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Nobel Economics Versus Social Democracy

Of the elites who manage modern society, only economists have a Nobel Prize. Whatever the reason for economists’ unique status, the halo conferred by the prize can – and often has – lend credibility to policies that harm the public interest.

OXFORD – Of the elites who manage modern society, only economists have a Nobel Prize, whose latest recipients, Oliver Hart and Bengt Holmström, have just been announced. Whatever the reason for economists’ unique status, the halo conferred by the prize can – and often has – lend credibility to policies that harm the public interest, for example by driving inequality and making financial crises more likely.

But economics does not have the field entirely to itself. A different view of the world guides the allocation of about 30% of GDP – for employment, health care, education, and pensions – in most developed countries. This view about how society should be managed – social democracy – is not only a political orientation; it is also a method of government.

Standard economics assumes that society is driven by self-seeking individuals trading in markets, whose choices scale up to an efficient state via the “invisible hand.” But this doctrine is not well founded in either theory or practice: its premises are unrealistic, the models it supports are inconsistent, and the predictions it produces are often wrong.

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