Nobel Prize Irrelevancy?

For years when I was chief economics writer at BusinessWeek, I would write our post-Nobel piece.  I was often one of the few people who would challenge the adulation of the prize winners, notably in this 2005 piece on the Nobel in game theory.

But today’s awards to Tom Sargent and Chris Sims simply leaves me stunned.  Let me give you a brief excerpt:

“It is not an exaggeration to say that both Sargent’s and Sims’ methods are used daily … in all central banks that I know of in the developed world and at several finance departments too,” Nobel committee member Torsten Persson told the AP.

I’m not sure why this is supposed to be a good thing.  None of the central banks foresaw the financial crisis, none of them foresaw the weakness of the recovery, and none of them had the right policy prescriptions.  This lack of ability to predict big shocks and their aftermath is a central flaw of the Sargent-Sims approach.  Sargent is well known for his work on rational expectations, which has a tough time with ‘irrational’ booms and busts. And Sims’s work on ‘vector autoregressions’ has a difficult time anticipating sudden shifts in regime, such as the shift from the Great Moderation to the today’s incredible volatility.

I would have much preferred to see the awards going to a growth economist, like Paul Romer; an expert in financial markets, like Reinhart and Rogoff; or an international economics expert.  While I’m sure Sargent and Sims deserve their award, the timing makes the economics profession feel out of touch and irrelevant.

About Michael Mandel 127 Articles

Michael Mandel was BusinessWeek's chief economist from 1989-2009, where he helped direct the magazine's coverage of the domestic and global economies.

Since joining BusinessWeek in 1989, he has received multiple awards for his work, including being honored as one of the 100 top U.S. business journalists of the 20th century for his coverage of the New Economy. In 2006 Mandel was named "Best Economic Journalist" by the World Leadership Forum.

Mandel is the author of several books, including Rational Exuberance, The Coming Internet Depression, and The High Risk Society.

Mandel holds a Ph.D. in economics from Harvard University.

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