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MIT prof among 3 Nobel economics winners

By Steve LeBlanc
Associated Press Writer / October 11, 2010

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CAMBRIDGE, Mass.—A bleary-eyed Massachusetts Institute of Technology professor Peter Diamond was being driven home from Logan Airport by his wife early Monday when a colleague called to congratulate him on winning the 2010 Nobel economics prize.

It was the first Diamond had heard of the decision, on the last leg of a long trip from New Zealand.

"I was on the red eye. I learned about this on Storrow Drive," said Diamond, a diehard Boston Red Sox fan who likened the thrill to the team's historic 2004 World Series win.

"This was almost as good," Diamond joked during a press conference at MIT.

Diamond, fellow American Dale Mortensen and Christopher Pissarides, a British and Cypriot citizen, were named the winners Monday for developing theories that help explain how economic policies affect unemployment.

President Barack Obama, who has nominated Diamond to the Federal Reserve board, congratulated him and Mortensen for "their groundbreaking economic research that has applications in a wide range of areas, like unemployment and housing."

Obama said he hopes Diamond will be quickly confirmed by the Senate.

Diamond said that as an academic and researcher, he is more interested in how economics work in the real world than in theory.

"Part of the thrust of my work in a number of realms is to pay much closer attention to how the economy plays out in real time than in the simplest abstractions of how markets work," he said.

One focus of Diamond's work has been on the unemployed and what it takes to get people back to work, especially after a recession.

Diamond said one thing that's needed after a severe downturn is patience.

"Obviously in the labor market it takes time for workers to find suitable jobs and it takes time for employers to find suitable workers," Diamond said.

He also said that when a country is in a recession or is experiencing high unemployment, it's hard to see the light at the end of the tunnel.

But he said it's dangerous to jump to conclusions, especially when talking about whether a recession is due to so-called "structural" problems in the economy.

"It is a commonplace in recessions to suggest that this time is different, this time is structural, this time we're not going back to lower unemployment," he said. "When you hear `this time is different,' you should be skeptical."

Diamond defended the much-criticized bailout of the nation's financial system. As distasteful as that might be to some, he said that without intervention from the federal government, the country would be in a much worse situation now.

He also said defended stimulus spending, which has been the focus of voter anger during the midterm elections.

He said using federal dollars to put people to work not only helped keep the unemployment numbers from rising even higher, but also helped the economy from sinking deeper. He said a second round of stimulus would be beneficial.

Diamond is optimistic about the longer term prospects for the economy and for those still looking for a job.

"I am a believer in markets, I'm a believer in capitalism," he said. "I believe the economy is very adaptive. Workers and employers adapt."

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