Posted on 11/30/2011 1:17:05 PM PST by neverdem
Nobel Prize–winning economist Vernon Smith on the financial crisis, Adam Smith’s underrated insights, and his journey from socialist to libertarian
“I remember the ’30s like it was yesterday,” says economist Vernon Smith. And he’s not kidding. In 1935, when the future Nobel Prize winner was 7 years old, his family decamped to their Kansas farm to wait out the hard times. “On the farms,” Smith explains, “you can eat.” His parents only made it to eighth grade, but “they were people who read,” and they expected their son to go to college. They got their wish—and then some.
Smith’s higher education began with remedial work at a local Quaker college (“I was not a good student in high school,” he says) but eventually took him from a Caltech electrical engineering degree to an economics Ph.D. at Harvard. Beginning at Purdue University, and then at the University of Arizona and George Mason University, Smith founded and developed the pioneering field of experimental economics, which studies actual human behavior—a major breakthrough in a discipline obsessed with abstract models. This work culminated in 2002, when Smith was awarded the Nobel Memorial Prize in Economic Sciences “for having established laboratory experiments as a tool in empirical economic analysis, especially in the study of alternative market mechanisms.”
Over that time span, Smith’s political views evolved in tandem with his economic insights. He left behind the socialism he learned at his mother’s knee for a more libertarian outlook. He says “experimental economics destroyed whatever was left in me of the notion that somehow you could do better than to find institutions that organized this decentralized information and create.” Now continuing his lab work at Chapman University, Smith is riding out the second most serious economic crisis of his 84 years in sunny California...
(Excerpt) Read more at reason.com ...
The money is going somewhere and they are doing fine.
Government spending is like heroin. Either get off the addiction and suffer serious withdrawals or continue on and die.
ping to a very interesting article.
bkmrk
Not to mention damn scary....especially for an old engineer who's had enough time with computer simulations to know exactly how easy it is to dictate/fudge/totally FUBAR the results.
"We'll just have to inflate our way out of it." (IIRC)
BRRRRR
We can do all that, reduce spending, etc, but, as Vernon Smith says, we are probably going to have to inflate ourselves out of debt. Obama has crapped in the well, there are no good choices.
“Inflate our way out of it” is not something people on a fixed income want to hear.
Inflating our way out of it is the government expropriating the assets of every American that isn’t part of the Ruling Class. When the value represented by your money shrinks it doesn’t disappear. It goes to government. The government- its agent, the Fderal Reserve- owns all the value of the excess dollars it “prints.” Those dollars do not represent any value brought into existence. They represent the value of assets formerly owned by folks who possessed defined amounts of dollars
Smith: The way I would describe it is: We created new mortgage and financial institutions too fast. No one had an incentive to think it through. Not only were there bad incentives up front with mortgage origination, but those mortgages then would be packaged, mortgage-backed securities issued, and then they were rated and “insured.” But they weren’t collateralized. They were exempt, you see. And exempt meant that they were exempt from the property rights rules that would have applied if derivatives had been classified as securities.
Who is "we"?
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