Oh Dearie me, what a disaster for Ritchie and others

So, George Irvin:

This is what economists call the \”Ricardian equivalence\” hypothesis, first proposed by David Ricardo in the early 19th century and popularised by Robert Barro and other members of the \”rational expectations\” school of economics which enjoyed brief credibility in the 1970s. Bluntly, there is little empirical support for this hypothesis.


This is one of the extraordinary achievements of the neoliberal era. It created the idea of “rational expectations” and so distorted true rationality in the process that they have persuaded people that voting against their best interest is the right thing to do.


We must realise that this pension arrangement was designed by people who believed in the  Efficient Market Hypothesis and in rational expectations.   Both are fundamentally wrong.

Oh dearie me. They\’ve just given the Nobel for rational expectations.


15 thoughts on “Oh Dearie me, what a disaster for Ritchie and others”

  1. The rational expectations model has been exceedingly useful. Like all such models, though, it has limitations, particularly where there is information asymmetry. Personally I think its usefulness is also limited in times of crisis. One man’s rational decision is another man’s emotional response, and fearful or angry people definitely don’t calmly consider all the available information before they act. There is much more work to be done on this by behavioural economists, I think. But that is not to say the model is useless, as RM suggests. Far from it. The Nobel is well deserved.

  2. ” they have persuaded people that voting against their best interest is the right thing to do.”

    This is the problem libertarians/classical liberals have with persuading people to join our cult. In many cases, voting against one’s own best interest is the right thing to do in a democracy, because of course of the essential conflicts of interest between groups.

    For instance, it would be in my best interest to vote for a lower tax rate for white people and a higher tax rate for black people, because I am white. Not voting for that is not in my best interests, but it is in the best general interest of society. One of the central basic problems of democracy is selfish voting by majorities; the whites can outvote the blacks on the above hypothetical.

    Much leftism tells people to vote, for instance, for various producer interests, at the general expense of the general (“consumer”) interest. This is why Ritchie and other Lefists get so much wrong.

  3. I know what you’re saying, but that’s the same crowd that gave Krugman a prize. Best to ignore the Nobel Committee altogether.

  4. Call me a pedant – or even a pendant – but properly speaking this is the Sveriges Riksbank Prize not a Nobel Prize. Were, for example, Ritchie to establish an annual prize for excellence in the understanding of, say, tax (OK only 35p/year but think of the prestige) “in honour of Alfred Nobel”, Ritchie would have a right* analogous to that of the Sveriges Riksbank to call it the “Nobel Prize in Taxation”.

    *setting aside any problems concerning the right to use of the name “Alfred Nobel”.

  5. Oh c’mon, Tim.
    We know how this is dealt with:

    “I am right & he is wrong. There is no purpose in continuing the debate.” ©R. Murphy 2010

  6. freemarketblogging.

    Fascinating to see Ritchie’s version of ‘arguing’. He doesn’t really do reality, does he?

    When he gets his ass handed to him the immediate reaction is to accuse his opponent: “I strongly suspect there is a conflict of interests you need to disclose”.

    Translation: “Waaaaahhhhh! Waaaaahhhhh! Mummy!”

  7. Strange, I get a server error on that taxresearch post. Other posts are fine.

    Richie is probably busy ‘moderating’.

  8. @FreeMarketBlogging

    I gave up on that article after the first paragraph. The man really has no idea how ignorant he is.

    “Competition requires choice – so every resource would have to be duplicated”

    Seriously??? I mean WTF??

  9. Well, I managed to read it. Steven got the same response to his well-informed arguments as I did to mine. Rudeness, and probably now deletion of further comments. He hasn’t been able to say anything else, has he?

  10. GlenDorran,

    Yes that is the whole premise that was underlying the theory behind the Soviet economy. I would have thought that it was empirically as a less efficient (in the mid- to long-term) than a market-based system by now but given the frequency with which I hear this argument it is quite apparent that there are still believers out there

  11. perhaps I should set up a prize for the first time that the Murph-meister demonstrates any understanding of the efficient market hypothesis – he always seems to assume that it means all markets always clear, wiithout any effort from any participant…the idiot.

    Then I could have the privilege of publically dis-granting the prize to the Murph-meister every year!

  12. The “Efficient Markets Hypothesis” *cannot* be fundamentally wrong because it is just a hypothesis.
    What Ritchie probably means is that much of “Modern Portfolio Theory” is wrong because it is based on a hypothesis which does not hold true in the real world.

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