people to a low wage and others to a higher wage. It is possible, however, to study more ânatural experimentsâ where policies seem to randomly impact some people but not others. Economists can take the tools of medical sciences and apply them to our social science. In addition to Cardâs breakthrough paper, he also has leading publications in immigration, education, gender gaps, and inequality.
One issue with Cardâs work (based on an interview he gave in 2006) is that he felt people focused too much on the results and not enough on the methods of finding those results. The goal of the Card & Krueger paper was not to prove that minimum wage was a good thing, but rather that the field could be more scientific. Itâs hard not to focus on the results given how important the topics are to the vast majority of people.
Fun anecdote: UC Berkeley awards their Nobel faculty members with a prized parking spot, but Card rides a bike to campus.
Joshua Angrist (MIT)
That idea of natural experiments was pretty cool, right? The other two winners earned their share of the prize for their work on developing the mathematical way economists approach nature experiments. Angrist and Imbens both built their careers on studying how to accurately measure and test the effects of these natural experiments and other quasi-experimental methods. Angrist (and Imbens) spent the majority of their careers figuring out ways to prove causality when previous work was largely based on correlations.
Similar to David Card, Angrist used enhanced empirical methods related to quasi-experimental events and applied those methods to study issues in education and health. One of my favorite papers from Josh Angrist looks at how military service impacts lifetime earnings. One of the problems of studying the impact of education (and migration or joining a union) is that people generally volunteer to do those things. Itâs completely possible that the activity, like a college degree, military service, moving, or union membership, has no effect on earnings. Instead, itâs possible that the types of people who are willing to do these things have some innate ability that would have generated these returns without ever taking the action.
This is where the credibility revolution can be really helpful. One of Angristâs famous papers looked at the Vietnam draft as a way of measuring the impact of military service since inscription is based on a lottery. Using data from the Social Security Administration, Angrist found that military service decreased lifetime earnings by around 15% for white veterans relative nonveterans. Alan Krueger would work with Angrist on a follow-up paper and look at how higher education impacts earnings by using the same Vietnam lottery data. By looking at data where people were randomly assigned military service, rather than looking at people who chose to join the military, Angrist could better isolate the causal impact of military service on earnings.
Fun anecdote: Angrist teamed up with Marginal Revolution University to produce a series of educational videos to help students master econometrics.
Guido Imbens (Stanford University)
Much of Imbens work is in line with that of Angrist, but Imbens work is more specific on the econometrics/statistics side of the story while Angrist tended to have more of an impact on applying their work to specific topics. Econometrics (sometimes just called metrics) is the statistical side of economics research that helps economists come to the âfinal number.â Imbensâ top-cited paper is on how instrumental variables can be used to identify causal relationships. Broadly speaking, an instrumental variable is a third variable that can be used to disentangle two variables that are closely linked to one another. Assuming two variables are causal ignores how omitted variables may actually be the underlying cause.
The goal of instrumental variables is to find a third variable that is closely related to one of the two variables, but not the other. If you ever hear economists joking about rainfall, itâs likely they are trying to make a joke about instrumental variables. Imbensâ work is more on the technical side of the field and doesnât lend itself to an easy explanation along the lines of a principles course. Thanks to Stanford, you can actually hear Guido Imbens explain his work to his own children. Iâll defer to the Nobel Laureate on this one:
Fun anecdote: Josh Angrist was Imbensâ best man at his wedding to another superstar economist, Susan Athey.
A Final Acknowledgement
While itâs no real surprise that this particular trio of economists earned this yearâs prize, there is one notable person missing that links all three of these men together. Unfortunately, this missing link will never win a Nobel Prize. The Nobel Prize is almost never awarded posthumously, but itâs clear by this yearâs winners that Alan Kruegerâs work was worthy of a Nobel Prize. Krueger worked closely with Card and Angrist on a number of important papers and even worked with Imbens on occasion, but he passed away in 2019. This yearâs prize is another reminder that the economics profession lost a giant too soon.
The Swedish title of the prize is Sveriges riksbanks pris i ekonomisk vetenskap till Alfred Nobels minne [Nobel Foundation]
A total of 36 winners have been affiliated with Harvard University, the most of any other university in the world [Wikipedia]
As of this yearâs awards, 89 individuals have been awarded prizes in economic sciences [Nobel Foundation]
Approximately 40% of the research published in NBER Working Papers is based on quasi-experimental methods [Currie, Kleven, & Zweirs, 2020]
Week #41 is finished and Iâve checked in a total of 60 books so far this year. In addition to How the Word Is Passed, I also finished Kristen Hannahâs newest book The Four Winds. The book is set during the Dust Bowl and follows a family from the Texas panhandle to California in search of work. Iâve always found Hannahâs books to be really captivating and this one was no different. If you like historical fiction and would like something that isnât based on WWII, then this would be a good choice!