Nobel prize and self-righteous Chicago drivel

8 October, 2015 at 21:51 | Posted in Economics | 1 Comment

In 2007 Thomas Sargent gave a graduation speech at University of California at Berkeley, giving the grads “a short list of valuable lessons that our beautiful subject teaches”:

1. Many things that are desirable are not feasible.
2. Individuals and communities face trade-offs.
3. Other people have more information about their abilities, their efforts, and their preferences than you do.
4. Everyone responds to incentives, including people you want to help. That is why social safety nets don’t always end up working as intended.
5. There are trade offs between equality and efficiency.
6. In an equilibrium of a game or an economy, people are satisfied with their choices. That is why it is difficult for well meaning outsiders to change things for better or worse.
Lebowski.jpg-610x07. In the future, you too will respond to incentives. That is why there are some promises that you’d like to make but can’t. No one will believe those promises because they know that later it will not be in your interest to deliver. The lesson here is this: before you make a promise, think about whether you will want to keep it if and when your circumstances change. This is how you earn a reputation.
8. Governments and voters respond to incentives too. That is why governments sometimes default on loans and other promises that they have made.
9. It is feasible for one generation to shift costs to subsequent ones. That is what national government debts and the U.S. social security system do (but not the social security system of Singapore).
10. When a government spends, its citizens eventually pay, either today or tomorrow, either through explicit taxes or implicit ones like inflation.
11. Most people want other people to pay for public goods and government transfers (especially transfers to themselves).
12. Because market prices aggregate traders’ information, it is difficult to forecast stock prices and interest rates and exchange rates.

Reading through this list of “valuable lessons” things suddenly fall in place.

This kind of self-righteous neoliberal drivel has again and again been praised and prized. And not only by econ bloggers and right-wing think-tanks.

Out of the seventy five laureates that have been awarded “The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel,” twenty eight have been affiliated to The University of Chicago — that is 37 %. The world is really a small place when it comes to economics …

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  1. If that is what his ‘beautiful subject’ teaches, it is absolutely anti-social and grotesque. Of course most people with any common sense know this is garbage, but I am sorry to say that mainstream economists, including some that will advise Jeremy Corbyn, believe it. I know you can make market failure arguments, and law of diminishing utility arguments etc, but why on earth start of your analysis with a premise like “there is an equity-efficiency tradeoff”? I ask this of Sargent grovelling – mainstream economists: Do you think industrialisation would have happened without a redistribution of power of wealth? Or would have it happened had a feudalistic system been kept intact? Of course it is not the only reason that industrialisation happened, but it is part of the story. Why do you want to start your analysis with this axiom? It is most likely untrue and clutters your analysis, rather than assisting or clarifying it. If there was an equity efficiency tradeoff we would probably still all be cavemen.


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