Sunday, October 24, 2010

Proof They Don't Make Nobel Laureates in Economics Like They Used To

The 1974 Nobel Laureate Friedrich von Hayek wrote a book, The Road to Serfdom, which warned of the dangers of big government. Heroically, the current U.K. government led by  Prime Minister David Cameron is taking a path Hayek would endorse. 

Cameron's government plans to reduce public spending by more than ₤80 billion ($125 billion), saying that without austerity Britain is “looking down the barrel of economic ruin.”

“I don’t underestimate how difficult this will be. But we are doing what we are doing because it is the right thing to do ...right by our economy, right for our country,” Cameron said in a podcast posted Saturday on the 10 Downing St. website.

The U.K. government says the cuts will eliminate the country’s ₤156 billion deficit by 2015. Not exactly what you would call a high-speed Hayekian move, but nevertheless a move in the right direction.

One of the new Nobel Laureates, though, has a problem with the entire direction.

London School of Economics Professor Christopher Pissarides said there was “minimal” risk of Britain experiencing a sovereign debt crisis like the one that brought Greece to the edge of bankruptcy earlier this year--thus ignoring the likley inflationay consequences of the debt should it be monetized.

Prof. Pissarides wrote in the Sunday Mirror newspaper that the government “has exaggerated the sovereign risks that are threatening the country.”

In Keynesian fashion, he said that unemployment was high and job vacancies few, and rapid spending cuts might make the situation worse. He advocated reducing the budget at a slower pace. Curiously, though, Pissarides, at the same time, he has come out in favor of taxing the rich and chides the U.K. government for not doing so. Pissarides writes that the Chancellor of the Exchequer, George Osborne's:

....unwillingness to further tax the well off is inevitably necessitating more cuts to benefits just when the jobless will need them the most.
Bizarrely, Osborne won the Nobel Prize for his economic work, according to the Nobel Committee, that in part showed:
One conclusion is that more generous unemployment benefits give rise to higher unemployment and longer search times.

You really have to wonder how much this latest trio of Nobel Laureate economists are politicos rather than scientists at the core. We already witnessed Peter Diamond sellout on national television. Now, we have Pissarides giving us one pisser of a ride.

He's clearly a Keynesian in favor of deficit spending to "get us out of the recession." Yet, he comes out in favor of taxing the rich? WTF? Then the Nobel Committee cites his work showing that extending and increasing unemployment benefits increases the length of unemployment. Yet, he justifies a tax on the rich so that there will be more funds for the jobless. WTF squared?

Is there any consistency or logic to what these guys think or say?


  1. When Murphy get's done with Krugman, maybe you can set him up and carve this turkey for Thanksgiving.

  2. Prof Pissarides is from the LSE.
    Enuf said.