Home > Uncategorized > Nobel prize and self-righteous Chicago drivel

Nobel prize and self-righteous Chicago drivel

from Lars Syll

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 …

  1. merijnknibbe
    October 9, 2015 at 3:17 pm

    Hmmm. One of the mast basic valuable lessons the beautiful subject of business economics teaches is that paying off a debt is not a cost… but in point 11 he’s right about bankers. And Krugman was right with his prediction of the interest rate, using pretty simple economics. When it comes to his remarks about asset prices, modern economists of course also include the most important asset, i.e. houses.

  2. October 9, 2015 at 4:14 pm

    Point 9 is flatly wrong and a widely held misconception. There is no inter-temporal transfer of costs or value unless we’re talking about concrete things like constructing buildings that the next generation will use or burning the oil that the next generation would like to use.

    Other than that there is no inter-temporal transfer of real-world value. What we have is inter-temporal transfer of *claims* to the output of the future economy. A state pension system transfers these claims as an expectation in the present to tax workers in the future to care for the elderly in the future. A private pension scheme also transfers a claim in the form of shares that are a claim on the profits of firms in the future. In either case the claim travels though time while the actual transfer of value is contemporary in the future. As to whether the claim is sustainable, demographics and productivity matter but the form of the claim (shares or taxes) does not. It only maters politically.

    Those of you who are faculty, do you teach that distinction? Why is this bogus concept of inter-temporal transfers so strong?

    Point 12 is misguided for other reasons (http://wp.me/pnytn-Ci), and the rest are platitudes.

  3. October 9, 2015 at 7:43 pm

    You mean someone actually gives prizes for “studying” and “expounding on” this sort of simplistic BS? If I had handed in something like this in my work for the history PhD I would be PhD-less today.

  4. Dave Raithel
    October 9, 2015 at 8:31 pm

    #6 is so stupid, I skipped the remainder.

    • October 14, 2015 at 11:09 am

      I think 6 is just very poorly worded, though it does fit in with neoliberal ideology — neoliberals say ‘greed is good’ as is profit; critics of that say ‘property is theft’ and profit derives from exploitation. Just ‘semantics’. Game theory says absolutely nothing about how people feel, it just says there are various equilibria of games. I imagine and there are academic papers in the technical literature (too many to count) showing people living in opverty, in prison, or as slaves may be part of an equilibrium solution of a game. It doesnt mean they are happy with it, just that the mathematical conditions for a game to be at that equilibrium solution are satisfied. (If games and math conditions have feelings, maybe they are satisfied).

  5. jure
    October 11, 2015 at 8:58 pm

    ”3. Other people have more information about their abilities, their efforts, and their preferences than you do.” where do you see self righteusness here?? This point summarizes all of free market econ, difference lies precisely in self righteus behaviour, that free marketeers mostly lack. More emotional, leftwing version of this epitaph would be: Power to the people!

  6. assman
    October 12, 2015 at 5:46 am

    Say something is self-righteous is ad-hominem. There is basically no substantive criticism in the original post. As for the comments…

    simplistic b.s. … ad-hominem,
    so stupid …. ad-hominem.

    And finally the only real critique:

    “oint 9 is flatly wrong and a widely held misconception. There is no inter-temporal transfer of costs or value unless we’re talking about concrete things like constructing buildings that the next generation will use or burning the oil that the next generation would like to use.
    Other than that there is no inter-temporal transfer of real-world value. ”

    So basically there is no inter-temporal transfer of real world value as long as we exclude intertemporal transfers of real world value. Great argument! Except that your argument is completely incorrect as long as we exclude those cases where you are correct.

  7. October 13, 2015 at 5:15 am

    When people talk about inter-temporal transfers of value they typically speak of transferring claims, hence the misconception. For example if a state borrows now to build a highway that will last 50 years:

    – Taking out the loan: Creates a claim.
    – Building the highway: Mostly a distributional effect with positive externalities in the present (jobs). Small transfer of real value from the future (non-renewables).
    – Using the highway for 50 years: Large transfer of real value to the future.
    – Paying off the loan: Large distributional effect in the future.

    The correct reading of this is a large net transfer of value to the future. Environmentalists might argue it’s a transfer from the future because they value the resources above the utility of the project, which is fair enough. A conservative economist would look at the loan and say it’s a large transfer of value from the future, which is just wrong.

  8. October 13, 2015 at 5:22 am

    3 and 6 are among the more sensible points. Unintended consequences are a thing, and that’s why well-meaning policies fail. However they’re being used here as a dogma that there shall be no policies, other than market outcomes, which does not follow.

    Asymmetric information and game theory choices are micro effects. The macro environment that sets up these choices is the subject of policy. For example, don’t ask that people should not be garbage pickers, prostitutes, etc. Fix the environment that generates these choices.

    • October 14, 2015 at 11:23 am

      I think the definition you give of intertemporal transfer is strictly correct, but I dont think there is, as a first approximation, harm in using the standard term though it is inacurrate and leads to big problems if one really takes more general and rigorous approaches. (Even a bank account might be better thought of as a ‘claim’ since people never know if the bank will exist when they want the money; stock value more obviously have this problem—one reason why people promote the gold standard (which is nonsense since gold doesnt have any intrinsic value excpet for a few industrial and aesthetic purposes) ; i promote the ‘tulip standard’ since it well known from the Netherlands’ experience (home of spinoza, and g t’hooft) that tulips are the fundamental and invariant unit of value).

      I looked at your web page on the EMH and point 12; i dont really see any inconsistancy between your version and 12. Yours is more thorough.

      (ps i sortuh agree that greece likely should have exited the eurozone though i have also read a few acad emic papers on ‘optimal currency zones’ and optimal size of nations and number of currencies. These did not offer much in the way of policy suggestions since there are too many unknown parameters. )

      I also actually dont have much problem with those 12 points though they are incomplete and of course lack nuance. One could write down maybe all of mathematics, physics, biology, and chemistry in 12 points also and you would end up with similar results. For many people that may be enough but not for say ‘experts’ whatver they are.

      I actually think the whole concept of giving prizes for anything (along with grades or terst scores) is quite suspect. One can follow the debates in physics and medicine about the noble prizes in those fields, and very often the experts in those fields do not agree with the selections. (Part of the problem is 1 or maybe 3 perple get all the credit and cash when many more people were involved. Check out the huistory iof the Noble prize for discovering DNA’s double helix by watson and crick. The prize left some people out, and there are many similar cases). (also the econ noble had quite a few non-neoliberals get it—eg amartya sen).

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