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Even though these economists — especially Diamond — are very smart and productive, they and their colleagues have hardly helped the plight of the unemployed, as we stumble ever deeper into depression. FULL ARTICLE by Robert P. Murphy
Never trust a central bank to hand out prizes in economics.
You know, I’m coming to believe that they were making fun of Hayek when they gave him his “Nobel” prize.
Do they pay the “Real” Nobel folks for trademark infringement?
I read the Mortensen/Pissarides paper “Job Creation and Job Destruction in the Theory of Unemployment” and what impressed me most about it was its reliance on price shocks. They would write, “if a price shock happens…” and then describe how the labor market would react. But the reaction of the labor market is kind of obvious to any non-economist. If the price of houses falls, a lot of construction workers will get laid off. What really needed to be explained is the cause of price shocks, which Austrian econ explains well.
The Achilles heel of mainstream is its reliance on shocks to explain everything.
Wait, who was the winner of last year’s Nobel peace prize?
“Whether you want to claim the Nobel is a pat on the back for Keynesianism (as Krugman did), or to claim that it is a kick in the bottom for old-school Keynesianism (as Cowen did), there’s no getting around the fact that these basic insights are at least 15 years old”
You know the committee doesn’t award prizes until after the scholarly work has been shown to stand the test of time, right?
The Nobel Committee completely abdicated its credibility when it awarded a Nobel to President Obama. Who cares? They revealed to the world that, although touting autonomy, it is merely an illusion. They may have had integrity, but no longer. They are nothing but pawns of the globalist elite!
…without understanding why they happen in the first place :S
I find it ironic that the economics prize would be handed out for old work that is little more than confirming what common sense would tell you, while also awarding its Peace Prize last year to a president for something he hadn’t done yet! What gives?
You’ll have to excuse them for not coming up with new insights. After all, everything that needs to be said in economics has already been said by Mises.
Criticizing that they explain something that is or sounds obvious strikes me as odd. Isn’t much of what is explained in this blog about human action and such also obvious to humans? There wouldn’t seem to be any need to explain. But there is, of course, because the only humans that get it all wrong work for the government.
I don’t think their work meant to explain the current labor market so whichever reason the Prize committee had in mind cannot be blamed on the recipients.
It’s hard to take Austrians seriously when they seem so contrarian about everything, seemingly just for the sake of being contrarian. Someone feeling ignored?
Yes, but acknowledging this would go against the spirit of the commentary
“You’ll have to excuse them for not coming up with new insights. After all, everything that needs to be said in economics has already been said by Mises.”
I know you’re attempting to troll, but though not necessarily by Mises, this is true of the Austrians in general…
It was about an article that won the prize, not the theory. The theory is no new at all and those studies were just a version of the theory. What Mr. Murphy tried to say, IMHO, is that their studies did not stop two economic recessions at all, although those were known. And fifteen years is not much in almost any science, and it is very little in a complex science such as economics.
Previous Mises Daily article on the Obama Nobel Prize: Peace and the “Peace Prize”
Come on Austrians. You claim to understand the evils of fractional reserve lending but advocate no just solution unless foreclosure is your idea of justice. So you are against unemployment compensation too? Fine, I can see it is a disincentive to taking just any crappy job EXCEPT there are 5 or so applicants for every job opening. How do you explain that? Oh yeah, I know, minimum wage laws. So while the bankers who caused this mess were bailed out and draw billions in bonuses, you begrudge someone the current minimum wage?
Here’s a solution: Instead of quantitative easing have the government ban fractional reserve lending and then send every American adult (savers and borrowers alike) a nice big fat check of new debt and interest free legal tender fiat.
If you think a deflationary depression is the only way out of this mess then I pity you. Why not let justice guide you? Both savers AND borrowers were cheated by the bankers or do you think all the home foreclosures are the fault of the borrowers? If so, then you don’t understand FRL as well as you think you do.
The solution is obvious, ban FRL and bailout the victims of it. If the Austrian do not see that JUSTICE and PRINCIPLE demand a bailout then I assure you that the pragmatists will eventually see the wisdom of it. And then where will the Austrians be? Doomed to spend another 40 years in the wilderness, imo, and deserving it too.
As for wages being sticky, of course they are since the debt the workers owe is measured in nominal terms and does not go down as the economy contracts. So, the minimum you should demand is mortgage principle cram-downs to the current market prices. Then wages could fall without misery. Or is your solution to evict the unemployed so they can afford cheaper housing?
Ref: Deuteronomy 15, Leviticus 25, “Thou shalt not steal”, Proverbs 6:30-31, etc.
I suggest you guys pay more attention to Moses than Mises.
And also this:
A poor man who oppresses the lowly is like a driving rain which leaves no food. Proverbs 28:3
yes, the wage can only go down so far for the average bloke. a guy has to afford to live.
What austrians really miss is that it is not “stickiness” of wages, wages have been decreasing relative to inflation for decades. It is “price” stickiness due to lack of competitive forces and enormous capital and regulatory barriers to entry. Price is the ultimate solution to any economic problem. Prices decline, product is affordable, people purchase product, further productivity is needed, unemployment declines.
There is no sense “talking story” about free markets when wage is the topic and dismissing the price of product and profit. There must be competition at all levels and it is obvious we haven’t had true price and profit competition in ages.
Great last line.
The same person who is the current sitting President of the United States.
I keep putting out this challenge and yet no one bothers to come up with the response. After 10 years and thousands of people, no one has even had the balls to reply, let alone give an actual answer.
Show me the passage where Jesus hired soldiers to go door to door to threaten people to provide for the poor and I’ll buy into your bullshit view of Christianity.
In the Old Testament, thieves were required to compensate their victims from double to seven-fold of the amount loss. We are not talking about forced charity, we are talking about the return of STOLEN GOODS, purchasing power in the case of savers and stolen property in the case of home owners who were driven into over priced housing (underwater mortgages) because of the government backed counterfeiting cartel and are now being foreclosed on because the bust that the bankers caused has wrecked the economy.
He has told you, O man, what is good;
and what does the LORD require of you
but to do justice,
to love kindness,
and to walk humbly with your God? Micah 6:8
The Jews could have escaped the destruction of Jerusalem and the Babylonian Captivity if they had not reneged on their promise to free their Hebrew debt slaves:
As for Jesus, He unreservedly endorsed the Hebrew Bible.
Quit pretending that Austrians are principled if they can’t see the justice of returning stolen property.
This is a little off-topic, don’t you think?
Minimum wage laws, wage stickiness, even ABCT, none of these alone explain the full extent of any economic circumstance. It’s foolish to think that one’s pet problem (in your case, lack of competition) is the end all be all explanation of an entire economy’s woes.
When Will Bernanke Win The Nobel Prize?
I wonder why they didn’t give the Nobel Prize to Bernanke for his brilliant quantitative easing? Maybe they want to make sure it works first so they don’t look as ridiculous to the public as they do to anyone who knows anything about economic science. But even then it may be difficult to give him all the credit for his work since there is a long line of counterfeiters as his predecessors. Maybe they will let him share the award with the inventor of the game Monopoly.
I’m sympathetic to what you’re saying, but I find myself a little confused. I am very much in favor of the idea of returning stolen property to its rightful owner(s), and I agree that FRL did/does widespread damage and the bailout of the bankers was reprehensible, but I don’t think it’s quite so simple as fixing the problem by bailing out “the victims.”
Who exactly are the victims? Those whose homes were foreclosed upon? One of the biggest difficulties with central banking policies is following the complex distortions that issue out of them. Also, you say both borrowers and savers were cheated, and I agree, but I don’t see how bailing out every potential victim is a solution. Where will that bailout money come from? Practically everything the government does nowadays is financed through deficits and money creation, so any additional bailout schemes must necessarily be primarily furnished by stealing from ourselves (in actuality that’d be the govt stealing from “some” and giving to “others”) and future generations.
I would say that the essence of many a governmental “solution” (usually to a previous government intervention) begets still more problems that lead to more do-gooders bailing out certain members of society at others’ expense. Much better to disband the institution of legal plunder, in my opinion.
If you haven’t read Krugman’s post on the subject, please do it’s a real jewel.
If I wrote something like that in any paper in my university I would get an F. He actually manages to reverse causality, which he probably thinks doesn’t apply to Nobel laureates.
And for the lazy here’s a summary:
He quotes: “…Changes in the level of aggregate demand cause rates of job creation and job destruction to move in opposite directions…”
Then he joyously proclaims: “Overwhelmingly, what we’ve seen is a simultaneous fall in vacancies and rise in unemployment, which tells us that this is an aggregate demand shock.”
Come on people, this is perhaps the most basic and stupid logical fallacy that exists. It is called ‘Affirming the Consequent’ . It is a completely invalid argument.
a. IF the government stimulus worked THEN the economy got better
b. the economy got better
c. Therefore, the government stimulus worked.
Economists sure tend to make this mistake, which I find rather strange because they learn a ton of statistics and should know about correlation, causation, and all that stuff.
I guess this can make sense in some positivist way, if you have a perspective based on Hempel’s view, or some distortion of Popper’s view (in which no affirmations can exist). Bayesian inference is actually the logical choice (in my opinion) for building theories based on actual experience, but then again you’ll be talking about likelihood and not affirmation.
I’m doubtful if Mises would ever do such a blatant logical error, and it makes me wonder what if Kurt Godel where an economist and not a logician.
The graph peaks increase with each recession. It is especially striking for the current recession. What would a superimposed bar graph marking the length of unemployment benefits look like? Have the paid weeks of compensation gradually increased over the years as I suspect?
Unemployed persons taking a lesser job are not condemned to remain there. They can improve their situation later. Minimum wage laws and forced benefits like providing health care will reduce the number of jobs.
Where will that bailout money come from? Practically everything the government does nowadays is financed through deficits and money creation, so any additional bailout schemes must necessarily be primarily furnished by stealing from ourselves (in actuality that’d be the govt stealing from “some” and giving to “others”) and future generations. Stephen Adkins
The bailout money could come from thin air, debt and interest free United States Notes which the government has the sovereign right to issue. There would be no new debt. A sovereign country borrowing money is absurd when it can simply issue it.
Since every adult would receive an equal distribution of the new money then who could complain? Would there be losers? Yes, the wealthy in real terms would be losers because a bailout of the population would reduce wealth disparity even if the rich received an equal amount. Does anyone think the wealth disparity in this country was fairly achieved? Well, it wasn’t to a large extent. Many made fortunes borrowing from the government backed counterfeiting cartel to speculate with. Then let the government redress that injustice with real legal tender.
Much better to disband the institution of legal plunder, in my opinion. Stephen Adkins
When we learn to do capitalism correctly in this country then the state will wither away to a minimum, I’d bet. Meanwhile, shall we freeze in place the current gross injustices? If those who believe in the free market will not address past injustices then we run the risk that those who don’t believe in the free market will seize the moral high ground and implement their system.
i was hardly trying to explain the “the full extent of any economic circumstance”. there have been countless volumes written trying to do that and they are still trying.
simply, noting that “price” is a function of much more than just wage.since the topic was unemployment or at least economimsts who have dealt with unemployment, it certainly is relevant that in an monetary inflationary system in which most wages have failed to keep up with inflation that maybe its time to stop wailing about sticky wages and look somewhere else.
what is foolish is to believe is that sticky wages and especially the minimum wage are responsible for our economic problems. if the minimum wage were such a problem there wouldn’t be ten servers at every burger stand.
Even though these economists — especially Diamond — are very smart and productive, they and their colleagues have hardly helped the plight of the unemployed, as we stumble ever deeper into depression.
Well, that isn’t down to all of them, that’s only down to the ones who only tell the politicians what they want to hear and to the politicians who don’t want to hear anything else. There certainly are economists with concrete ideas in the area, including one Nobel winner:-
- Professor Kim Swales of the University of Strathclyde and his colleagues (in the UK), e.g. with this work; and
- Nobel winner Professor Edmund S. Phelps, McVickar Professor of Political Economy at Columbia University (in the USA), e.g. with this work (and he wrote it up in a book, too).
I myself have done a game theoretic analysis of aspects of these proposals (in Australia – see this and following, or my Henry Tax Review submission). But guess what – neither I nor any of those have got past the gatekeeping in over ten years of trying. Whether that could have worked or not, the attempts to bring things out and getting knocked back show where the blockage is.
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