Euros & Dollars: 16 Economists Disgrace the Nobel Prize

Just in time for the June 17th debate between President Biden and his challenger, former president Trump, a group of 16 economists issued a letter where they passionately line up behind Biden. They make a point out of explaining that they are all Nobel laureates, which normally renders a great deal of public gravitas to whatever they say in public. 

Their purpose, of course, is to sway voters away from Trump and behind Biden. Drawing on their prestigious awards, their ambition is noble—pun intended—but you do not have to look very closely to find deep and troubling flaws in their letter. 

Normally, I would not pay much attention to what Nobel economists have to say. I have articulated my criticism of the prize itself, including the one from 2023 which I found particularly weak. While we are on the subject of the prize: for the record, it is not even a real Nobel prize—it is the Swedish central bank’s prize to the memory of Alfred Nobel. 

The correct title for the 16 economists who threw their prestigious awards into the Biden-Trump debate ring, should not be ‘Nobel economists’ but ‘Nobel memorial economists.’ Let us use that title from hereon (without emphasis).

Their letter, which again entered the world’s most consequential political debate in the world’s most consequential political campaign of this year, was first made public by Axios.com. It opens with a paragraph that reeks of political rhetoric; whatever its origins, it has nothing to do with economic analysis:

For a country like the U.S., which is embedded in deep relationships with other countries, conforming to international norms and having normal and stable relationships with other countries is also an imperative. Donald Trump and the vagaries of his actions and policies threaten this stability and the U.S.’s standing in the world.

Given the brevity of the letter, it is confounding that this crew of highly intelligent people waste so much space talking about something they have no particularly impressive knowledge about. With that said, it goes without saying that the world around us is more violent today than it was with Trump in the White House—we only need to hear the drums of war beating in Ukraine and Gaza to sense the global insecurity that Biden’s presidency has caused.

I would also remind the esteemed sixteen of the rapidly changing global alliance landscape, with a resurgent Russia striking a nuclear alliance with North Korea and BRICS drawing the attention, even membership, of increasingly powerful former and current U.S. allies.

Turning to the field of expertise that brought the 16 economists to Stockholm, Sweden, for their Nobel memorial medals, it is clear that they want to tag Donald Trump with a record of poor economic performance. They are wrong, plain and simple, and Figure 1 has the numbers to prove it. Each column represents the real average GDP growth for one presidential term, with the exception of:

• Trump, which consists of the first three years, 2017-2019;
• The pandemic, which caused an artificial economic shutdown, deserves two years of its own, 2020-2021; and
• Biden, which consists of 2022 and 2023.

The idea of having the pandemic take one year each from Trump and Biden is that the economic slump in 2020 was caused entirely by government fiat. It was not an organic recession. Furthermore, the magnitude of those regulations, especially in the form of lost economic activity, would be impossible in a normal, free, functioning economy. 

For this reason, Trump does not deserve statistical responsibility for the plunge in GDP in 2020, and Biden does not deserve credit for the 2021 reopening, when the artificial economic shutdown was rolled back. 

With the pandemic isolated accordingly, Figure 1 tells us that Donald Trump’s presidential term was the strongest since Bill Clinton’s second term in office. So far, Joe Biden’s term comes in fourth after Trump, Obama II and Bush Jr. I:

Figure 1

Next, our group of 16 Nobel memorial economists set out to define what Biden has done for the U.S. economy:

In his first four years as President, Joe Biden signed into law major investments in the U.S. economy, including in infrastructure, domestic manufacturing, and climate. 

I really don’t want to pick on details, but given that we are dealing with 16 of the most respected practitioners of economics in the whole world, I have to make this point: Joe Biden has not been in office for “his first four years” yet. He was sworn in on January 20th, 2021, which means he has not even been in office for 3.5 years. 

When 16 individuals tout a prestigious recognition of their scholarship as validation of their unsubstantiated criticism of a presidential candidate, then details matter. Or, to be blunt: if these academic achievers cannot even get the length of Biden’s term in office right within half a year, how can we trust them to get more complex points right?

As for the investment in the U.S. economy, the reference here is to the American Rescue Plan Act, signed by President Biden in March 2021. This bill, acronymed ARPA, authorized Congress to spend $1.9 trillion on a wide assortment of programs. 

At this point, you would expect that our Nobel memorial economists had some analysis in their back pockets that they could at least link to—anything to show that Biden’s policies have indeed had the effects they suggest. That backup reference could look something like this:

1. Identify the individual spending programs authorized under ARPA;
2. Document the spend-out rate, i.e., the calendar timing of when the money was spent;
3. Correlate the spend out rates with changes in economic activity, including employment, capital formation, and GDP growth; and
4. Determine that no other variable was responsible for these positive changes to economic activity. 

Unfortunately, we get nothing. Not a single reference, not even an attempt at statistical validation of their statements. 

This means two things, the first of which is that these economists want us to trust them not because they do a good professional job, but because they are Nobel memorial economists. Why else have they not invited colleagues who have not won the award?

Secondly, the lack of any backup whatsoever of their statements solidifies them as political errand runners for the incumbent president. While apparently hoping to be believed because of their laureate status, they move the needle in the very opposite direction.

I do not have to spell out what this means for the integrity of the very prize whose title they rely on to tip the scale in America’s presidential race. In short, this is not the way Nobel laureates—memorial or not—should go about their public appearances. 

But they are not done yet:

Together, these investments are likely to increase productivity and economic growth while lowering long-term inflationary pressures and facilitating the clean energy transition. 

Could these 16 economists be so kind as to specify exactly what parts of ARPA they are referring to? Here are some of the items authorized in that bill:

• Extension of expanded unemployment benefits;
• Direct one-time cash payments to eligible households;
• Expansion of the child tax credit;
• Expansion of the Earned Income Tax Credit;
• Forgiveness of student loans;
• Budget shortfall relief for state and local governments;
• Aid to schools to allow them to ‘safely’ open after the pandemic shutdown;
• Funds to the Federal Emergency Management Agency to distribute COVID vaccines.

Or do the Nobel memorial economists have in mind the $30.5 billion appropriated as revenue compensation for mass transit agencies hurt by COVID restrictions? How about the $15 billion to support an extension of payroll support for airlines? Or is it the $4 billion in debt forgiveness to black farmers?

Not one of the items I have listed here has any positive design to it; not one is aimed at stimulating capital formation or the permanent growth of any economic structure vital to the growth of the American economy. All these programs are designed to preserve the institutional status quo—which reinforces my conundrum regarding the statement by these 16 economists. I simply do not see a path to how they can help “increase productivity and economic growth.” 

And now for the analytical high point in their letter:

There is rightly a worry that Donald Trump will reignite his inflation, with his fiscally irresponsible budgets. 

Let us compare the budget shortfalls under Trump and so far under Biden. For reference, I use Bureau of Economic Analysis data on the federal government’s outlays and revenue, as published under Table 8.3 in the NIPA section. (That is short for “National Income and Product Accounts,” for all you Nobel memorial economists out there.) 

Using the years for each of them as specified in Figure 1—i.e., ignoring the 2020-2021 pandemic—we get the following budget fallouts:

• In 2017, the federal budget deficit was $961.8 billion;
• In 2018, it increased to $1,106.3 billion;
• In 2019, it went up again, reaching $1,250.4 billion.

This means an average of $1,106.2 billion per calendar year under the Trump economy. It is not a very good record; we are many conservative economists who are concerned about Trump’s lax attitude to fiscal matters. 

Turning to Biden, we only have two full years to analyze, but they tell us quite a story:

• In 2022, the budget deficit was $1,001.6 billion;
• In 2023, it exploded to $1,784.5 billion.

With a yearly average of $1,393.1 billion, Biden’s fiscal shortfall is 26% higher than Trump’s. And he is far from done: in the first quarter of 2024, Biden’s federal government spent $396.8 billion more than it got in revenue. If we annualize this, i.e., assume that the budget shortfall would be the same for every quarter of 2024, the total amount for this calendar year would be $1,587.2 billion.

I have three questions for our esteemed memorial economists:

1. With a 26% higher average deficit than Trump, is Biden fiscally more responsible than Trump?
2. Can you please explain why you don’t even mention the 78% rise in Biden’s deficit from 2022 to 2023?

And now for my third question. Interest rates have risen precipitously under Biden. One of many negative effects is a rapid increase in the cost of the federal debt due to the so-called debt rollover effect. 

With your impressive academic records as a platform, could you please explain how Biden is a fiscally more responsible president when, on his watch, the cost of the federal government is now close to exceeding all other items in the federal budget except Social Security?

With this letter, these 16 economists have done themselves a great disservice. They have compromised their professional and scholarly integrity so that they could inject themselves into the most heated, most consequential political campaign in the world. In doing so, they have eroded the credibility of everything else they say and do—which, frankly, is sad. I have personally, in my career, learned a great deal from reading the works of, e.g., George Akerlof, Edmund Phelps, and William Sharpe. 

Going forward, I hope the scholarly work of these 16 economists will not be as casually careless as this pathetic political pamphlet.