Three Americans are sharing the just announced Nobel Prize for Economics: George A. Akerlof, professor of economics at the University of California at Berkeley; A. Michael Spence, an economist and former dean of the Stanford Business School; and Joseph E. Stiglitz, professor of economics at Columbia University. In announcing the winners, the Royal Swedish Academy of Sciences said "their work transformed the way economists think about the functioning of markets."

Their theories incorporated 'imperfect information' into economics, a concept at odds with the neoclassical economics' credo that markets are all-knowing and self-correcting. I want to point out that financier George Soros is potentially deserving a Nobel Prize as well as he has added the 'gambling casino' component to the working of financial markets.

George Akerlof has been recognized for his research that borrows from sociology, psychology, anthropology and other fields to determine economic influences and outcomes. In discounting the work of our powerful neoclassical economists, Akerlof has stated "just as traditional French cooking does not use seaweed or raw fish, so neoclassical models do not make assumptions derived from psychology, anthropology, or sociology. I disagree with any rules that limit the nature of the ingredients in economic models."

Michael Spence discovered that under certain conditions well-informed players can improve their market outcome by 'signaling' their private information to those who know less. He is now in private business and reaps the rewards of his discovery as he sits on the boards of Nike, General Mills, and Siebel Systems.

Joseph Stiglitz is a singular character as he decided to resign as chief economist of the World Bank rather than serve the flawed and selfish interest of this bank. He has been a vocal critic of the World Bank's policies and he could not contain his embarrassment as this bank would give loans under a world wide common policy which included slashed governmental budgets and high interest rates. And it is interesting to note that just few days ago Stiglitz criticized Bush's tax cuts to stimulate the economy. Here we have a country under shock, with so many people out of work, and president Bush offers a tax cut package to stimulate the economy. Anyhow, Stiglitz admires the Chinese incremental and non ideological approach to their market economy. He says that the Chinese had the wisdom to "know they didn't know what they were doing." In contrast, the Russians have tended towards a more radical reform guided by American prophets armed with clean neoclassical textbook models. He says that the Russians have learned the hard way to appreciate the old saying: "It's not so much what you don't know that can hurt you-but what you know that ain't so."

We compliment all the Nobel Prize winners, but mostly we want to recognize Joseph Stiglitz for bringing intelligent common sense to the science of economics.

References

Nobel honors work on information's role in economics, David A. Sylvester, Mercury News October 11, 2001 http://www.siliconvalley.com/docs/news/depth/nobel101101.htm

3 Americans Awarded Nobel for Economics, by Louis Uchitelle, New York Times, October 11, 2001 http://www.nytimes.com/2001/10/11/business/11ECON.html?ex=1003464000&en=9d163284abca76aa&ei=5040&partner=MOREOVER

Interview with George Soros. He is a billionaire and philanthropist and Chairman of Soros Fund Management LCC. PBS Frontline, Spring 1999 http://www.pbs.org/wgbh/pages/frontline/shows/crash/interviews/soros.html

UC Berkeley Professor Shares 2001 Nobel Prize in Economics, University's Second Win In a Row, ATTENTION: National editors, October 10, 2001 http://www.ascribe.org/cgi-bin/spew4th.pl?fname=2001-10/20011010.130553&time=13:22+Pacific+Time&year=2001&public=1

Stanford Business School's A. Michael Spence Wins Nobel Prize in Economics http://library.northernlight.com/FD20011010920000106.html?cb=0&dx=1006&sc=0#doc

WHITHER REFORM? (Excerpts), by Joseph Stiglitz http://econc10.bu.edu/economic_systems/Theory/Transition/joseph_stiglitz.htm