George A. Akerlof (1940-present) is an American economist who is part of the New Keynesian Economy. In 2001 he won the Nobel Prize in Economic Sciences, along with Michael Spence and Joseph E. Stiglitz .
George Akerlof was born in New Haven (Conneticut) in 1940. His father was of Swedish origin and his Hebrew mother. From his childhood, Akerlof felt interest in social issues. In fact, with only 11 years, his father’s job instability and fear of losing his job led him to make his first social and economic reflections. His sensitivity to these types of issues influenced him throughout his career approaching Keynesian positions .
In 1962 he graduated in Economics from Yale University. During this stage he worked for The Yale Daily News, which conditioned his way of seeing the world and influenced his goal of developing an economic theory closely linked to political issues. He later received a doctorate from the Massachusetts Institute of Technology in 1966.
A long trajectory
Protagonist of a long academic and professional career, George Akerlof has worked as a professor in prestigious institutions, such as the London School of Economics or the University of California. He has also been a researcher at Harvard University. He is a member of the Economists for Peace and Security and co-director of the Social Interactions, Identity and Welfare program of the Canadian Institute for Advanced Research (CIFAR). Participates in the advisory council of the Institute for New Economic Thought. He was elected to the American Academy of Arts and Sciences in 1985. In 2007 he was the annual president of the American Economic Association.
He is married to American economist Janet Yellen, who served as president of the Federal Reserve between 2014 and 2018.
The thought of George A. Akerlof
George Akerlof is part of the New Keynesian Economy. He has made important contributions to economic science. His main field of study is the relationship between lack of information and inefficiency of markets. He has been critical of neoliberalism and is in favor of moderate government intervention , with the aim of guaranteeing the proper functioning of the market.
The market for “lemons” and asymmetric information
Akerlof’s most popular contribution is found in his article “The Market for Lemons: Quality Uncertainty and the Market Mechanism” (“lemons” in the United States refers to low-quality second-hand cars), published in the magazine “Quarterly Journal of Economics », in 1970.
In this article he states that in some sectors there is an asymmetric information model . An example is found in the market for used cars. In this, there is an asymmetry of information between the seller of the car (who knows the quality of his vehicle) and the buyer, who only knows the price at which it is sold, but who does not know the state in which it is. This situation may alter the proper functioning of the market.
According to Akerlof the problem lies in the fact that the owners of poor quality cars will try to pass their vehicles through others that are in good condition. On the other hand, those who want to sell a car in good condition may find themselves distrustful of the potential buyer. This situation of mutual distrust can end the market of a certain product. One possible solution is to force the seller to offer guarantees to maintain the trust of potential buyers.
This hypothetical situation of asymmetry in the information is extrapolated to the purchase and sale of any product, which, like that of the “lemons” can be affected very negatively.
In their article “Economy of Identity”, published in “Quarterly Journal of Economics” in 2000, George Akerlof and his collaborator Rachel Kranton, from Duke University, introduce social identity as a factor to be taken into account in formal economic analysis. With this, a new field of study known as identity economics is created, which is supported by other disciplines such as social psychology.
In the article, the authors argue that the economic behavior of individuals is based on both monetary incentives and identity factors. This derives from identity influences their concerns and interests. The consequence is that in a hypothetical situation in which there are zero or few variations in monetary incentives, people prefer to avoid actions that conflict with the concept they have of themselves, which in turn, is conditioned by social factors and cultural For example, an individual who feels identified with the category of father, will try to adapt his behavior to the ideal that is associated with that figure.
Decisions and rationality
In 2009, George Akerlof and Robert Shiller, Nobel Prize in 2013, published «Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism». The title is a clear tribute to the British economist JM Keynes, who already spoke of animal spirits in his ” General Theory of Occupation, Interest and Money ” (1936).
With this work, based on behavioral economics, the authors intend to describe the real functioning of the economy, in which, in their opinion, emotions play a fundamental role. Thus, they criticize that one of the problems of the classical economy is that it has not taken into account the emotions or psychological factors, due to the difficulty to quantify its effects. And this absence in the analyzes is one of the reasons why economists have not been able to predict economic crises.
Akerlof and Shiller began writing the book in 2003. Before the end of it, the 2007 financial crisis ensued. In this context, the authors wanted to use the book to promote an intervention by the United States government, aimed at restoring credit flows and countering Low levels of trust.
George Akerlof is a reference in many fields of the economy. His numerous contributions and having won a Nobel Prize, testify