Posted on 10/10/2011 7:46:42 AM PDT by Zionist Conspirator
The Royal Swedish Academy of Sciences has decided to award The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel for 2011 to
Thomas J. Sargent New York University, New York, NY, USA
and
Christopher A. Sims Princeton University, Princeton, NJ, USA
"for their empirical research on cause and effect in the macroeconomy"
(Excerpt) Read more at nobelprize.org ...
The AP article here:
Americans Sargent, Sims win Nobel economics prize
says:
Americans Thomas Sargent and Christopher Sims won the Nobel economics prize on Monday for research that sheds light on the cause-and-effect relationship between the economy and policy instruments such as interest rates and government spending.
Sargent and Sims — both 68 — carried out their research independently in the 1970s and '80s, but it is highly relevant today as world governments and central banks seek ways to steer their economies away from another recession.
The Royal Swedish Academy of Sciences said the winners have developed methods for answering questions such as how economic growth and inflation are affected by a temporary increase in the interest rate or a tax cut.
I did find a book by Sargent on Amazon.com, but it's a textbook costing nearly $80.00. I also found a book by Sims, but it's out of print.
The one thing I found is that their models address the deficiencies in the "Keynesian model", which is the one favored by the left. But, I don't know if it's a wholesale replacement, or just some "fine tuning".
I have a degree in Economics and you don’t have to have a degree to figure this out. Many people don’t know that Keynes wasn’t even an economist.
Both Christopher Sims and Thomas Sargent investigated the thorny problems of identifying cause and effect when dealing with macroeconomic time series variables that are highly correlated with each other. This joint award can be thought of as the second in its line of research, the joint award to Clive Granger and Robert Engle being the first, and the latest in a series of awards for contribution to statistical analysis.
But, neither Sims’ nor Sargent’s contributions were predominantly in statistical analysis. Sargent and Sims developed aspects of the rational expectations revolution in economics. This challenged the dominant Keynesian economics insofar as Keynesians, to simplify their argument, think markets can be repeatedly fooled by policy makers. For examples, that workers can be fooled by inflation into accepting employment at lower wages and therefore that inflation can be used to lower the unemployment rate. In this regard, Sims and Sargent built on the work of Milton Friedman and Edmund Phelps and others.
In addition, both Sims and Sargent contributed to the fiscal basis of monetary policy and of inflation (in which line of investigation, Sargent is often associated with Neil Wallace, who might be said to be this year’s unnamed co-contributor). Basically, while Keynesians suppose that monetary and fiscal policy are two distinct policies, enabling the government to simultaneously pursue two goals, namely, price stability and low unemployment), Sims and Sargent investigated the conditions under which fiscal policy is all that matters. These conditions involve continuing high deficits, which make some form of default inevitable.
The sudden interest in their line of inquiry into continuing high deficits, and the relevance of the contributions of Sims and Sargent of some forty years ago, is precisely due to the continuing high deficits of the U.S., and the austerity budgets adopted first in the U.K. and now in Portugal and being urged upon certain countries on the periphery of the Eurozone by Germany among others.
The dominance of fiscal over monetary policy might seem to restore old-fashioned Keynesian policy, but; no, not exactly. Keynesianism, an increasing number of economists are saying, presupposes a solvent government and a currency whose purchasing power is well-anchored, which gives the government certain but limited policy options to deal with problems such as recession. The contrasting viewpoint, best associated with Paul Krugman, is that the Keynesian model is essentially linear, so that no deficit, no matter high big, is ever to worry about and if an apparently large deficit doesn’t actually succeed in stimulating an economy, it is because it is not large enough.
Thank you
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