Adding insult to injury

Awarding the 2010 Nobel Prize in (Neoclassical) Economics to Peter Diamond, Dale Mortenson, and Chris Pissarides is adding insult to injury.

According to Yanis Varoufakis [ht: sf], the winners “are undoubtedly technically accomplished, innovative in the way that they construct their models, and, in fact, rather nice people.” However, there’s nothing in their extensive publications that makes sense of the current widespread unemployment.

The three laureates have spent the better part of their careers studying what happens when there are jobs around but the workers who want them cannot find the employers who would like to employ them; and vice versa.  On occasion they have narrated cases, using elegant mathematical depictions, like the one in which employer Jack would have happily wanted to hire worker Jill had he known that Jill is, in fact, quite productive but does not hire her because poor Jill has no way of convincing him that she is — e.g. because she is so desperate that she would work for a wage so low that it ‘signals’ to Jack that, to be that desperate, she cannot possibly be as productive a worker as she claims!  Lastly, one of them (Mortenson) cut his teeth showing that workers can rationally choose to become unemployed as an ‘investment strategy’: that is, to quit a bad job in search of a better one (an activity that may need to be a full-time endeavor).Interestingly, these three fine mathematical economists have one thing in common, other than their work on labor markets: in their voluminous theoretical output on unemployment and the like, there is not a smidgeon of a hint, of a mention, of an economic crisis which may boost unemployment in every sector and for all types of workers.  Not one!

Unfortunately, it’s exactly what one expects of a Nobel Prize in Neoclassical Unemployment Economics: a recognition of market frictions and lots of modeling of search and matching costs, and absolutely no understanding of the possibility of capitalist crises and widespread unemployment.