Socialism and the Nobel Committee
Congratulations to Edward Prescott, our hometown hero from Arizona State, who shares this years Nobel Prize in Economics.
Why is it that the Nobel committee gives its highest economics prizes to people who consistently put more intellectual nails in the coffin of socialism, then go out of their way to give the "soft" prizes, such as literature and peace, consistently to communists, socialists, and enablers of totalitarianism?
UPDATE
Marginal Revolution has a good roundup on what exactly this economics prize was won for. I should have been more specific when I said "more intellectual nails in the coffin of socialism". The link explains it better, but one argument against free markets is that recessions are proof of market failure and a "better" system would not have them. Prescott and Kydland, among other things, show how:
Recession may be a purely optimal and in a sense desirable response to natural shocks. The idea is not so counter-intuitive as it may seem. Consider Robinson Crusoe on a desert island (I owe this analogy to Tyler). Every day Crusoe ventures out onto the shoals of his island to fish. One day a terrible storm arises and he sits the day out in his hut - Crusoe is unemployed. Another day he wanders out onto the shoals and finds an especially large school of fish so he works especially long hours that day - Crusoe is enjoying a boom economy. Now add into Crusoe's economy some investment goods, nets for example, that take "time to build." A shock on day one will now exert an influence on the following days even if the shock itself goes away - Crusoe begins making the nets when it rains but in order to finish them he continues the next day when it shines. Thus, Crusoe's fish GDP falls for several days in a row - first because of the shock and then because of his choice to build nets, an optimal response to the shock.
UPDATE #2
This is very timely. Our new Nobel Laureates did a lot of work on short term / long term economic paradoxes. For example, they work a lot with problems such as prescription drug regulation, where people can be made happy in the short term (lower prices) but really unhappy in the long term (via forgone research and therefore fewer new drugs). Interesting given that Kerry/Edwards are advocating just such a short term fix that would lead to long-term disaster. The press made a big deal out of how the Nobel Committee slapped Bush in the face with its Peace Prize to Jimmy Carter. Don't hold your breath waiting for anyone to point this one out.
