Why is there the problem of scarcity

Economy - why we have to do business

Nobel Prize Winners: The Stars of Economics

Has the Nobel Prize for Economics existed from the start?

No. The prize was donated by the Swedish Reichsbank in 1968 on the occasion of its 300th anniversary and is officially called the "Swedish Reichsbank Prize for Economics in Memory of Alfred Nobel".

Unlike the other Nobel Prizes, it was not donated by Alfred Nobel (1833–96): 1. the Nobel Prize for physics, 2. for chemistry, 3. for physiology or medicine, 4. for literature and 5. the Nobel Peace Prize. They have been awarded annually since 1901 on the 10th of December, the anniversary of Nobel's death. The selection of the business prize winners, the prize money and the award ceremony correspond to the five "classic" Nobel Prizes. In common parlance, the term "Nobel Prize in Economics" has therefore established itself.

Who received the first Nobel Prize in Economics?

The Norwegian Ragnar Frisch (1895–1973) and the Dutchman Jan Tinbergen (1903–94) shared the prize in 1969. With the help of mathematics and statistics, they had laid the foundations for the quantitative (quantitative) investigation of economic processes. This made economic theories easier to test. The consideration of interactions between different influencing variables made possible z. B. Economic Forecasts.

How much influence do scientists have?

Sometimes very big. This applies e.g. B. for the American Paul A. Samuelson (* 1915), who received the second Nobel Prize in Economics in 1970. Samuelson advised two US presidents, Republican Dwight D. Eisenhower (1953–61) and Democrat John F. Kennedy (1961–63). His theories, which identify him as a main exponent of Keynesianism, were also extremely influential. For some of his fellow Nobel Prize winners, Samuelson is the most important economist of the 20th century.

By the way: Samuelson's connection with the Nobel Prize in Economics goes back to the late 1950s. At that time he discussed arguments for and against the introduction of the price on behalf of the Swedish Reichsbank. However, the subsequent selection of the awardees did not always correspond to his opinion. This even moved him to prepare his own list of the first fifteen Nobel Prize winners. According to his list, Samuelson would not have received the Nobel Prize until eight years later - and would also have had to share it with two other scientists.

How can the state best promote the economy?

If you believe Milton Friedman (* 1912) that the state interferes as little as possible in economic processes.

The American Friedman, who was awarded the Nobel Prize in 1976, developed his theories at a time when Keynesianism was the dominant economics. At that time, state control attempted to control the economy and thereby in particular to prevent unemployment.

In the 1970s, the disadvantages of this economic policy, debt and high inflation rates, became increasingly apparent. Friedman's theory of monetarism was taken up, according to which the state should create the conditions for growth without inflation by a small annual increase in the money supply - and otherwise forego active economic policy. Friedman's ideas have been put into practice increasingly since the 1980s, especially in Great Britain under Margaret Thatcher ("Thatcherism") and in the USA under Ronald Reagan ("Reagonomics").

Despite its success in combating inflation, this policy has been heavily criticized for reducing social benefits and widening the gap between rich and poor. Friedman is not only one of the best-known and most successful economists of the 20th century, but also one of the most controversial.

Through what claim did James Tobin become known?

The American James Tobin (1918 to 2002), who received the Nobel Prize in Economics in 1981, proposed a tax named after him in 1972.

Tobin wanted to make short-term currency speculation unprofitable by means of a low taxation of all foreign currency purchases and sales. This should reduce the exchange rate fluctuations triggered by speculative transactions and thus stabilize the currencies. Opponents of globalization took up the demand for a Tobin tax and often went beyond its inventor in the amount of taxation.

Critics doubt that a Tobin tax could be enforced worldwide. Their introduction would only lead to a shift of speculative activities to "tax havens". They also fear that even a globally applicable Tobin tax could have exactly the opposite effect: If sales were lower overall, individual transactions could be much more significant, which would even increase exchange rate fluctuations.

Are stocks a safe investment?

No, because unlike z. B. a savings book, you are fraught with the risk of exchange rate losses. We owe the fact that the risk of losses can be greatly reduced, not least of all, to the studies by Harry Markowitz (* 1927).

The American received the Nobel Prize in 1990 "for his development of the theory of portfolio selection" together with his compatriots Merton Miller (1923–2000) and William F. Sharpe (* 1934). "Portfolio", derived from the Italian word "portafoglio" ("wallet"; French: "portefeuille"), denotes an investor's entire investment portfolio. The portfolio theory developed by Markowitz states that the speculative risk can be reduced through an efficient and broad diversification of investments in high-risk securities.

By the way: Taken alone, the portfolio theory is only useful for large investors. Because everyone else lacks the financial means to z. B. hold shares in dozens or even hundreds of companies at the same time. It was only with the spread of equity funds, supported not least by Markowitz's theories, that even small investors could benefit from the high return opportunities of the equity market with lower risk - for example for asset accumulation or retirement provision.

Does the free market help with environmental protection?

The British economist Ronald H. Coase (* 1910) claims that. with social costs. This is damage that does not occur to the person who caused it, but affects others or the entire economy. This is why they are also referred to as »external effects«, external effects (from the point of view of the causer).

Examples of social costs are noises and pollutants caused by a factory that do not affect the company, but rather the neighbors (exposure to noise) or the general public (environmental pollution). The so-called Coase theorem states that it is not legal regulations (e.g. bans or emission limit values), but voluntary negotiations between the polluters and the injured party that lead to the economically best solution. This result comes about regardless of whether the injured party has a right to freedom from damage, which the polluter has to "buy" from them, or, conversely, whether they have to negotiate a right to activity from the polluter. This part of the theory in particular is highly controversial.

Is Economy Just A Big Game?

That cannot be said. Nevertheless, the so-called game theory has been an integral part of economics for some time.

For example, it is suitable for analyzing a market with a few large providers (oligopoly). Here every action by a provider ("player") will provoke appropriate countermeasures by the other "players". The consequences of a price reduction or an advertising campaign are therefore less like a math problem - they are more like a strategy game such as B. Compare chess. In 1994 Reinhard Selten (* 1930) was the only German to receive the Nobel Prize, together with the Americans John F. Nash (* 1928) and John C. Harsanyi (1920–2000) »for their fundamental analysis of the equilibrium in a non-cooperative way Game Theory «.

Does a Nobel Prize protect against bankruptcy?

No. The Americans Robert C. Merton (* 1944) and Myron S. Scholes (* 1941), who were jointly awarded the Nobel Prize in 1997, had to experience this.

Together with their compatriot Fisher Black, they both developed the so-called Black-Scholes formula in 1973. It made it possible for the first time to determine the value of an option (the right to buy or sell a security, for example, at a fixed price at a future date) and thus created an important prerequisite for the development of the options market.

But just a few months after the award ceremony, the crash threatened. Merton's hedge fund "Long Term Capital Management" (LTCM), in which Scholes was also involved as a partner, was on the verge of collapse after initial billion-dollar profits. To prevent an international financial crisis, several banks supported the fund with a total of 3.6 billion US dollars in September 1998. Merton then left the hedge fund business.

Is the euro good for us?

If we believe Robert A. Mundell (* 1932), we can be optimistic. The Canadian has been concerned since the early 1960s with the question of when a monetary union could be advantageous for the countries concerned. In the 1970s he worked for the then EC on plans for a common currency. In 1999 - the year the euro was introduced - Mundell received the Nobel Prize "for his analysis of monetary and fiscal policy in various exchange rate systems and for his analysis of optimal currency areas".

What does "attac" mean?

The name of the globalization-critical network attac, founded in 1998, alludes to the Tobin tax. It is an abbreviation for the French "Association pour une taxation des transactions financières pour l'aide aux citoyens", which translates as: Association for the taxation of financial transactions for the benefit of citizens.

Which Nobel Prize Winner's Life became the subject of a film?

The life of the mathematician and (1994 awarded) Nobel laureate in economics John F. Nash 2001: He examined inter alia. the Nash equilibrium, later named after him, in which no one involved ("player") can gain an advantage by unilaterally changing his strategy. "A Beautiful Mind" (leading role: Russell Crowe) was a box-office hit and won four Academy Awards - including in the categories "Best Film" and "Best Director". Nash developed schizophrenia shortly after starting his career.