Thomas J. Sargent and Christopher A. Sims have won this year’s Noble Prize in Economics. What does this mean? Why does the WSJ and many “conservatives” (current Republicans) consider economic ideas (low taxes on the wealthy, less government aide for the unemployed and vulnerable) with these two? “ It would be a provocative thesis — if it were true. But Mr. Sims and Mr. Sargent say their work is being misread. “ Why do the two winners say the Republicans have it wrong and that Obama and Bernanke have it right?
As written in New York Times
Good Morning. You’re Nobel Laureates
By JEFF SOMMER
Published: December 3, 2011
And yet, in this time of economic angst, with the fate of the euro and the course of the global economy uncertain, these two Americans have reached the pinnacle of a profession that, to many, seems to have failed miserably. The financial crisis of 2008-09, the Great Recession, the debt mess in Europe — few economists saw all of it coming. For all its elegance, modern macroeconomics seemed to provide little help when the world needed it most.
During the Great Depression, John Maynard Keynes held out remedies. His ideas have shaped many policy makers’ thinking ever since. Keynes maintained that market economies are inherently unstable and, if left to their own devices, can self-destruct. Hence governments, he argued, must sometimes intervene.
Mr. Sims and Mr. Sargent neither prescribe cures nor forecast the future. Nor do they deal in the sound bites of talking heads on cable TV. They are reluctant celebrities, men whose work can baffle even Ph.D.’s.
So it comes as a surprise, not least to Mr. Sims and Mr. Sargent, that these two now find themselves thrust into an uncomfortable spotlight. Conservative voices, like the editorial page of The Wall Street Journal, have claimed them as their own. The men’s work on economic cause and effect and the theory of rational expectations — which maintains that people use all the information available in making economic decisions — proves that Keynes had it wrong, these commentators say.
It would be a provocative thesis — if it were true. But Mr. Sims and Mr. Sargent say their work is being misread. Both, in fact, are longtime Democrats who maintain that government can, and should, play a role in economic affairs. They stand behind many recent policies of the Obama administration and the Federal Reserve. They even have some ideas about how European governments might defuse the running crisis on the Continent.
Their work goes beyond old labels like Keynesianism and the monetarism ofMilton Friedman. They have shown that fiscal and monetary policy are inextricably linked, and their research reflects the broad shift in economics from words to numbers — toward a level of empirical analysis that few outside the profession can readily grasp
As written in New York Times
Good Morning. You’re Nobel Laureates
By JEFF SOMMER
Published: December 3, 2011