Thomas J. Sargent Quotes

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About Thomas J. Sargent

Thomas John "Tom" Sargent (born July 19, 1943) is an American economist.

Born: July 19th, 1943

Categories: American economists, Living people, Nobel laureates in Economics

Quotes: 10 sourced quotes total (includes 2 about)

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Q: “Professor Sargent, can you tell me what CD rates will be in two years?” Sargent: “No.”
What policymakers (and econometricians) should recognize, then, is that societies face a meaningful set of choices about alternative economic policy regimes.
For policy, the central fact is that Keynesian policy recommendations have no sounder basis, in a scientific sense, than recommendations of non-Keynesian economists or, for that matter, non-economists.
Thomas J. Sargent
• Robert E. Lucas and Thomas J. Sargent, "After Keynesian macroeconomics", After the Phillips Curve: Persistence of High Inflation and High Unemployment (1978).
• Source: Wikiquote: "Thomas J. Sargent" (Quotes)
It is paradoxical that an administration that came to office rejecting the whole apparatus of Keynesian economics finds itself presiding over a stream of what threaten to be permanent deficits.
Cagan’s adaptive mechanism for explaining expectations of inflation has sometimes been criticized as an ad hoc formulation that is inconsistent with the hypothesis that expectations are rational. In this paper, we have showed that conditions exist under which adaptive expectations are fully rational.
Thomas J. Sargent
• Thomas J. Sargent and Neil Wallace. "Rational expectations and the dynamics of hyperinflation." International Economic Review (1973): 328-350.
• Source: Wikiquote: "Thomas J. Sargent" (Quotes)
An alternative “rational expectations” view denies that there is any inherent momentum in the present process of inflation. This view maintains that firms and workers have now come to expect high rates of inflation in the future and that they strike inflationary bargains in light of these expectations.
My recollection is that Bob Lucas and Ed Prescott were initially very enthusiastic about rational expectations econometrics. After all, it simply involved imposing on ourselves the same high standards we had criticized the Keynesians for failing to live up to. But after about five years of doing likelihood ratio tests on rational expectations models, I recall Bob Lucas and Ed Prescott both telling me that those tests were rejecting too many good models.
Suppose someone sits down where you are sitting right now and announces to me that he is Napoleon Bonaparte. The last thing I want to do with him is to get involved in a technical discussion of cavalry tactics at the Battle of Austerlitz. If I do that, I'm getting tacitly drawn into the game that he is Napoleon Bonaparte. Now, Bob Lucas and Tom Sargent like nothing better than to get drawn into technical discussions, because then you have tacitly gone along with their fundamental assumptions; your attention is attracted away from the basic weakness of the whole story. Since I find that fundamental framework ludicrous, I respond by treating it as ludicrous – that is, by laughing at it – so as not to fall into the trap of taking it seriously and passing on to matters of technique.
Using the popular macroeconomic models of the time, Lucas and Sargent showed how replacing traditional assumptions about expectations formation by the assumption of rational expectations could fundamentally alter the results. … Most macroeconomists today use rational expectations as a working assumption in their models and analyses of policy. This is not because they believe that people always have rational expectations. Surely there are times when people, firms, or financial market participants lose sight of reality and become too optimistic or too pessimistic. … But these are more the exception than the rule, and it is not clear that economists can say much about those times anyway. When thinking about the likely effects of a particular economic policy, the best assumption to make seems to be that financial markets, people, and firms will do the best they can to work out the implications of that policy. Designing a policy on the assumption that people will make systematic mistakes in responding to it is unwise.
About Thomas J. Sargent
• Olivier Blanchard and David R. Johnson, Macroeconomics (6th Edition, 2013), Ch. 17 Expectations, Output, and Policy.
• Source: Wikiquote: "Thomas J. Sargent" (Quotes about Sargent)
I remember how happy I felt when I graduated from Berkeley many years ago. But I thought the graduation speeches were long. I will economize on words. Economics is organized common sense. Here is a short list of valuable lessons that our beautiful subject teaches.1. Many things that are desirable are not feasible. 2. Individuals and communities face trade-offs. 3. Other people have more information about their abilities, their efforts, and their preferences than you do. 4. Everyone responds to incentives, including people you want to help. That is why social safety nets don’t always end up working as intended. 5. There are tradeoffs between equality and efficiency. 6. In an equilibrium of a game or an economy, people are satisfied with their choices. That is why it is difficult for well-meaning outsiders to change things for better or worse. 7. In the future, you too will respond to incentives. That is why there are some promises that you’d like to make but can’t. No one will believe those promises because they know that later it will not be in your interest to deliver. The lesson here is this: before you make a promise, think about whether you will want to keep it if and when your circumstances change. This is how you earn a reputation. 8. Governments and voters respond to incentives too. That is why governments sometimes default on loans and other promises that they have made. 9. It is feasible for one generation to shift costs to subsequent ones. That is what national government debts and the U.S. social security system do (but not the social security system of Singapore). 10. When a government spends, its citizens eventually pay, either today or tomorrow, either through explicit taxes or implicit ones like inflation. 11. Most people want other people to pay for public goods and government transfers (especially transfers to themselves). 12. Because market prices aggregate traders’ information, it is difficult to forecast stock prices and interest rates and exchange rates.

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