Hayek and Hurwicz

Leonid Hurwicz (along with Roger Myerson and Eric Maskin) have been named the 2007 Nobel Prize winners in economics for their foundational work in mechanism design theory.

Mechanism design theory ---- which seeks to find rules of the game so that the institutional structure operating under those rules will produce social optimum ---- was a by-product of Hayek's informational and incentive challenge to socialism and market socialism in the 1930s and 1940s.  Mathematical economists who took Hayek's challenge seriously set off on the path to provide the appropriate mechanism design that would meet Hayek's challenge.

Koopmans to Hurwicz to Stiglitz, etc.  Mirowski's Machine Dreams is a very useful source to understand this trajectory of economic science in the post-WWII period.

So while in many ways this sort of work has fallen out of favor in economics in recent years, it is still foundational for so many of the presuppositions that many economists hold dearly concerning existence, stability, and welfare comparisons.  In other words, while the effort might not have high professional returns, to me a very worthy research project for younger Austrians would be demonstrating the flaws in the research program of mechanism design theory and to demonstrate competently that arguments in the end fail to actually meet Hayek's challenge and Kirzner's elaboration.  Esteban Thomsen's Prices and Knowledge was a good start, but much more can be (and must be) said on this subject.

However, this years prize does reinforce two things:

1. the prize is a lagging not leading indicator for work in economic science;

2. the pervasive influence of Hayek's ideas in 20th century economics. 

I have offered this conjecture before for refutation and will do so again --- Hayek has received more citations from Nobel Prize winners as either (a) the reason they did research along the path that was recognized, or (b) that in the later years they have come to appreciate his questions and analysis more than any other economist, than any other Nobel Prize winner.  His work has proved fundamental to not only Buchanan, Coase, North, and Smith, but also Lucas, Phelps, and Stiglitz.  Add Hurwicz to that list, and don't forget Koopmans from 1975.

Anyway, congratulations to the winners and their universities --- Chicago grabbed up another one with Myerson, GMU remains at 2.  As they often say in Cubs land, however, there is always next year!

Comments

[MOix]

I can clearly see your disgust with these new economic theories. Stop bitching. Start questioning your free market dogmatism from time to time, ok? These economists didnt get their Nobel prize for nothing.

[Peter Boettke]

Well, you have completely misunderstood what I write so perhaps we should find a way to talk rather than accuse one another of things that don't lead us anywhere except to an inability to understand one another.

[John]

Dr. Boettke,

You are far too charitable in trying to understand MOix. He doesn't even know why these men won the Nobel Prize let alone understand why they undertook the task that won them the prize or the implications of the theory being wrong...or right.

Perhaps MOix could tell a know-nothing like me why I'm wrong about him (if I am) and do me the pleasure of explaining the "thing" that won these guys the Nobel, the Austrian ideas behind what drive the research and why it answers Hayek's challenge from over 60 years ago (if it even does).

Otherwise, MOix can go back to dailyKos or some other silly blog and tell his BS anti-market drivel to receptive people who equal him in mental density and economic fantasy...not to mention narrow-mindedness. Oh the irony of so many modern liberals. I can't believe I used to be one.

[Ludwig]

Pete
You said this Nobel Prize illustrates the fact that it is a lagging rather than a leading indicator and that can be interpreted as a rather denigrating remark. I think it is actually a leading indicator. Hayek´s Nobel Prize also illustrates this point.
Also technical, mathematical economics is hard work, often harder than the "merely" literary, verbal economics. So yes these economists surely deserve the Nobel Prize.

[Inquisitor]

Good post Dr Boettke. Idiots like MOix do not deserve to be addressed, even.