Economics Nobel George Akerlof Takes up Research Job at IMF

Says topic that has motivated him most over his career is unemployment

Applauds attention IMF has given in recent months to unemployment crisis

Hopes to help with design of financial regulation, controlling systemic risk

Indeed, George Akerlof is best known for his work showing how markets break down when the two parties entering a transaction have unequal information. The example Akerlof gave was of used car markets where the seller has better knowledge of whether his car is a “lemon.”

Problems of unequal—‘asymmetric’ in the jargon of economists—information are present in most markets, particularly in financial markets. “This crisis gave us glaring examples,” says Akerlof, who joined the IMF’s Research Department as a senior resident scholar on October 4. He won the Nobel Prize for Economics in 2001.

“Many ordinary people did not understand the liabilities they were taking on when they were buying homes, just as many purchasers of complex securities failed to understand the risks they were taking. There was a naïve kind of asymmetric information that has turned out to be of surprising importance.” Akerlof hopes to help IMF staff with the post-crisis design of financial regulation and on issues of how to bring systemic risk under control.

Unemployment: Losing more than an income

While the work on asymmetric information won him the Nobel, Akerlof says the topic that has motivated him the most over his career is unemployment. It was the subject of his first published paper and he has returned to it numerous times since then. “I have always thought of unemployment as a terrible thing,” he says. “In fact that has been the motivation for almost everything I have ever written. A person without a job loses not just his income but often the sense that he is fulfilling the duties expected of him as a human being.”

Akerlof therefore applauds the attention that the IMF has given in recent months to the unemployment crisis. IMF Managing Director Dominique Strauss-Kahn said in a press conference ahead of the 2010 IMF-World Bank Annual Meetings that “growth without jobs doesn’t mean much for the man in the street. So obviously, for us, the crisis will not be over until the unemployment rate decreases significantly.”

But given high debt-to-GDP ratios in many countries, Akerlof says that “fiscal stimulus [to lower unemployment] has to be used wisely.” Only policies with “the highest multipliers, the biggest bang for the buck” in...