Some personal observations on the Prize

by on October 11, 2010 at 9:36 am in Economics | Permalink

This is a prize for the importance of economic heterogeneity and the importance of second-order effects.  The cited labor market imperfections cannot be cured by reflating nominal demand, although that policy may be desirable for other reasons.  Mortensen and Pissarides have an explicitly Schumpeterian approach and their work represents one version of a "recalculation" argument.  (Peter Diamond in contrast does not draw out that aspect of the problem and I think of the three as each a quite different kind of economist.)  You can think of Mortensen and Pissarides as providing one reason why private recalculation takes longer than is socially optimal and how this might be fixed.  Their work shows how cyclical and structural phenomena operate together and must be analyzed together.  In the last twenty years their work on labor markets has been much more influential, and rightly so, than traditional Keynesian approaches.  Furthermore their work has dissolved the entire characterization of "Keynes vs. whomever" as out of date.  Their work has much influenced my blogging on the recent employment crisis.

Mario Rizzo October 11, 2010 at 6:56 am

"Their [Mortensen and Pissarides] work shows how cyclical and structural phenomena operate together and must be analyzed together."

If any readers know which articles do this most explicitly, I'd appreciate the information.

y81 October 11, 2010 at 7:23 am

Is this work (of Pissarides, Mortenson and Diamond) adequately summarized in Prof. Cowen's textbook? If not, is there some other elementary or intermediate textbook which gives a fair and reasonably comprehensive summary? If not, does anyone have a recommendation as to how a person (i.e., me) with an Econ B.A. and a law degree might obtain a fair summary of these theories?

DRDR October 11, 2010 at 7:47 am

y81 — start by looking at the Nobel Prize site's "information for the public" and then its citations http://nobelprize.org/nobel_prizes/economics/laur

Commenterlein October 11, 2010 at 9:12 am

Tyler, I don't have the time right now to say anything substantive, so let me just thank you for the absolutely outstanding posts you made today. On this day this blog is a truly indispensable resource. Thank you!

Momo October 11, 2010 at 9:19 am

Have these economists been influenced by Hayek at one moment or another during their career? I'm impatient to read the comments on the "neighboring blog" which has no reacted yet!

Much more seriously, many thanks for all this stuff, Tyler. I really appreciate that you spend some time providing all this information – irrespective of whether the laureates are in favor of free markets or not, Keynesian or not, Hayekian or not…

josh October 11, 2010 at 9:39 am

How did the world survive for so long without this jargon? Give these men prizes! Lot's of prizes!

CA October 11, 2010 at 12:09 pm

Kieran, do you feel the same way about the Nobel Prize awarded to medicine or physics or is your problem just with academic economists? And a few corrections. First, the award is not a vote on who is the "best economist in the world" duh, that would be completely juvenile. Rather, it is a recognition that the recipients have made a significant enough contribution to economic theory that help us better understand and analyze economic phenomena. Second, the Prize does not represent the preferences of just a "select Scandinavian group". Rather, the committee accepts nominations by other academic economists who yes, do have the sophistication to evaluate whether the recipient's contributions make him/her deserving of the Prize.

Sean October 11, 2010 at 12:23 pm

Kieran, the Nobel Committee organizes pre-prize vetting groups in areas that might merit a future prize to discuss potential recipients. These groups are comprised of leading economists in those areas. While these groups are certainly not immune to academic politics (far from it), leading economists are heavily involved in informing the selection process.

Academic economists get "worked up" during the selection run-up for several reasons. We know some of the candidates personally and it is really cool when one of your friends/colleagues wins such a prestigious award and briefly becomes a household name. We also may work in a field that is under consideration for an award, and an award in your field offers some external validity to what you think is fundamentally important research. More intellectually, we intimately know some of the papers in the running and have professional opinions about what is important and what is less so. I suspect musicians get excited for the Grammies and actors for the Oscars for similar reasons.

Dan in Euroland October 11, 2010 at 12:56 pm

Of course it's prestigious, but for the non-economist, it feels as if the blog deteriorates into a Homecoming Royalty discussion. Meh.
———————

I find your post to be incredibly narcissistic. The prize really is not for laymen or non-economists. Shocking that something doesn't involve you huh?

Meegs October 11, 2010 at 4:12 pm

Krugman just posted the exact opposite. He says the research proves the Keynesian view is correct.

Here's the quote:
"What’s the moral of that paper? It shows that structural unemployment is a real issue, and that the volume of structural unemployment shifts over time. It also shows, however, that short-term movements in unemployment are overwhelmingly the result of overall shocks to demand — in effect, Keynesian business cycles."

CA October 12, 2010 at 6:13 pm

Actually, what I thought was the most Keynesian aspect of the 1994 paper, if I read the math ecorrectly, is the existence of a rigidity in the way the surplus generated by a filled job is split between worker and employer (the parameter β). In essence workers whose skills become less valuable could avoid being seperated from their job by accepting a smaller share of the surplus their employment generates. Yet in the 1994 paper this is not a option (the share is exogenous and fixed). To a was reduced drastically then they would have been able to keep their jobs. In other words skills do not become naturally "obsolete", they do so only in conjuction with a wage that is sticky downwards which Keynes argued is the case. If anyone else has read the paper can they comment on that? Am I reading it correctly?

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