Nobel for explaining why markets fail

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WASHINGTON (MarketWatch) — Three economists — including one rejected by the Senate as too inexperienced to work at the Federal Reserve — have won the Nobel prize in economics for their work in explaining why markets sometimes don’t work so well.

Specifically, Peter Diamond of MIT, Dale Mortensen of Northwestern University and Christopher Pissarides of the London School of Economics were honored for their insights into unemployment. It’s certainly a timely topic. Read MarketWatch’s related article on the 2010 prize.

The problem with unemployment is that, theoretically, it shouldn’t exist. Efficient market theory says unemployed workers should always be able to find a job if they just lower their standards enough, just as all employers should be able to find workers if they just lower theirs.

By this theory, all unemployment is voluntary.

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