Why are economists so hated?

The global financial crisis, and the resulting decline in the world’s view of economists who were blamed for contributing to it, has taken the gloss off the once contentious task of predicting the annual Nobel Prize in Economic Sciences.

This year’s award will be announced on Monday night (NZ time) and the economics blogs are strangely quiet on the outcome, which in recent years has rewarded worthy but obscure academics instead of the usual heavyweight suspects.

Thompson Reuters jumped into the fray with its Nobel predictions in mid-September and nothing much has happened since then.

Some, such as the economics professors at Lawrence University in Wisconsin, are picking high profilers Paul Romer and William Baumol.

But Thomson Reuters has picked four contenders: Steven Ross (MIT Sloan) for arbitrage pricing theory; Robert Schiller (Yale) for work on market volatility asset price dynamics; and Sir Anthony Atkinson (Oxford) and Angus Deaton (Princeton) for their work on income and savings, poverty and health, consumption, and well-being.

UPDATE: Matchmakers win Nobel economics prize

The mess they’re in
Whichever way it goes, American economists, or ones working there, have a lock-hold on the 10 million Swedish krona prize (about $US1.5 million), which last year went to two macro-economists.

Some economists, however, are not afraid of engaging in the political arena, even if it won’t win them any prizes.

The most high-powered consortium of them I’ve seen under one byline recently has produced a devastating analysis of the US debt crisis.

The authors include Allan Meltzer, who coined the phrase, "Capitalism without failure is like religion without sin. It doesn't work.”

Another is John B Taylor, who has been mentioned as a Nobel contender and is creator of the “Taylor rule,” which central banks have used to set interest rates.

Better known to New Zealanders is George Shultz, secretary of state under President Reagan. The others are Michael Boskin and John Cogan, who like their co-authors are senior fellows at the Hoover Institution.

Their article, "The Magnitude of the Mess we’re in,” delivers on its promise. It outlines the US debt situation, the burden of future interest payments, the dangers of printing money in vast volumes and the crippling effect on US savers.

It concludes:

Before long, all the government will be able to do is finance the debt and pay pension and medical benefits. This spending will crowd out all other necessary government functions.

What does this spending and debt mean in the long run if it is not controlled? One result will be ever-higher income and payroll taxes on all taxpayers that will reach over 80% at the top and 70% for many middle-income working couples.

Those who think the New Zealand dollar should be debased by similar policies need to read this article and then hope US voters take notice, before it’s too late.

Politics lures tycoons
Successful businesspeople always have a yen that their achievement is a good entrée into the world of politics.

Local examples, such as Conservative party founder Colin Craig or wannabe Owen Glenn, are a long way from challenging John Key’s credentials.

Mitt Romney is as good as it gets, though his record at Bain Capital is not seen as politically advantageous as his governorship of Massachussetts.

Eastern Europe has thrown up a few examples, such as the oligarch who is about to lead Georgia and was featured in last week’s column.

In Austria, a Canadian car spare part billionaire has returned to his home to launch a political party, Team Stronach for Austria, at the age of 80.

Frank Stronach has already garnered a 10% public opinion poll following at a time when right-wing politicians have become notorious for populist policies that recall the rise of fascism in the 1930s.

But according to a Spiegel profile, Stronach has avoided anti-immigrant and economic nationalist rhetoric but is sceptical about the euro. Instead, he favours a “dictatorship of the industrious.”

His interest in politics comes after selling out of his company, Magna International, which came close to buying General Motors’ European subsidiary Opel a few years ago, and being a major shareholder in Steyr-Daimler-Puch, an Austrian manufacturing conglomerate that was broken up in 2001.

Stronach is aiming to make his mark in the Austrian elections next year.

Taxing the rich
As with Romney, envy and tax evasion are the main accusations from Stronach’s political enemies. He lives as a tax exile in Switzerland, where it is becoming more expensive for the rich to pay their fair dues.

Under pressure from left-wing locals (yes, there are a few) and debt-stricken neighbouring countries, Swiss politicians are under pressure not to be so lenient on wealthy foreigners.

This has involved reaching tax deals with Germany, Austria and the UK that allow holders of secret bank accounts to preserve anonymity in exchange for a tax on future income and a levy of up to 41% on existing assets.

Efforts by leftwingers to hold a referendum to overturn these deals as being too soft failed to gain enough signatures.

Other measures to tax the rich involve raising the rate based on five times the value of the annual rental of a residence to seven times, while the rate for those living in hotels will rise to three times the cost of their room, up from two times.

A minimum threshold to qualify for this special tax system is also being introduced at 400,000 Swiss francs ($520,000).

Some reports say hundreds of billions of francs are expected to leave the country as a result, much of it to wealth-friendly Singapore.

Readers may recall a call for New Zealand to admit some of these richlisters through an annual payment in lieu of tax. It still looks like a good idea. Much better than raising compliance costs by adding car parking to the fringe benefits tax.