Assar Lindbeck Passes On

 Assar Lindbeck died on Aug. 28 at the age of 90, probably the most influential Swedish economist of the latter part of the 20th century.  He was the main driving force behind getting the Swedish central bank at the end of the 1960s to establish the Sveriges Riksbank Award in Economic Sciences in Memory of Alfred Nobel, a.k.a., the "Nobel Prize in Economics" (I get increasingly tired of the usual retreads who every fall remind us when the media refers to it by the second name that it "really" should be called by the official first name; we all know this by now). He was a professor at Stockholm University, longtime director of the International Institute for Economic Affairs, and in 1992-93 chaired the "Lindeck Commission," which laid out policy proposal for scaling back the Swedish welfare state, many of which were adopted after 1994.

In terms of his own contributions to economic thought beyond the matters noted above, I note that he wrote influential articles about insider-outsider labor market models, rent control (he was against it), and also on how an extensive welfare state system may lead workers to become shirkers, with this argument in particular playing into the recommendations of the Lindbeck Commission, which led to reducing health leaves and related matters in the Swedish system, although it remains among the most generous in the world, although now not as large as those in Denmark, France, Finland, and Belgium, to name a few.  Sweden is now the "liberal welfare state," not the largest or most extensive as it was in its heyday under Prime Minister Olof Palme before he was assassinated.

Certainly one can debate whether Sweden needed to scale back somewhat, and maybe it did.  After performing very well on multiple criteria from low poverty through low unemployment and inflation and low budget deficits for many decades, the Swedish model sort of went off the rails in the late 1980s, leading to serious macroeconomic crisis in the early 1990s, which was the immediate trigger for the government adopting the kinds of proposals Lindbeck advocated. It has performed better since, doing better than most European nations during the Great Recession, with having stayed out of the Eurozone probably helping, as well as using a very expansive monetary policy with negative interest rates, none of this particularly part of Lindbeck's agenda or suggestions.

I shall further note that it has long been argued that Lindbeck's motive for pushing for creating the Prize was indeed ultimately driven by internal Swedish politics and a desire to support the kinds of reforms he ultimately managed to get accepted in the 1990s.  Crucial in this was not just that he got the Prize established, but he became by all accounts the dominant force on the selection committee until the mid-1990s. about the time his recommended reforms were accepted, stepping down after an outbreak of controversy associated with the first game theory award for Nash, Harsanyi, and Selten.  More generally, it was observed, that with an occasional exception, the prizes tended to favor advocates of neoclassical orthodoxy, with this viewed as supporting the kinds of policy arguments Lindbeck favored in Sweden.

There are some oddities I shall recount based on gossip from primary sources I have heard.from.  So when I went to his Wikipedia page to double check on details of his career, it claimed that the award for James Buchanan in particular in 1986 was especially important for him as part of this general ideological agenda. Maybe, but I have heard otherwise.  Indeed, what I heard a long time ago, sometime before that award was made, from a primary source, was that Lindbeck had claimed at one point that there were two people who would get the Prize "over my dead body."  One was Joan Robinson, still alive when that remark was made, and indeed she never got it.  The other was James Buchanan.  So, assuming my source heard right, the award for Buchanan was not the result of some longstanding plot by Lindbeck to give it to him as part of his general plot to classically liberalize Swedish policy. Something came up, and from what I have heard from other sources (I used to have good sources on that famous committee, but no longer) was that it was the large budget deficits being run by the Reagan administration, which Lindbeck disapproved of and saw as roiling international financial markets, with the upward surge of the USD to 1985 driven by high interest rates creating havoc in Europe.  At the time Buchanan was pushing for a balanced-budget amendment to the US Constitution, basically a silly idea. But supposedly Lindbeck saw that as a way to send a message to the Reagan administration of disapproval for their high budget deficit policies, and this overcame whatever it was that had previously made Lindbeck so negative on Buchanan.

I have mixed feelings about Lindbeck ansd his recored and influence, but I shall wish him an RIP.

Addendum (9/1): Some might argue that Lindbeck's influence may be seen at least indirectly in recent policies in Sweden during the pandemic that have not been very successful.

Barkley Rosser