TL/DR –
The Royal Swedish Academy of Sciences awarded the Nobel Prize in Economics to Daron Acemoglu, Simon Johnson, and James A Robinson for their significant work on how institutions shape economic development. It marks a shift away from free-market economics, emphasizing how institutional frameworks and governance structures affect economic outcomes. The article suggests that the rise of protectionist and interventionist economic policies, particularly in the West, and the erosion of private property rights, have necessitated an increased focus on institutional economics, which justifies greater government intervention in the economy, away from the free-market models previously championed.
The Royal Swedish Academy of Sciences Awards Nobel Prize in Economics
The “groundbreaking” work on the role of institutions in shaping economic development has earned Daron Acemoglu, Simon Johnson, and James A Robinson the Nobel Prize in Economics, decided by The Royal Swedish Academy of Sciences. Their analysis accentuates how inclusive institutions foster economic success, while extractive ones contribute to national failure. The decision mirrors the 2009 Nobel Prize, recognizing Elinor Ostrom and Oliver E Williamson for their significant contributions to economic governance.
Shift in Nobel Selection Criteria
The 2024 prize signifies a move away from free-market economics, emphasizing how institutional frameworks and governance structures impact economic outcomes. The changing geopolitical economy and the constraints the Nobel selection committee faced are major factors in this transition. The aftermath of the 2008 global financial crisis was a major driver for the 2009 decision to award Ostrom and Williamson.
Disruption of Free-Market Beliefs
Market efficiency was largely debunked during the financial upheaval. Alan Greenspan, a key advocate of neoliberal economic thinking, openly admitted during a congressional hearing that his belief in the efficient allocation of resources by markets was erroneous.
The West’s Departure from Free-Market Economics
Today’s geopolitical conditions, such as the rise of China’s state-led and subsidy-fed economy, have prompted the West to drift away from free-market economics and free trade. The US has explicitly departed from free-market principles under President Joe Biden, with policies characterized by significant government intervention.
Impact of Biden’s Economic Policies
Biden’s industrial and trade policies, including heavy subsidies, tax breaks, and protectionism, have fundamentally transformed US economic policy. These changes highlight Biden’s promotion of protectionist trade policies, including maintaining Trump-era tariffs on foreign goods, domestic content requirements, and punitive measures against alleged foreign dumping in US markets.
US Breaks from Free-Market Ideology
In a speech at the Brookings Institution, US National Security Advisor Jake Sullivan attributed the country’s challenges to past economic policies, criticizing “hyperglobalization,” deregulation, and blind faith in market efficiency. Sullivan made it clear that Bidenomics does not rely on free-market ideology, indicating a shift away from the market economy.
Property Rights Undermined
The sanctity of private property was challenged by the West through Russian asset seizure. This move sets a precedent by politicizing economic assets and undermines the principles of market-based economies, affecting the trust that global capital relies on.
Paradoxes of the 21st Century Economics
The US, one of the strongest advocates of free-market economics and free trade, is now implementing protectionist policies at a scale unseen since the 1930s. Meanwhile, China’s Communist Party-led government promotes free trade. By recognizing economists focused on institutions, the Nobel Selection Committee has de facto endorsed the West’s shift towards protectionism and away from liberalization and globalization.
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