– September 8, 2020
passing

Last Friday, the Swedish economist Assar Lindbeck died at the respectable age of 90. A long life of economic scholarship, teaching, policy advice, and public debate came to an end. Working away at his calling until his death, Lindbeck epitomized everything about a great scholar: perseverance, humility, honesty and integrity. Just a few weeks before he died, he had an article accepted for publication in the European Economic Review

A great and often controversial economist, Lindbeck could very well have been Sweden’s greatest economist in modern times, at least during the second half of the 20th century. He managed to be a good economist who produced many important articles and books, be a leading voice in economic-political matters, and still be respected across the political spectrum and in the media. In a recent interview dedicated to Lindbeck’s life as a scholar and economist, Magnus Henrekson of Stockholm’s Research Institute of Industrial Economics (“IFN,” the Stockholm-based research institute where Lindbeck worked for decades) tells of Lindbeck’s widespread esteem. According to Henrekson, Lindbeck was one of the few people who when writing op-eds for Dagens Nyheter, one of Scandinavia’s largest newspapers, could pick his own title – a favor rarely bestowed to anyone, whether academic or minister in the highest offices of government. 

Lindbeck formed part of the first efforts to establish the Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, a story he recounts in his 2012 memoir Ekonomi är att välja (roughly: “Economics means to choose” or “Economics is about choice”). Per Åsbrink, the then-governor of the Riksbank, was irked to give up the Riksbank’s profits to the government, and sought for a way to spend the surplus. Through a parliamentary decision a few years earlier that celebrated the Riksbank’s 300-year anniversary, the Riksbank could dedicate some part of its profits to a special fund. On Lindbeck’s recommendation, Åsbrink was convinced that the economics profession could settle on a worthy recipient of a prize, and ever since the prize has achieved a status of a true Nobel – and been paid for annually out of the Swedish central bank’s profits. 

While the Prize is always controversial, and some of its recipients – including most noticeably Friedrich Hayek – opposed its existence, Lindbeck cherished its pluralistic approach as it has awarded many different disciplines, research questions, and scientific methods. Lindbeck was part of the first awarding committee in 1969 and was the longest-serving committee member and chair until he retired in the 1990s. Opposition to the prize, sometimes bordering on conspiracy, abounds, but in his memoir Lindbeck rejected such ideas: besides, the committee has often rewarded several different methods and perspectives – often sharing prizes between economists with diametrically opposed views. 

Perhaps becoming publicly loved is out of reach for economists, but Lindbeck at least managed a wide enough respect and recognition that almost everyone knew his name. My father for example, hard pressed to name any Nobel Laureates in economics and prone to yawning when I mention economists that I admire or despise, instantly recognized Lindbeck – and could even mention some of his notable work and public opinions. The level of fame and widespread impact that Lindbeck has had on economic and political matters in his native Sweden is hard to rival.  

His most substantive contribution to the body of economic knowledge is the Insider-Outsider model of labor markets that he developed together with Dennis Snower. In several much-cited publications in the 1980s, Lindbeck and Snower showed that those already employed (and those in labor unions) are uninterested in expanding jobs for those outside the labor market. The negotiation of wages between labor unions and firms – the “insiders” – thus set up barriers and exclude those about to enter the labor market or for some reason have been unable to get a job – the “outsiders.” Labor unions, in other words, are not nice, benevolent constructions looking out for the little guy, but just another privileged interest group advancing the welfare of its members at the expense of outsiders. The model offers an explanation for involuntary unemployment and, like efficiency wages, a rationalization for above-market clearing wages.  

With friends at university, whenever rent control was discussed I used to quip that the well-respected Assar Lindbeck has campaigned against rent control for longer than my conversation partner and I have been alive – combined. Indeed, one of his earliest studies of price formation in property markets was published the year before my mother was born.  

Now that campaigners from Sydney to Berlin call for rents to be frozen – protecting the rental market “insiders” that already have advantageous rental agreements – one of Lindbeck’s most iconic and memorable quotes are called for: 

“Rent control appears to be the most efficient technique presently known to destroy a city—except for bombing.”

In contrast to libertarians and others opposing rent control – endlessly yapping on about the same principles, consequences, and the informational value of market-clearing prices – Lindbeck developed several proposals for how abolishing rent control could actually work. Not only published in obscure academic journals, but in popular press, interviews and policy advice work he put workable policy suggestions before politicians. Realizing, per his insider-outsider model, that abolishing rent control unfairly creates both winners and losers, he suggested that one-time taxes should be levied on property owners who, with market rents, would receive a windfall. Similarly, he favored direct rent reimbursement to low-income households to offset the inevitable rise in rents that a return to market prices would mean. 

In 1992-93 he chaired the ‘Economics Commission’ (quickly dubbed “The Lindbeck Commission”), an emergency panel of economics and political scientists to propose widespread economic reforms to address Sweden’s financial crisis in the early 1990s. To improve sclerotic institutions and outdated policies, the commission delivered 113 economic proposals. Twenty years later, about half of them have actually been enacted, giving testimony to Lindbeck’s importance in public policy and the respect with which competing political forces have held his work. 

Finally, Lindbeck was a ruthlessly honest commentator, entirely devoid of awe for previous achievements and unable to tow a party line. On interesting and substantive topics, he would converse with anyone, and would never hesitate to attack celebrity economists or Nobel Laureates when he thought they were wrong. In his memoirs, he collects some advice for others wanting to follow in his footsteps: 

“I decided early in life not to accept opinions just because many others do. I have always struggled with keeping quiet when I thought public debate had derailed or when unrealistic research frameworks had become generally accepted among my colleagues.”

He gladly told people to speak up and embrace controversy: 

“If you are never controversial, you have probably never said anything genuinely new or interesting.”

At the same time, Lindbeck’s advice to young economists, and to the profession at large, was to maintain a sense of humility to keep yourself from delusions of grandeur. While writing, said Lindbeck, economists really must keep their tongues in check, ensuring that they don’t pompously inflate their own importance or research results.

Lindbeck was a great economist and public voice of economic sanity. He will be sorely missed.

Joakim Book

Joakim Book

Joakim Book is a writer, researcher and editor on all things money, finance and financial history. He holds a masters degree from the University of Oxford and has been a visiting scholar at the American Institute for Economic Research in 2018 and 2019. His work has been featured in the Financial Times, FT Alphaville, Neue Zürcher Zeitung, Svenska Dagbladet, Zero Hedge, The Property Chronicle and many other outlets. He is a regular contributor and co-founder of the Swedish liberty site Cospaia.se, and a frequent writer at CapXNotesOnLiberty, and HumanProgress.org.

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