Nobel for Economics: Guess who will win?

Nobel Prize for Economics for 2019 will be announced on October 14, 2019 and three eminent women economists are pitted against each other as possible winners. Who will eventually grab the most prestigious award of our planet remains a big mystery as of now. However all three of them are placed close to each other and their work has made remarkable difference to economies and nations.

The first economist mentioned is a Cuban born American Carmen Reinhart for her work on Public Debt and growth. She is ranked among the top Economist worldwide based on publications and scholarly citations. Reinhart’s main findings suggests that the relationship between government debt and real GDP growth is weak for Debt / GDP ratios below a threshold of 90 percent of GDP. The story is however entirely different for emerging markets, where inflation rises sharply as debt increases. Her paper, Growth in a Time of Debt is widely cited by politicians, commentators, and activists debated extensively about effectiveness of austerity in fiscal policy or debt-burdened nations. Her paper argues that when "Gross External Debt reaches 60 percent of GDP", a country's annual growth declines by two percent, and "for levels of External Debt in excess of 90 percent" GDP growth will be "roughly cut in half."

Reinharts’s conclusions hold so true for India where austerity has been sold on false pretences by governments. We mustn’t forget that terrible things happen once debt exceeds 90 percent of GDP. India’s government debt as a percentage of GDP at 68.4% is 2nd only to Brazil. Many Asian nations like Indonesia, Thailand and China have much lower government debt to GDP ratio.

Several academic critics have accused that Reinhart’s theory suffers from errors and lacks robustness. I feel even if Reinhart has good intentions and her work seems to be relevant for policy makers, coding errors limits the merit to her findings as mere interesting observations.

The 2nd in the race is a French American Development Aid Economist Esther Duflo, the youngest contestant for the Prize. Her research focuses on microeconomics issues in developing countries including household behaviors, education, access to finance, health and policy evaluation.

Duflo believes that "Economics has potential as a lever of action in the world" and she could satisfy academic ambitions while doing "things that mattered". Esther is married to an Indian, Abhijit Banerjee who is a Professor of Economics at MIT. Duflo is considered to be one of the world's best brains for development economics. Her long time collaborator and equally strong researcher is her husband Abhijit Banerjee who invariably gets must less attention, perhaps because he is an Indian. Most of Duflo’s work is with her husband as a prime or secondary scientist. Alleviating poverty has always been more guesswork than science. But Duflo believed that it's possible to know which development efforts help and which hurt -- by testing solutions with randomized trials.

Even if I appreciate Duflo (and her husband) for their smart thinking about the complex issues of poverty, their understanding of power & politics and how it works at different levels in local systems is absent in their analysis. Poverty alleviation will therefore continue to be a guesswork and will remain so always. Duflo’s work may have to mature a bit more and her empirically sound approach need to be tested with larger variables for being the claimant of Nobel Prize in Economics.

This leaves Anne Osborn Kruegar as the 3rd economist mentioned as the possible winner for 2019 Nobel Prize in Economics. Born in 1934, Anne is an American Economist who was the Chief Economist for World Bank between 1982-86. She is currently the Senior Research Professor of international economics at the John Hopkins School of Advanced International Studies in Washington, D.C. With extensive publications on economic development, international trade & finance and economic policy reform, she has published many articles on India and other developing & emerging countries.

Kruegar believes that trade policy & economic development have undergone radical changes after 1950s. During those days, trade policy based on based on `import-substitution.' was considered to be the sine qua non for overall design of policies for economic development. Those views have now undergone complete change and now nations believe that growth prospects for emerging & developing countries are greatly enhanced through an outer-oriented trade regime and fairly uniform incentives (primarily through the exchange rate) for production across exporting and import competing goods. Her paper addresses the changes in thought and policy.

Will her work continue to be relevant in the current time when nations are more influenced by their urge to expand or protect their boundaries and trade barriers have become too fashionable to talk about. Will the “conventional wisdom” come back to influence policy makers once again as “domestic consumption” is being perceived to be the savior for many countries? Will her research continue to guide policy makers in the coming years?

World economy is currently suffering from all round recession for several years which is getting worse each day. As we are not sure about the ways to bail out nations from crippling recession (or deflation), policy makers may take immense interest in the theory of Krueger for a possible solution.

Among the three women laureates for 2019, therefore, most likely winner for Nobel Prize in Economics (and the prize sum of Swedish Croner equivalent to $914,000) is Anne Krueger for her work on International Trade.

Ben Bernake once remarked that “The ultimate purpose of economics, is to understand and promote the enhancement of well-being.” Whoever be the winner on October 14, 2019 eventually, the world should be better place to live in with the help of contributions made by several such economists on our planet.