David R. Henderson is, as usual, much more courteous than I am. He argues that this year’s awards should be construed as “non-Keynesian,” and maybe he’s right.
Yet here was my take:
This year’s Nobel Memorial Prize in Economics goes to two Americans, Thomas Sargent (NYU) and Christopher Sims (Princeton). Officially the award is for “their empirical research on cause and effect in the macroeconomy.”
There is no doubt that these two guys are really sharp, and free-market economists can find a lot to like in much of the work of Sargent in particular. Yet to update what I said of last year’s recipients — who studied labor markets — it’s a bit odd for the economics profession right now to be celebrating two scientists for their work in helping policymakers steer the macroeconomy. It would be a bit like awarding Jonas Salk a Nobel Prize in the midst of history’s second-worst polio epidemic.
We ironically seem to be in the midst of one of the causation-correlation traps that I just explained above. Just about everyone is celebrating the work of Sargent and Sims, in effect saying, “Thank goodness you gave policymakers such guidance, especially when they need it now in the midst of the worst financial crisis since the 1930s! We can only imagine how awful the world economy would be today, were it not for your seminal papers.”
Yet things might well be just the opposite. The “data” is just as consistent with the opposite conclusion, namely that Sargent and Sims steered the macroeconomics profession along a trajectory that led policymakers to do things that blew up the global financial system, such that we are currently worried about the collapse of an entire continent and its currency. What would things have to look like, in order for us to fine all of the most-influential macroeconomists, rather than giving them a $1.5 million award?
I understand that the Nobel (Memorial) committee is in a Catch-22: If they give awards to people working on stuff with relevance to the financial crisis, then I can zing them like I did above. Yet if they gave awards to economists studying, say, auction theory, then I could zing them for caring about such esoteric things in the midst of a global meltdown.
But there’s a solution: What if the Swedish bank (which awards these things, since there aren’t actual Nobel Prizes in economics) just announced, “We’re not giving out any awards until this crisis is resolved”? I think that would be a welcome gesture, like if a big corporation passed up on bonuses for management in a year where they laid off 5,000 factory workers.
Some people might think my lashing out at Nobel laureates is jealousy, but it’s not. It’s self-preservation. Within a few years, we are going to have full-blown riots in this country. Sure, the mobs will go after the politicians, hedge fund managers, and lawyers first. But right now, unless we do some PR damage control real quick, economists are about 6th on the chopping block.