Posted by: jkirkby8712 | October 12, 2011

Monday, 10th October 2011 – that Nobel Prize in Economics.

Last week on these pages, we made reference to the 2011 Noble Prize winners, but there was one award carried over until today [not sure why] – that was the Nobel Prize for Economics, of some degree of interest to myself following my studies of that area many years ago at Melbourne University. This year’s award was shared, and the following media reports explain the outcome and reasons: –

Two former University of Minnesota professors won the Nobel Prize Monday for their research on economic policy, according to a Star Tribune article.   Thomas Sargent and Christopher Sims – both of whom were members of the University’s Department of Economics in the 70’s and 80’s – received the award for work that explored how people respond to changes in economic policy such as inflation and increased interest rates.  In the article, University President Eric Kaler is quoted as saying the pair’s achievements have shown the “worldwide impact” of the work done by the University’s economics program.  The Star Tribune reported that in this time of financial difficulty for the U.S., their work could be key to discovering a “way out of this mess.”    Sargent and Sims — both 68 — carried out their research independently in the 1970s and `80s. But it is highly relevant today as world governments and central banks seek ways to steer their economies away from another recession. Both men taught in the University of Minnesota’s Economics Department in the 1970s and 1980s

“It is not an exaggeration to say that both Sargent’s and Sims’ methods are used daily … in all central banks that I know of in the developed world and at several finance departments too,” Nobel committee member Torsten Persson told the AP.  The Royal Swedish Academy of Sciences said the winners have developed methods for answering questions such as how growth and inflation are affected by a temporary increase in the interest rate or a tax cut. “Today, the methods developed by Sargent and Sims are essential tools in macroeconomic analysis,” the academy said in its citation The winners developed models to measure the sometimes surprising ways that people respond to changes in economic policy.  “People form their own ideas about what’s going to happen independently of what the economists say is going to happen,” said David Warsh, who writes the blog Economic Principles.  Warsh gave a simple example of the kinds of things Simms and Sargent shed light on: Suppose a government imposes a tax on corn to raise more money. Consumers might confound the government’s plan by substituting wheat for corn — and causing tax revenue to drop instead of rise.  The winners’ use of complicated economic models usually keeps them a step or two removed from the pressing economic and political issues of the day. But Warsh says they contributed to the models being used now to determine whether governments should be cutting deficits or spending more money to lift the economy out of its rut’.

On a different note, I was interested in the comment by the National Senior’s organisation that  issues that affect older Australians, affect all Australians. This is the key message which is to be emphasised as a part of the new National Seniors marketing campaign, which aims to raise awareness of the important advocacy work performed by National Seniors on behalf of its members. National Seniors are calling on the government to act on a range of issues including aged care, age discrimination, superannuation and the cost of living.  Eventually, all of us are going to be affected by these issues, either personally or through family, and it is a useful note to keep in mind – when older members of the community raise such matters, they are issues they may in the long term be things we all have to face.

 

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