SWEDEN: At a news conference on Monday, the members of the Royal Swedish Academy of Sciences announced the winners of the Nobel Prize for Economics 2022, which comprises a trio of American economists including former Federal Reserve chief Ben Bernanke, Douglas Diamond, and Philip Dybvig.
Bernanke received the accolade for his great contribution to the field of economics—laying the foundation stone of the world’s banking crisis management during the turbulent times of the pandemic or the Great Recession of 2008.
Diamond and Dybvig won for their research on how regulating the financial sector and propping up failing banks can stave off an even deeper economic crisis, such as the Great Depression of the 1930s.
The Swedish Academy said in announcing this year’s prize winners: “The actions taken by central banks and financial regulators around the world in confronting two recent major crises—the Great Recession and the economic downturn that was generated by the COVID-19 pandemic—were in large part motivated by the laureates’ research.”
In 2008 and 2009, several governments bailed out banks, attracting a wave of criticism as ordinary customers with a working-class wage suffered the terrible consequences, many losing their homes.
Meanwhile, banks were able to bounce back, despite being key perpetrators of these widespread troubles. But society on the collective level benefited, the laureate’s research suggests.
Even though these bailouts have problems, … they could actually be good for society, “Diamond told a news conference with the Swedish Academy, arguing that preventing the collapse of a financial firm like Lehman Brothers would have made the crisis less severe.”
Ironically, Bernanke was the head of the U.S. Federal Reserve during Lehman’s collapse in 2008, which became the catalyst for one of the world’s most severe financial turmoil since the 1930s.
At the time, Bernanke justified Lehman’s collapse by arguing that the company was beyond repair and the only viable option was to let the bank fail so that the government’s financial resources could be used to prevent wider systemic failures.
The trio’s main research is focused on banks and how they recuperate during severe durations of financial crisis and how banking failures can amplify a crisis to a higher degree.
“An important finding in their research is why avoiding bank collapses is vital,” the academy added. “Their analyses have been of great practical importance in regulating financial markets and dealing with financial crises.”
The trio includes legendary figures such as Paul Krugman and Milton Friedman, previous winners of the accolade. The majority of previous laureates have been from the United States.
In 2019, the award was shared by another trio, the married duo of Indian-born American economist Abhijit Banerjee and his wife Esther Duflo, along with Michael Kremer, “for their experimental approach to alleviating global poverty”.
The economics prize belongs to one of the six fundamental categories for which the revered Nobel Prize was established, including Literature, Chemistry, Physics, Physiology or Medicine, and Peace.
Like the other Nobel Laureates this year, the trio will receive the iconic Nobel gold medal and 10 million Swedish kronas or crowns ($883,954).
The Nobel Prize was inaugurated by the industrialist and dynamite inventor, Alfred Nobel, as a token of recognition and gratitude for extraordinary contributions to the evolution and progress of humankind.
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