Financial Stability News

News about financial stability and central banking

A Nobel for Freshwater Economics

John Cassidy at the New Yorker magazine has an interesting comment on the recent Nobel Price to Sims and Sargent. In his view, this is a price to freshwater economics at a pretty odd time. The crises showed that two of the basic premises of freshwater economics were wrong:

Unfortunately, in case it needs restating, freshwater economics turned out to be based on two ideas that aren’t true. The first (Fama) is that financial markets are efficient. The second (Lucas/Sargent/Wallace) is that the economy as a whole is a stable and self-correcting mechanism.

In Cassidy’s view, those who opposed this mainstream view and instead focused of the potential  instability of the economy, like Minsky or Kindleberger, should have gotten the price instead, or some of their followers like Leijonhufvud, Davidson or Benassy.

 

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