Over the weekend, the Royal Swedish Academy of Sciences awarded the Nobel Prize for Economics to Thomas Sargent and Christopher Sims – and in the process, the may have sent a message to President Obama and would be “stimulators” everywhere.
Now, as Tyler Cowen tells the Wall Street Journal on Sargent, “it is a mistake to view his work through the lens of politics,” and he’s right. Don’t expect Sargent or Sims on a campaign trail near you. However, in terms of policy, this is a very big deal. As I’ve mentioned before, Sargent was a pioneer in post-Keynesian economics (or, if you prefer Cowen’s phrase, “non-Keynesian”). The supposed consensus on economic policy that dominated Washington from 1940 to 2008 was demolished in academia back in the 1970s. For Sargent to be honored for his work just as Washington’s Democrats are trying the old Keynesian formula again is – or at least should be – something to give American pause. If anything, Sims, whose work is far more technical but essentially an assault on all economic modeling, has been even more damning of the Keynesian outlook on economics.
Contrary to popular belief, the biggest obstacle to reducing the size and scope of government has been the old, crusted consensus among economists of both parties and factions that government spending is necessary to grow the economy. In recent years, that debate has finally reached the political realm (this is the real reason the two parties can’t agree on anything these days; for the first time in decades, the Republicans are actually getting decent economic advice). No one did more to crack and crush that consensus than Sargent, and he has earned the honor he has received (Sims, too), but the timing of the award may have – or should have – more impact than the award itself.
Cross-posted to Virginia Virtucon