The "Nobel Prize in Economics" (it isn't really a Nobel Prize, but a prize in memory of Alfred Nobel) for 2011 was announced this morning, going to Tom Sargent of Hoover and NYU, and Chris Sims of Princeton. To those who have accused the Nobel of being a bit...political (as in, left-leaning), this is anything but. Sims is less outspoken than Sargent, but that's because Sargent is very, very outspoken. For a sense of this, I recommend the interview Sargent did with former Research Director of the Minneapolis Fed, Art Rolnick (and not only because Sargent is nice enough to cite a paper of my own in the course of the interview). The interview has a lot to say about important and current issues in bank regulation, but to get a fast fix, have a look at the section entitled "The 2009 Fiscal Stimulus," which begins on page 32 of the web-posting. Or, for those with a lot more time and energy and some tolerance of math, Sargent's book "The Conquest of American Inflation" (Princeton University Press, 1999) is a small masterpiece that illustrates perfectly what Sargent brings to the intellectual table.
But, if I may, I'd like to see if anyone in Ricochet-land will react to a quote from the Rolnick interview that almost perfectly represents Sargent's methodological mindset. Sargent asks the interviewer (Rolnick) to specify criticisms of the sort of macroeconomics that he (Sargent) pioneered, and Rolnick, in a long list of criticisms, says that "modern macroeconomics makes too much use of sophisticated mathematics to model people and markets." Sargent responds to this particular criticism with "... it is true that modern macroeconomics uses mathematics and statistics to understand behavior in situations where there is uncertainty about how the future will unfold from the past. But a rule of thumb is that the more dynamic, uncertain and ambiguous is the economic environment that you seek to model, the more you are going to have to roll up your sleeves, and learn and use some math. That’s life."
Is that life? Do mathematical models help or hinder our understanding of a world that is increasingly dynamic, uncertain, and ambiguous? (Obviously, I have my own opinion about this, very much aligned with Sargent's. But I'll save the "why" until others weigh in, if anyone does.)