I am not sure if the Nobel Committee (well, for economics, it is some other committee) did the right thing in awarding the Economics Prize to Sargent. The bulk of the problems that the world faces today with modern capitalism as it has come to evolve in reality started from the works of the troika of Wallace, Sargent and Lucas. They were elegant. But, they were just that – elegant theories – with reality hardly resembling anything that their equations suggested. In fact, even the needless and seemingly sophisticated mathematisation of economics owed a lot to these gentlemen.
That their work came out at the time Reagan and Thatcher assumed offices in the US and in the UK was neither an accident nor a coincidence. Their work provided intellectual cover to the conservative counter-revolution that these two leaders promised their nations, tired of labour unrest and high inflation. Of course, 25-years later, what they began was completed by Wall Street bankers!
In the end, the works of Sargent, Wallace and Lucas were about getting governments to regulate minimally, if at all, leaving everything to the invisible hand of the free-market. Free-market is a chimera just as the utopian, egalitarian outcomes of a benevolent and benign central planner are.
All economic ideology is about the relative power of labour and capital and they keep swinging one way and the other, in cycles. The three-decade sway of capitalists is coming to an end. Three decades from now, workers would finish engaging in excesses and creating crises of their own, just as they did in the Seventies.
The underlying premise that people behave rationally is risible. Neither do they optimise their life-time consumption nor do policymakers act as though members of the public do that. Policymakers behave as though they could fool some people (if not all) all the time.
A Nobel Prize wasted.
This post originally appeared at The Gold Standard.
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