A Beautiful Mind Indeed: Nobel Economist Says More
Stable Currency Needed
John Nash, who won
the 1994 Nobel Prize in economics, praised the gold standard in a recent talk
at Fordham.
Contact: Janet Sassi
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Nash said that various
interest groups that subscribe to Keynesian, or short-term, economic theories
have sold the public on the notion that inflation is acceptable or that
"bad money is better than good money." Such a notion, he said, led to
the dangerous proliferation of bad mortgage loans--loans made on the gamble
that house values would continue to rise and eventually turn a profit.
"A
fixed-rate 30-year mortgage would be reasonable under the gold standard,"
Nash said. "Now, there are variable rates, and adjustables, and
convertibles, and it is very complicated" for homeowners to figure out
what they are getting into. In fact, Nash said, nobody really knows the depth
of the financial crisis.
More
than 200 members of the Fordham community converged upon the Flom Auditorium on
Oct. 14 to hear John Forbes Nash Jr., Ph.D., winner of the 1994 Nobel Memorial
Prize in Economic Sciences, talk about solutions to the downturn in the
national and global economy.
Nash
told the audience that such financial crises would be less likely to occur if
there was some international monetary standard, such as the gold standard or
competition among worldwide currencies, to curb inflation and prevent the rise
of mortgage abuses. He expressed some skepticism about a government bailout as
a solution.
“I
get the impression that the government is not ready to do anything that is
really beyond a short-term basis,” said Nash, a senior research mathematician
at Princeton. “[But] we need a natural stability of
value.”
Nash
said that various interest groups that subscribe to Keynesian, or short-term,
economic theories have sold the public on the notion that inflation is
acceptable or that “bad money is better than good money.” Such a notion, he
said, led to the dangerous proliferation of bad mortgage loans—loans made on
the gamble that house values would continue to rise and eventually turn a
profit.
“A
fixed-rate 30-year mortgage would be reasonable under the gold standard,” Nash
said. “Now, there are variable rates, and adjustables, and convertibles, and it
is very complicated” for homeowners to figure out what they are getting into.
In fact, Nash said, nobody really knows the depth of the financial crisis.
Having
an internationally oriented money standard would promote better quality
currencies and less inflation, he added.
Nash
further said that any such new international monetary system should be
democratically determined, and cited the recent vote in Swedennot to abandon
the Krona for the Euro.
Nash
shared the 1994 Nobel Memorial Prize with two other economists for research in
game theory, a method of predicting behavior in strategic social situations and
a tool now widely used by economists and biologists. His academic notoriety was
catapulted into celebrity status in 2001 when he and his wife, Alicia, became
the subject of the movie "A Beautiful Mind." The film was nominated
for eight Oscars and won four. The movie, part of which was filmed in the
basement of Keating Hall, documents Nash’s seminal contributions to game theory
and mathematics and his subsequent 25-year struggle with schizophrenia.
The
event was also attended by special guest Charles Soludo, Ph.D., governor of the
Central Bank of Nigeria.
Dominick
Salvatore, Ph.D., Distinguished Professor of Economics, introduced Nash and
Saludo to the standing-room-only crowd and concurred with the need for a new
international regulatory system more in tune with today’s global economy.
“The entire financial sector has to be regulated, but those regulations cannot
be specific,” Salvatore said. “Money is fungible. You have to be comprehensive,
but general.”
Reform
starts at home, Salvatore argued. “We need less exotic derivatives and much
more transparency. And the U.S.has to live within its means. We save
practically nothing at the individual level . . . we have a huge trade deficit
and we are mortgaging our future.”
The
event was part of the Distinguished Lecture Series hosted by Fordham’s Center
for International Policy Studies.
Founded
in 1841, Fordham is the Jesuit University of New York, offering exceptional
education distinguished by the Jesuit tradition to approximately 14,700
students in its four undergraduate colleges and its six graduate and
professional schools. It has residential campuses in the Bronxand Manhattan, a
campus in Westchester, and the Louis Calder Center Biological
Field Station in Armonk, N.Y.10/08
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