By William K. Black
(Cross posted at Benzinga.com)
Raj Chetty has written an op ed in the New York Times designed to counter the abuse the Sveriges Riksbank (Sweden’s central bank) rightly received for its latest embarrassment. Economics does not have a true Nobel Prize, so a central bank decided to create a near-beer variant. The central bankers have frequently made a hash of it, often awarding economists who got it disastrously wrong and inflicted policies that caused immense suffering. This year, not for the first time, the central bankers decided to hedge their bets – awarding their prize to economists who contradict each other (Eugene Fama and Robert Shiller). The hedge strategy might be thought to ensure that the central bank’s prize winners were right at least half the time (which would be an improvement over the central bankers’ batting average in their awards), but that is a logical error. It is perfectly possible for both of the prize winners to be wrong. I’ll explain why I think that is the case in a future article.