The Blogosphere on the Nobel Prize

As I told my wife last night, I have been very, very pleased with the Nobel winners this year. Although I've done almost no actual work in this field yet (one unpublished conference paper and I'm writing another economic history paper right now using similar ideas), the search and matching approach to labor markets is sort of what I've tied myself to in my personal statement for graduate school. As all the links have suggested, economists have celebrated these guys for years. But this prize cements these ideas as being of more permanent importance. I also think it's pretty cool that I mentioned the prospect of these guys winning on this blog when I didn't see them on anyone else's short list.

So what has the blogosphere said over the last 24 hours? Actually it seems like it's said much less than it did after the 2008 Krugman prize or the 2009 Ostrom and Williamson prize.

Tyler Cowen has by far the most comprehensive coverage I've seen. He has an overview here, a discussion of Diamond here, Mortensen here, and Pissarides here. This is an excellent review by Cowen. He writes:

"This is a prize for the importance of economic heterogeneity and the importance of second-order effects. The cited labor market imperfections cannot be cured by reflating nominal demand, although that policy may be desirable for other reasons. Mortensen and Pissarides have an explicitly Schumpeterian approach and their work represents one version of a "recalculation" argument. (Peter Diamond in contrast does not draw out that aspect of the problem and I think of the three as each a quite different kind of economist.) You can think of Mortensen and Pissarides as providing one reason why private recalculation takes longer than is socially optimal and how this might be fixed. Their work shows how cyclical and structural phenomena operate together and must be analyzed together. In the last twenty years their work on labor markets has been much more influential, and rightly so, than traditional Keynesian approaches. Furthermore their work has dissolved the entire characterization of "Keynes vs. whomever" as out of date. Their work has much influenced my blogging on the recent employment crisis."

Like clock-work, Arnold Kling connects the winners to his recalculation story. I was actually surprised this post didn't go up sooner. I think that's basically right, but that it's much, much more than that. There are differences too, though. Kling's version is usually expressed as an industrial restructuring story - people need to move from one industry to another as the economy changes. Mortensen and Pissarides (and I suppose Diamond - I am less familiar with him) don't really require wholesale restructuring. Even in an economy with a static industrial composition, their search and matching frictions still apply.

Paul Krugman notes the prize winners have specific predictions about the behavior of job creation and job destruction when there is an when there isn't an aggregate demand problem - and what we're seeing now indicates an aggregate demand problem.

Mark Thoma reflects here, Stephen Williamson here, Ed Glaeser here, and Edmund Andrews here.

Let me know if there are any other good discussions of the new laureates!

In the next day or two I hope to get a response from my boss about an idea I pitched about writing a short fact sheet providing an easily accessible explanation of Diamond, Mortensen, and Pissarides's work and connecting these search and matching ideas to the research done at the Urban Institute. A lot of the work we do was either initially inspired by this research or is very relevant to it. So this seemed like a good hook to repackage and promote some of the stuff we've published in the last two years or so and explain this relatively technical literature to the public and to policymakers. I'll let you know if they give the go ahead on that.