Nobel 2010

Congratulations to Peter Diamond, Dale Mortensen, and Christopher Pissarides on being joint winners of the 2010 Nobel Prize in Economics.

I am stoked that Peter Diamond won this year – I was quietly rooting for him, especially after all this rubbish argument about whether he could be a Fed governor (of course he could be).  I avoided making him my pick for fear of jinxing him – so I happy 🙂 .  Although I have heard of Mortensen, I’ve never heard of Pissarides before – which is weird because it sounds like their best work was together!  I will make sure I educate myself this weekend.

Economist’s View (*), Paul Krugman, and Econlog have posts up.  Marginal Revolution’s coverage is excellent, with Tyler writing profiles on each of this year’s winners (Diamond, Mortenson, and Pissarides).

This year’s prize is very much a labour market prize – which is definitely topical given the seemingly unending elevated level of unemployment in the United States.  These authors have all done work describing why unemployment may not move back to its “natural rate” following a large shock – implying that we can’t necessarily expect a self-correcting process in the labour market EVEN IF we had fully flexible wages/prices.  It is an important lesson in the current environment – both in terms of trying to understand why unemployment can stay elevated, and IF there are any policies that can help the labour market in such a situation.

If the problem isn’t sticky wages, smashing unions (or even printing money) isn’t going to help us move out of a “bad” equilibrium in the labour market.  And even if you don’t care about the labour market – remember what the flip side is to higher equilibrium unemployment (in this type of situation), lower equilibrium output/income.

I imagine labour economists will be happy with this prize – I expect them to have a drink tonight to celebrate 😉