Morning Must-Read: Noah Smith: The Econ Nobel Prize Is Not a Serious Institution

Noah Smith: The Econ Nobel Prize Is Not a Serious Institution:

A lot of people thought it was strange, and a little funny, to see the 2013 Econ Nobel Prize awarded to two people (Gene Fama and Robert Shiller) whose theories contradict each other, and who hold deeply opposing views of the way the world works. But… you can actually see Shiller’s work as building on Fama’s…. The 2004 and 2011 Econ Nobels…. 2004… Ed Prescott… in an email… he very recently wrote…. “It is an established scientific fact that monetary policy has had virtually no effect on output and employment in the U.S. since the formation of the Fed”…. Bond buying [by the Fed], he wrote, “is as effective in bringing prosperity as rain dancing is in bringing rain.” Wow!… Prescott has made some… odd… claims in recent years, but these recent remarks were totally consistent with his prize-winning research…. 2011… Chris Sims… monetary policy does have real effects…. It is not possible to see Sims’ work as an expansion on or a correction to Prescott’s…. It’s as if the Nobel Prize in Physics went to one person who made a theory saying that electricity doesn’t exist, and then seven years later was awarded to a person who took measurements showing that electricity does exist. That seems like it would never happen…

The kicker, of course, is that Prescott does not say “I doubt that monetary policy has had any significant effect” or “it was just coincidence that when Paul Volcker tightened monetary policy in 1979-1982 the economy fell into a deep recession”. He says “it is an established scientific fact”. That shows–to me–an astonishing and extraordinary degree of disconnection from any approximation to reality.