The Nobels

Today, the Royal Swedish Academy of Sciences announced that it will award the 2004 Nobel Memorial Prize in Economics to Finn E. Kydland and Edward C. Prescott. Kydland and Prescott have made some fascinating and important contributions to macroeconomics over the past quarter century. They are often referred to as founding fathers of the Real Business Cycle school of macroeconomics. Earlier schools of thought had held that the economy grows at some underlying steady rate and that it was the macroeconomist’s job to make sense of fluctuations around this rate. Real Business Cycle theorists, however, reject the “underlying rate of growth” argument and instead claim that it is impossible to separate economic growth from economic fluctuations. In 1986, Prescott wrote: “The policy implication of this research is that costly efforts at stabilization are likely to be counter-productive. Economic fluctuations are optimal responses to uncertainty in the rate of technological progress.” In other words, policy makers should leave the economy alone and resist the temptation to “manage” economic growth. When politicians tinker with the economy, they create more problems than they solve. In an election season rife with rhetoric about stimulating the economy, it would be nice if someone paid attention to these insights.
Without question, Kydland (age 60) and Prescott (63) deserve their prizes. Still, as the Nobel cannot be awarded posthumously, it is disappointing to see that the Academy passed over some older and equally deserving scholars such as Armen Alchian (90), Thomas Schelling (83) and Gordon Tullock (82).
On a personal note, as an Arizona State alum, I am particularly proud that my school attracted Edward Prescott (though not before I graduated). Furthermore, I should disclose that as a current graduate student at George Mason, I am taking a class from Professor Tullock. (I have little reason to think the octogenarian will be surfing the web, so rest assured, I do not lavish praise in hopes of a higher grade!)

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4 Replies to “The Nobels”

  1. Fear not Mr Mitchell, I have a feeling that the economics profession will be surprisingly resilient: remember, I have money on the matter!

  2. Matt: careful with your links, you do yourself a dis-service!
    “Graduate Students of Gordon Tullock: Tullock’s work has influenced thousands of students in Political Economy, but to my knowledge he does not have any graduate students of note.”

  3. You want to know what the ‘real shock’ is? The ‘real shock’ is that these guys actually believe that money doesn’t matter! If Eddie is so sure that money is trivial, why doesn’t he just recommend that the Minneapolis Fed start printing money like it was toilet paper? Speaking of inflation, what is the value of a Nobel Prize these days? My God, is the Bank of Sweden run by the same people who ran President Ford’s Federal Reserve?

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