Economic ‘Nobel Prize’ for undeserving recipients

This video is called Alfred Nobel: Vision & Public Perception.

From Monthly Review:

12.10.10

Adding Insult to Injury: On the 2010 Bank of Sweden Economics Prize in Memory of Alfred Nobel

by Yanis Varoufakis

Imagine a world ravaged by a plague, and suppose that the year’s Nobel Prize for Medicine is awarded to researchers whose whole career is based on the assumption that plagues are impossible. The world would have been outraged. That is precisely how we should feel about yesterday’s announcement of the recipients of the 2010 Nobel Prize.

The three academic economists, upon whom the 2010 Economics Nobel Prize was just bestowed, are undoubtedly technically accomplished, innovative in the way that they construct their models, and, in fact, rather nice people. But before we give them a pat on the back, and join in their celebrations, let us have a look at the official description of their contribution to society. This is how the Financial Times (11th October 2010) presented the body of work of the three men: Peter Diamond, Dale Mortenson, and Chris Pissarides:

[They] “have made fundamental contributions to understanding how supply and demand are matched when there are transactions or search costs involved. . . . The laureates “search and matching” theories show that it is not enough to have buyers and sellers who can in principle agree on a price; those buyers and sellers must also find each other and decide to enter into a transaction rather than hold out for a better match. Transactions do not happen by themselves but after a search process that can be costly and time-consuming, the research found. This makes it possible for market outcomes to match supply and demand well, inefficiently or not at all. The laureates’ insights have been applied, by themselves and many other researchers, to a wide range of markets, including the housing market, financial products and even marriage choices. But the most important application has been labour markets. Frictions in the matching of workers and jobs mean that labour market outcomes can be inefficient. In particular, the market may produce outcomes in which unemployment persists even if there are workers who would be willing to work at a wage employers would be willing to pay.”

And now for the translation: The three laureates have spent the better part of their careers studying what happens when there are jobs around but the workers who want them cannot find the employers who would like to employ them; and vice versa. On occasion they have narrated cases, using elegant mathematical depictions, like the one in which employer Jack would have happily wanted to hire worker Jill had he known that Jill is, in fact, quite productive but does not hire her because poor Jill has no way of convincing him that she is — e.g. because she is so desperate that she would work for a wage so low that it ‘signals’ to Jack that, to be that desperate, she cannot possibly be as productive a worker as she claims! Lastly, one of them (Mortenson) cut his teeth showing that workers can rationally choose to become unemployed as an ‘investment strategy’: that is, to quit a bad job in search of a better one (an activity that may need to be a full-time endeavor).

Interestingly, these three fine mathematical economists have one thing in common, other than their work on labor markets: in their voluminous theoretical output on unemployment and the like, there is not a smidgeon of a hint, of a mention, of an economic crisis which may boost unemployment in every sector and for all types of workers. Not one!

Thus, the plague parallel above. In 2008, for the first time since 1929, capitalism went into a paroxysm at a grand scale. Millions of people lost their homes, even more lost their jobs, houses remain unsold and workers linger in the no man’s land of redundancy. At a time when even Mr. Bernanke is worried about the widespread impact and inexorable dynamic of unemployment, from the construction industry to the high technology sector, these three economists are rewarded for work on unemployment based on models in which mass unemployment is simply impossible.

How can that be? My simple claim is this: Mainstream economics is the most peculiar of all theoretical failures. Unlike astrology or phrenology, economics becomes more discursively powerful the greater its incapacity to inform us on really existing capitalism.

Well, undeserved as this year’s prize is, it is still not as undeserved as the prize was for Milton Friedman, quack, big business ideologist, fiddler with statistical data, helpmate of Pinochet‘s drug dealing, torturing, murdering dictatorship, and “intellectual” author of the present economic crisis in Iceland and most of the rest of the world.

That really was an insult to the memory of Alfred Nobel, who, though the inventor of dynamite, was a pacifist, unlike quite some recent Peace Prize recipients; and who, though a capitalist, had anti-capitalist ideas.

Bono just managed to hit a new low, proposing we scrap the minimum wage: here.

Recession continues for most Americans, even as Wall Street pay sets new records: here.

Citigroup accused of using recession to get rid of female employees: here.

Billionaire Investor Found Guilty of Fraud and Conspiracy. Peter Lattman, The New York Times News Service: “Raj Rajaratnam, the billionaire investor who once ran one of the world’s largest hedge funds, was found guilty of fraud and conspiracy on Wednesday by a federal jury in Manhattan. He is the most prominent figure convicted in the government’s crackdown on insider trading on Wall Street. Mr. Rajaratnam, who was convicted on all 14 counts, could face as much as 19 and a half years in prison under federal sentencing guidelines, prosecutors said on Wednesday. He will be sentenced on July 29”: here.

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