October 12 2011
A Nobel Prize for Economists Who Undercut Keynesianism
A few weeks ago, girls and women around the world watched the Miss Universe pageant. Probably significantly fewer girls and women around the world took note of this week’s announcement of a different award: the 2011 Nobel Prize in economics. But women (and men) of all ages should pay attention to who won – two economists whose work has led to serious doubt-casting on Keynesian principles.
Thomas J. Sargent of New York University and Stanford University's Hoover Institution and Christopher A. Sims of Princeton University are two supply-side economists, recognized by the Nobel Committee for their research on how people’s expectations affect economic decision-making and the larger economy.
Mr. Sargent’s work in the 1970’s was particularly troublesome for Keynesianism. David R. Henderson explains in the Wall Street Journal:
[Sargent’s] conclusion was at odds with the Keynesian model, which dominated economic thinking from the late 1930s to the early 1970s. The Keynesian model posited a stable trade-off between inflation and unemployment. In 1970, major U.S. econometric models, built on Keynesian assumptions, predicted that the government could get the unemployment rate down to 4% if it accepted an increase in inflation to 4%. In a 1977 article titled "Is Keynesian Economics a Dead End?" Mr. Sargent wrote, "[I]nstead of 4-4, in the mid-1970s we got 9-9, a very improbable occurrence if econometric models of 1969 had been correct."
It should be an encouragement to free-market economists around the globe to see Sargent and Sims recognized.
Until 2009, no woman had ever won Nobel Prize in economics. But then Elinor Ostrom of Indiana University received the award for her analysis of governance of the commons.
IWF is committed to involving more women in the field of economics, even if only by a casual understanding of the current policy landscape in the United States. I’m confident that future years will add more female winners to Ostrom’s ranks, and my hope is that they will be women who support a market free from the fatally conceited ideas of central planning