Sunday, December 11, 2011

Nobel Prize political rhetoric

From a recent story in NYT about the recent Nobel Prize winners:
Mr. Sims and Mr. Sargent "now find themselves thrust into an uncomfortable spotlight. Conservative voices, like the editorial page of The Wall Street Journal, have claimed them as their own. The men’s work on economic cause and effect and the theory of rational expectations — which maintains that people use all the information available in making economic decisions — proves that Keynes had it wrong, these commentators say.
It would be a provocative thesis — if it were true. But Mr. Sims and Mr. Sargent say their work is being misread. Both, in fact, are longtime Democrats who maintain that government can, and should, play a role in economic affairs. They stand behind many recent policies of the Obama administration and the Federal Reserve."
In fact, Keynes with his "animal instincts" had it right. Investors are ruled by their passions and observations of what others are doing. If others are getting rich by investing in sub-prime mortgage bonds, then many will follow suit and there you have a bubble bound to break.
The story in the Wall Street Journal is a good example of how the media shapes policy by lies.

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