What he can do instead is “describe the culture in which credit is given.” For the Nobel prize does not only work as a canonization device. It also aims at establishing a genealogy of heros that fits the concerns of the days. In this perspective, “reading” and/ or “interpreting” this year’s prize is less straightforward that many have argued.
First, what the award actually is for is unclear. Is it aimed at highlighting the empirical nature of economics, and at advancing the idea that “it’s best to look at data first” as Noah Smith rejoices? Does the method developed by Sims in particular reflect some pragmatism in the testing of economic theories or does it sells empirical validation off? Some believe that structural macroeconometrics and VAR made economics more “realistic,” while other complain that they had been instrumental in moving economics toward pretentious scientism.
Or, maybe the Nobel committee rewarded the proper identification of “causes and effects in the macroeconomy” as the prize citation suggests. But what does this blurry, yet ambitious sentence target? The proper specification of models, their empirical implementation or the evaluation of monetary policies? Alternatively, we could infer from the first sentence of the prize announcement that, at bottom, “this years’s prize is about expectations.” And “expectations” remains pretty large a wording. Is the prize focused on the “rational expectations” many commentators hold responsible for the present state (of economics and of the economy)? Or are Sargent and Sims praised for their lifelong battle to pin down expectations, whether rational or formed within the boundaries of agents’ limited abilities to process information ( Sims’ later idea of “rational inattention”), or based on unduly pessimistic pictures of economic relations (Sargent’s rational control)?
Finally, the politics of the prize should be assessed. Although some claim that the prize may shift the balance between some communities of economists (for instance between keynesians and non-keynesians, a division Sims thinks is irrelevant), most commentators however avoid pigeonholing and insist that the tools developed by Sargent and Sims are widely used by researchers of all stripes)
All in all, the prize committee doesn’t seem to have a clear idea of what they want to reward. No wonder, then, that they chose not to make the situation even more complicated by explaining that the recipients’ aims, methods and goals were not clear cut either. The “historical context” offered in the presentation of Sargent and Sims’ contributions is thin as an oscar winning actress’s leg: macroeconomics was about the estimation of large linear keynesian models, which had failed to account for stagflation in the early 70s. Friedman, Lucas and Phelps had tried to incorporate expectations in macro models, but, alas, it was then methodologically impossible to analyze the effect of exogeneous shocks and of two-sides relationships. Then Sargent and Sims came and rebuilt macroeconometrics. No mention is made of some references on the history of macroeconomics, microfoundations, DGSE, etc… (by Kevin Hoover and/ or fellow blogger Pedro Duarte among many others). No attention is paid to the book published by Esther Sent on Sargent or her more recent paper on the subject. In these, she explains how and why Sargent worked with several definitions of rational expectations across time. She shows how, back in the late sixties, his initial intention to establish symmetry between agents econometricians led him to study the term structure of interest rates and, in the process, aroused his interest in expectations. As he moved to recent econometric techniques, his rational agents were expected to fit VAR predictions. As the eighties unfolded, the incorporation of general equilibrium features into Sargent’s framework brought about more theoretical definitions of rational expectations, understood all agents are able to solve the same optimum problem using the same technique (symmetry within groups of individuals). Unable to explain errors terms and how economic policies were actually used, Sargent later explored models with agents displaying various kinds of bounded rationality, some of which were nevertheless convergent toward RE.
Would Sargent’s archivement be belittled, would the prize be weakened, was the committee to draw attention to such historical narratives? I guess not. These are stories of researchers willing to try various paths, face criticisms and skepticism, work to make several strands of research consistent with one another until their vision of essential economic feature becomes warranted by data (or until the vision itself is altered). These are stories of scientific endeavor being genuinely incarnated. Stories that give little more clue of where economic science stands or is going than coffee grounds.
EDIT: Or, you can make economics more incarnated that way.
