Hey, I ‘m not making this up! The 2010 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel (aka, Nobel Prize in Economics) was awarded for realizing that the real world, wait for this, is imperfect!
My heartfelt thanks go out to Peter Diamond (MIT), Dale Mortensen (Northwestern University) & Christopher Pissarides (LSE) for pointing this out.
They are credited with creating mathematical models to provide a framework for studying the job search process & for contributing to market analysis that includes “search frictions”.
This may seem strange to mere mortals since there is no great intellectual insight in pointing out that imperfect knowledge & the frictions arising from it can be observed in the real world.
One of the riveting conclusions drawn from their models is that “more generous unemployment benefits give rise to higher unemployment and longer search times,” Ordinary mortals do not need a PhD to understand that more generous benefits decrease the urgency of seeking a job.
An upshot of being startled by the imperfections of reality for these Nobelists is that they see it as evidence of “market failure” that can & perhaps must be remedied by government interventions.
Yet their enthusiasm for expansive role of the State in the economy is naïve in overlooking the imperfections of government failure as outlined in the Public Choice literature.
In the end, it comes down to a inability to understand that market participants readily react to such frictions. It is not that markets do not work perfectly due to search costs in labor markets it is that they work because there are imperfections.
As it is, the existence of imperfections gives dynamism to markets by inspiring entrepreneurs & resource owners to innovate to exploit opportunities of mispriced assets or commodities. As such, order arises out of the messy chaos of frictions & market imperfections when incentives emerging from property rights, prices & profit or losses inspire adjustments to coordinate behavior.
Congratulations to the Nobel Prize winners. Maybe with the cash prize they receive they will have time to look around so they can understand how the real world of markets actually works.