Diagnosis of crisis is more emphasised rather than solution

Forhad Mohammed Masum Whenever the world faces crisis, everybody looks for another Keynes. This is despite the strong denial coming from monetarists. It is almost a biblical truth that John Maynard Keynes gave a great recovery for the world economy from great depression in 1930s. In this perspective, the entire world was curious to see the award of Nobel Prize in economics as the Nobel laureate in economics has been acknowledged as the right person for economic solution since 1969 (the year of introduction of Nobel Prize in economics). Now, the period of anticipation is over and the Nobel committee has announced Nobel Prize winners in the field of economics for year 2011. On October 10, 2011, the prize has been jointly awarded to Thomas Sargent and Christopher A Sims -- two American professors for "their empirical research on cause and effect in the macro economy". The area of their work is the same but they did research separately. Their research, however, deserves critics' attention for its relevance to present economic turmoil all over the world. But they do not provide prescriptions for policymakers to solve today's crises. Rather, their achievement has been to create mathematical models that central bankers and other leaders can use to devise policy proposals. It is also clear from Professor Sargent's statement in an interview on the Nobel website, "We're just bookish types that look at numbers and try to figure out what's going on," Professor Sims said similarly, "I think the methods that I have used and Tom has developed are central to finding our way out of this mess. ... I think they point a way to try to unravel why our serious problems develop, and new research using these methods may help us lead us out of it." As no effective solution has been found yet to bail out from crisis, Sims said truly that he had no sure-fire advice to offer policymakers in the US and Europe: "If I had a simple answer, I would have been spreading it around the world." In this perception, this year's Nobel winners have no similarity to Keynes (fiscalist) or Milton Friedman (monetarist). Rather they are much more nearer to Robert Lucas, the Nobel laureate in 1995, who became famous for his great contribution to "Rational Expectation" doctrine to analyse economic stagflation (stagnation plus inflation) over 1970s. And obviously, for the same reason these two economists: Professor Sargent and Professor Sims, may not be treated as either fiscalist or monetarist. Now, question can be raised, "if there is no solution in their works, why they are so important to Nobel committee?" The answer lies in the reason and nature of the present crisis. The present economic crisis started and become visible around the world, mainly in the USA and Europe, through failure of financial institutions due to lack of implementation of investment fundamentals. Even in the latter part, different stimulated financial stimulus packages, enforced by the government, have been facing failure due to lack of proper diagnosis of crisis. Since no one knows the solution to the bail-out from the present crisis, at least its analysis can facilitate others to find out a solution. From this perspective, the work of two Nobel laureates may be considered as much important. The writer is First Assistant Vice-President, Consumer Finance Department, Bank Asia Limited. He can be reached at email: forhadmohammedmasum@gmail.com