Tom Sargent Summarizes Economics

After he won the Nobel, Tom Sargent was “interviewed” in an ad for Ally bank in which his response was simply (and correctly), “no.” The joke is even better than I realized because Sargent has a history of giving very short speeches. In 2007 he gave a graduation speech to Berkeley undergraduates summarizing economics in just 335 words.

It’s a damn fine speech.

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.

Hat tip to Utopia–you are standing on it via Newmark’s Door.


National debt is paid from the next generation to the next generation. How is that a generational transfer?

Generations overlap

That generations overlap would seem to further diminish the claim that national debt is a transfer between generations. Perhaps I misunderstand your reply.

The overlap necessarily means that there will be a generation that pays more for the debt as asset than it receives in payment on selling the asset to a subsequent generation.

At any point in time, if the government collects taxes from A and turns around and uses the money to pay on a bond held by B, A and B are likely to be alive at approximately the same time.

The more likely scenario for large economies issuing debt in their own currency is the government finances the repayment of debt with new debt.

And debt carrying costs are only a figment of my imagination.


You are proposing the eternal free lunch. Government debts always get retired one way or another- either via future taxation or default.

Debt carrying costs are paid the same way principal is paid.

Government debt is not a free lunch to the extent it raises borrowing costs generally, without any corresponding benefit. That's a different question than cost shifting between generations, a claim that appears to depend on pretending debt is purely a liability, ignoring that it's an asset to someone and that the payment from the borrower happens at approximately the same time as the payment to the lender.

"The more likely scenario for large economies issuing debt in their own currency is the government finances the repayment of debt with new debt."

Above, see bad reasoning.

The loan transfer from one term to the next is completely arbitrary and phony. It doesn't change that the loan allows consumption by person A from the past, to be paid by person B from the present.

Sergeant also assumes that previous generations did not transfer to other generations, only inefficiently..

I remember sitting in the backseat of my parents car listening to them discuss how my fathers brothers and himself would pay for their mother's hospital bill. The "boys" had to pass the hat and pay for their mother's hospital bill, and later their father would move in with one of the "boys" because he could not afford to live on his own.

That's a generational transfer too.

Today, we have medicare and a more generous social security system that has dramatically cut poverty in old age.

Or, do you want your parents to move in with you and pay their medical bills?

"Or, do you want your parents to move in with you and pay their medical bills?"
Essentially we've switched to a system where everyone passes the hat for everyone's parents, except that you don't get the option of declining to pay. But the principle remains the same - old people are expensive, and younger people still have to pay for them.

Urso is correct that we now treat the inherently private goods of seniors' living expenses as though they were public goods. In today's world, the money that Bill's father and uncles used to support their parents would instead already have been taken by the government as taxes. To take care of Bill's grandparents, his father and uncles would then need to lobby Congress to spend that money on the grandparents' needs.

So, although the principle that Urso cites --- there's no free lunch (roughly item 2 in Sergeant's list) --- remains the same, by socializing seniors' living expenses we have introduced distortions and inefficiencies related to (at least) items 3, 4, 5, 6, 7, 8, 9, 10, and 11 as well.

To answer Bill's question, I would much rather be able to spend my own money to take care of my parents than be required to convince Congress to spend my own money to take care of my parents.

By the way, US real income per capita has roughly doubled in the 43 years between 1967-2011 []. So, imagine the average senior of 1967 and then imagine a senior that was twice as well off. Someone twice as well off as average would probably have been considered rich or at least upper middle class. Well, from economic growth alone without any expansion of old-age entitlements, we should have expected that the average senior today would be as well off as that rich or upper-middle-class senior from 1967. That's neglecting any decrease in growth that may have been caused by Big Government related inefficiencies themselves.

So, if we don't think that today's *average* senior is as well off as a *wealthy* senior from 1967, then that means that the "Medicare and more generous Social Security system" that Bill mentioned probably hurt, rather than helped, those seniors. (This refers to the average senior, not the poorest ones, who may have been helped.) The net effect of taking money that those seniors could have been saving rather than paying for more generous old-age entitlements apparently was negative. On other hand, if we do think that today's average senior is like 1967's wealthy senior, then it's probably fair to ask whether the social welfare programs created and expanded in the 1960s were designed primarily to pay benefits to people that those program's designers at the time would have considered wealthy. That would seem to be a strange definition of a "safety net".


But would your parents trust you more or the Congress to be able to spend enough to take care of them?

Urso, The point is that there has ALWAYS been intergenerational transfer.

I even transferred my assets to my children to give them an education. Maybe even you.

@Rahul, I'm pretty sure that most Americans trust their own families more than Congress.

BC, perhaps you should look the Libertarian paradise that existed before SS or Medicare. After all, you can just look at the past as the natural experiment.

Social Security and Medicare are so great that we have to force people to participate.

BC, You make a good point about forced participation. Before Medicare, we had "county homes" for the indigent, and public hospitals that provided care for the poor. With medicare, the poor contribute to their future care with taxes on their earned income.

I suppose you have to force people who would otherwise free ride to contribute.


It's not trust alone but also ability, vulnerability & risk pooling.


You have captured it in a nutshell. But if a system must rely on coercion in order to be viable, is it really a good system?

There has always been intergenerational transfer.

Some countries are trying to disguise the transfer by pretending that the younger generation is only lending rather than giving. And I don't mean in a figurative sense "Eventually we will be old too, and our kids will take care of us as best they can.". Rather the lending is done with actual columns of number denoting money.

You can always count on Bill, Jan (where's she at?!), Prior Approval, Mulp, and a few others on Marginal Revolution to equate voluntary actions with involuntary actions.

Thomas, Could you please translate your statement. If you are saying that by voting we convert involuntary actions into voluntary actions, I understand you. But, if you are saying that anything we do as a group has to be totally voluntary, even if there are externalities and free riders, I do not understand you.

I am saying that voluntary and involuntary act are inherently different. Democracy does not negate that difference. All laws destroy some amount of voluntary activity, which most people would agree is inherently undesirable. That's why a law should always be weighed against the freedom it destroys. This bias against laws is embodied in the concept of "legitimate interest", for example.

In your post you equated a voluntary and involuntary act. They are not the same thing. I assume you know that and were simply using the fallacious equivalency because you prefer the policy of redistribution.

Or, do you want your parents to move in with you and pay their medical bills?

It has the potential to be much more efficient after all you could pay their rent but you would most likely choose to have them move in with you because that is more efficient. Also absent Medicare you could buy insurance for them or pay out of packet.

The only advantage in SS and Medicare is that evens things out more but at a higher expense. So people whose parents live longer and have more costly healthcare benefit out more from SS and Medicare. Weather most people are better off is another question. I would guess that people do feel more secure because of SS and Medicare but for most people (I would guess maybe 75% of people) the costs are higher.

I would like to SS replaced with basic guaranteed income and Medicare + medicaid etc. replaced with Nationalized health insurance with very high deductibles based on you income. Like a deductible equal to your last years adjusted income - the poverty level of income.

Apologies for stating the obvious but the issue if (of course) not the flows in the repayment of the debt or of the interest but that one generation is spending money that they don't have to get benefits that they can't afford to pay today thus restricting the amount of spending that can be done in the future

It's not. The way to transfer income from t2 to t1 is for policy to shift resources from investment in t1 to consumption in t1. Any relation to the deficit or surplus of any governmental entity living or dead is purely coincidental.

BC: Spoken like someone whose parents saved up enough that they won't have to worry. Even Rick Scott's views on medicaid changed after he saw the challenges faced by his elderly mother.

If your generation borrows lots of money (e.g., to pay for your free education, massive infrastructure, and health care provisions) then requires that that debt is repaid some time after they die but does not provide the same provisions to the second generation, then there is a clear generational transfer even though the people who technically own that debt in the future are technically part of a transaction where you (imo) simplistically say that the future generation is paying the future generation.

If real debt per capita went up, then clearly some future generation will have to pay this cost.

If deficit spending happens now, then these are the only options: (1) taxes must be levied (or spending on things like education must be cut) in the future to pay it back, either in whole or just the interest, (2) monetary expansion (printing money) can pay it off, but this is an indirect tax and doesn't differ fundamentally from the previous option, (3) more borrowing can happen to pay of the principle and interest, but this pushes up interest rates, slows down the economy, and causes suffering among those looking for work (but actually helps those retired with savings as they benefit from increased interest rates), (4) the government can default on the loan, which causes other problems for the future generations.

No matter what, each subsequent generation suffers from the cumulative deficits of the past generations and if no generation fixes the problem, then the damage gets worse each generation (it gets passed on, but like an anchor being dragged across a coral reef, it does damage as it goes). The only exception to this is if the debt expands more slowly than the economy grows in which case the debt/GDP ratio can actually decrease despite continued deficits.

It will be amusing to see the commenters quarrel with this one. One such so far.

'Economics is organized common sense'

'Common sense is not so common.' VOLTAIRE, Dictionnaire Philosophique

However, considering the broad number of economists who don't agree with each other, perhaps this is a better quote -

'Common-sense is part of the home-made ideology of those who have been deprived of fundamental learning, of those who have been kept ignorant.' JOHN BERGER, A Fortunate Man

Then there is this dismissal of common sense by a real scientist - 'Common sense is the collection of prejudices acquired by age eighteen.' ALBERT EINSTEIN, as quoted in Jerry Mayer's Bite-Size Einstein

QED. Two so far, but where are mulp and Jan?

Actually, here I was thinking that it was Voltaire, John Berger, and Albert Einstein adding their perspective on the idea of common sense.

But then why would anyone pay attention to someone like Einstein sharing his perspective that common sense is just a collection of prejudices. It isn't like he actually did anything except overthrow centuries of established common sense codified into an apparently scientifically justified consensus. Compared to what economists are capable of, a mere trifle.

Or phrased another way, why would anyone pay attention to someone like p_a cherry picking a few phrases in a passive attempt at aggression?

Economics is common sense.

Common sense is not so common.

PA, you are satirizing yourself.

Yeesh. I bet you consult Sam Harris on ethics, and Richard Dawkins on the value of continental philosophy, don't you? What utter scientism.

What a great list.

#7 about promises made me wonder whether the blog
"Utopia - you are standing in it! | Celebrating the flourishing of humanity through the spread of capitalism and the rule of law"
has kept the (challenging) promise of its wonderful name.

#5 reminded me to pick on Piketty more frequently.

But when I read the intro statement that "economics is organized common sense" I only thought of track #10 on the album 'Dance Hall at Louse Point' by John Parish and PJ Harvey -- titled "Is That All There Is?"

Bears more than a passing resemblance to Greg Mankiw's 10 principles of economics.

My problem with lists like these are that they make it seem too easy. Every idiot starts to think he's an expert on policy-making.

Perhaps that because our policy makers are idiots. Every idiot, therefore, sees himself in the policy maker.

They might be crooks or ideologically misguided but I doubt they are idiots.

Interesting that Sargent made not a single point about humans as economic cooperators, including not only in exchange but also in productive endeavors that exceed the abilities of a single individual.

The realists will be up in arms today, at your revolutionary suggestion that cooperation is very successful at explaining all sorts of good things, even though it is less successful at explaining bad things.

Spoken like a true tool of the monied male hierarchy

There is nothing "male" about organized common sense. In fact many would say that women are better than men when it comes to common sense.

doesn't mean they are better at applying it

Which parts, and how?

So what does a true tool of the poor female flat organization say?

Great speech. He did misspeak in #6, though, when he says that it is difficult for well meaning outsiders to make changes to people's equilibriums for "better or worse". It certainly is difficult for well meaning outsiders to make equilibriums better, but they most certainly can make people worse off.

If so, what's the reason for this asymmetry?

If people's individual choices are made to optimize their situations, then if you change them they have nowhere to go but down. The caveat, of course, is that individual choices don't consider externalities that fall on others. Then it is possible to make people better off through outside control. So, a government may improve an equilibrium in which everyone heats their houses with inexpensive but externality-generating coal by forcing them all to use a cleaner but more expensive fuel or by taxing coal to induce people to heat their houses a little less. But if people choice to buy and eat Snickers candy bars (without externality) and a government mandates or pushes them to eat Mounds candy bars, then they will be worse off. And, because of the information issues also mentioned in the speech, it is also quite possible to make things worse when intervening in a market that has externalities in it, because it is so difficult to know what is better for people.

"If people’s individual choices are made to optimize their situations, then if you change them they have nowhere to go but down."

There's a large status quo bias built into that statement. People make choices, in part, do the the organization of society, laws, existing distributions, etc.

Given a different infrastructure they may have made different choices. There's no real way to tell a priori if that would be better or worse.

Actually, making some people better off is not difficult if others are made worse off. One of the most useful things economists can do is to point out that things that naive policy makers try to do with regulation (minimum wages, pollution controls) can often be achieved more efficiently via expenditures + taxes. Of course because of the entropy making a situation worse is always easier than making it better but that's not an insight of economics.

Precisely right! The number of ways to make things worse is far greater than the ways to make things better. That's an entropic battle.

But entropy isn't everything in determining which way a process runs.

True, but another point is that "expenditures + taxes" are straight forward and it's very easy to see the gains vs the losses. But regulations, such as minimum wages & pollution controls, are much less transparent in their effect.

What about the naive people who want to spend their way out of every problem when small changes to regulation can efficiently achieve the same results?


good catch!


He was even more right about the "worse".

People work around bad policies. Some evil institutions even ameliorate themselves: over-mighty cops can ruin small businesses at will? Lucky they can bought off.

This is what Adam Smith was on about when he said "there is a great deal of ruin in a nation".

"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. "

Interesting that he chose social safety nets as an example of incentives. How about:

4. Everyone responds to incentives. Not regulating externalities results in overproduction, such as pollution.


4. Everyone responds to incentives. That is why long-term patent monopolies on drugs lead to pharma companies misrepresenting the safety and efficacy of drugs.

I think the key idea is "including people you want to help". It is obvious that naughty people will take cookies from the jar if you are not looking, you don't need an economist to tell you that.

With this idea in mind, social safety nets are a prime example.

Don't we want to help hedge fund managers with the carried interest tax provisions? Don't we want to help oil companies with various deductions and subsidies? Don't we want to help Disney with indefinite extensions on copyright?

Imagine an economy with more wanting jobs than job openings. Which would be better - providing the means for adequate food, shelter and medical care, or not?

There are two places that happen to present a situation with more job openings than those wanting jobs, Alberta Canada, and North Dakota. I wonder if it has anything to do with various deductions and subsidies to oil companies?

If it is so obvious, why don't we have a carbon tax?

If it is so obvious, why don’t we have a carbon tax?

Because we don't beg the question.

"11. Most people want other people to pay for public goods and government
transfers (especially transfers to themselves)."

There's nothing unique about public good and government transfers. Most people want more for themselves.

excess entitlements are a contributing factor to high unemployment

Too few jobs are a larger contributing factor to high unemployment. When you have 3 or 4 jobs seekers for every job opening, it's not easy for every job seeker to find a job.

"Excess" is the key word in that reply. Rather tendentious.


Is it not better if a person has the economic ability to maintain a job search for at least a few months so that they can find a job that is well matched to their skills?

Think of how many high skilled workers would get stuck stocking shelves and flipping burgers if they always had to find a job immediately instead of having support in between jobs ...

Err yes. Of course we all want more for ourselves. The point is that in market we have to provide value to get more for ourselves, whereas through government (and stealing) we may not need to

Government gives food stamps to A. Government gives B a monopoly with patents and copyrights for many years.

To claim one is more of a natural market outcome than the other is to exhibit a definite bias.

Nonsense. A patent or copyright is the result of making something that didn't exist before.

Food stamps is taking the results of productive labor from someone and giving it to someone else.

Both can be good or bad depending on how they are administered, but to suggest that they are the same thing is idiocy.

For how many years would the state of nature grant a monopoly to the holder of a patent or copyright? How precise or original does the description of the protected item have to be to deserve protection?

Any payment resulting from this government action is the result of taking the productive labor from someone and giving it to someone else. To the extent it's necessary to spur innovation, it could well be a good idea, but our current system could easily be hampering innovation.

Society gets value from having more productive citizens, well educated, not starving, not suffering from a lack of medical care, etc.

I'm not arguing food stamps are good and patents bad. As you say, both can be good or bad.

One particularly egregious practice is to argue that a form of social organization that provides great benefits to some is obviously wonderful and shouldn't be questioned, while any change to that system that would either produce a different distribution or redistributes is obviously unfair and inefficient.

If you don't like patents as an example, consider that we pursue a high dollar policy while we could pursue a lower exchange rate, such as pursued by China.

This results in increased competition for many lower wage workers, while many higher wage workers are otherwise protected (for example, doctors and lawyers are protected by state licensing laws).

The end result of this policy choice is a rather large effect on income distribution, effectively redistributing from some of the worse off to some of the better off.

This type of government caused transfer is ignored by Sargent any many posters here, as they prefer to focus on other forms of government transfers.

Food stamps originally came into being to help get rid of the agricultural surplus owned by the government because they were trying to help farmers. They were created more to help farmers
and raise food prices than to help poor people.

So who's productive labor was given to someone else?

You said that patents and food stamps are the same.

They are not. They can be argued and justified on their individual merits. I have the choice to buy a patented or copyrighted good, but I have no choice when it comes to paying taxes. They are not equivalent in any way shape or form. Stop arguing that they are.

Your form of argument is to change the subject. Justify food stamps on their merit if you really want them. Same with intellectual property protections.

I find both objectionable in their current form.

So ... then you can't patent genes which exist in nature?

Your answer is a) irrelevant and b) a strawman

Have we moved to that stage of the discussion?

"It is feasible for one generation to shift costs to subsequent ones." True, but deficits have little to do with it. The way shifting can occur is that investment is reduced in the present so that consumption can be higher. If the reduction in investment were achieved by taxation, no deficit will be incurred. And the shifting is more difficult to achieve when the economy has large numbers of men, machines and land

"Everyone responds to incentives, including people you want to help." Interesting that social safety nets are his example and not, say, the tax preferences built into the corporate income tax. Your unemployed worker that does not search for work quite so hard because of unemployment insurance may indeed have an elasticity with respect to the incentive, but corporations are mechanisms exquisitely designed to respond to incentives. When you get one of those wrong, wow!

He didn't say deficit spending was the only way (and arguably, not accounting for depreciation is a form of deficit spending).

That's the reason I did not say he was wrong, just misleading.

“It is feasible for one generation to shift costs to subsequent ones.” True, but deficits have little to do with it. The way shifting can occur is that investment is reduced in the present so that consumption can be higher.

So government spending is never investment? Really? Private investment can be wasted (can you say mortgage collapse?) So can public. But both can be useful too. It really matters what you spend it on.

#8 social security

What a very, very strange graduation speech. If I was a student in the crowd, I would be very disappointed.

Yeah, if you were an economics major, you'd already know all of this, if you weren't, you wouldn't care enough to hear it on your graduation weekend.
On the other hand, a friend's graduation speech was on the works on Thomas Pynchon as related to their graduation, so I guess there is worse.

Sadly, I think many economics majors would fail to highlight these issues, and would soon find themselves pushing whatever perspective their paymasters support: research which supports/opposes minimum wages, health care, labour rights, etc.

That's why I never trust research unless I know who paid for it or unless I really have time to pick through it to find whether the conclusions reflect balanced consideration of diverging methods and perspectives.

Why economists insist on sounding like ulemas escapes me.

Good stuff. Economical.

# 6 is true in only a formal and uninteresting sense, of course. I may be "satisfied" in an equilibrium in the sense that no trades I can make, given what I have, will make me better off, but that doesn't mean I'll be "satisfied" in the normal sense. I might want more, so that I can make better and more trades! And, I might reasonably think that I should have more- that I deserve it, or it would be fairer, or that I just want it. If that's so, I'm "satisfied" only in a special sense that bears only a small resemblance to what people normally mean. When economists slide between the meanings, they are equivocating, yet this is done all the time. Often, it's dishonest. The rest of the time it's just ignorant.

Sure. So next time you want a lower price when you buy, or a higher price when you sell. An equilibrium would imply that there are other parties that would offer a higher price than you offer when buying, or a lower price than you when you are selling. For you to improve your situation you have to come up with some way to improve your offering, lower your costs or to change the game entirely so you have a competitive advantage. Others in the market are striving to do the exact same thing. So you would be 'satisfied' in the sense that you continue to participate in the market.

Interesting list. It's very likely that a different economist would disagree with some items on the list but I think there's enough truth on the list to get the picture. Some observations:

"Economics is organized common sense". The problem is common sense doesn't have a good track record.

#3 is an inherent weakness in economics because people are not rational. How well are they informed of the aggregate abilities, efforts and preferences in their communities? They may know themselves but sure make up a lot of #$% about their neighbors.

#6 A fancy way of saying people suffer from status quo bias

#7 and #8 are redundant unless you don't expect government to be part of "everyone" in #4 (and why wouldn't you?).

#9 is not an economic principle

#12 Forecasting is probably the single advantage one should be able to gain from a knowledge in economics yet apparently economics can help you there...

Newmark's Door is a fantastic blog with many gems.

You should add it to your RSS reader or visit regularly.

(Not Craig Newmark, just a fan of his blog.)

I have a few observations:

1. Why not group lesson #2 and lesson #5 into a single meta-lesson about the inevitability of trade offs. Come to think of it, most of Sargent's lessons are ultimately about trade offs ...

2. There are situations (below the production possibility frontier, for example) where can we avoid trade offs ... Why doesn't Sargent mention that lesson?

3. Strange speech for a graduation ceremony ... Bet he wasn't invited back

Wonder what a physicist or chemist would sound like summing up his field in 12 simplistic bullet points.

Physics is trying to reduce the field to one set of equations. :)

"Economics is organized common sense." ... good thing Sargent gave these remarks in 2007. we economists are such a humble bunch.

"10. When a government spends, its citizens eventually pay, either today or
tomorrow, either through explicit taxes or implicit ones like inflation"

I prefer to express it differently: that its citizens will pay, either to day or tomorrow, through labour.

The issue is whether they are getting value for their labor.

Indeed. That is the best argument against budget deficits possible. If there is worth, it is worth raising taxes.

An interesting data point. Recently in the Greater Toronto area people approved a tax increase for a specific transit initiative. They thought it was worth the additional cost. When governments borrow money and campaign on gifts for everyone and no tax increases, that discipline of value for their labor is lost. Most increases in government expenditure or initiatives would fail if the value for labor argument had to be made.

"The issue is whether they are getting value for their labor."

I thought this argument was destroyed in the United States circa March 1865.

I like the list, but can't simply leave it at that. All of human life, including economic life, involves paradoxes. Here's a paper I came upon recently that seems to add some different flavor to the mix:

Puzzles and paradoxes: a life in applied economics. Angus Deaton.

When I was in the senior year of engineering, I went with my senior project team to propose an idea to the faculty adviser. we went on and on about doing this and that and that ad-infinitum in the project, and he sat quietly and listened. At the end of the presentation, he just said: 'I think you should leave something for others to do'.

Economics as field of study has expanded to include everything. Too much.

A brilliant list. :)

In games the equilibrium is satisfactory to each player given you hold the other player's choice constant. In games with multiple equilibria you can have a second equilibrium that everyone wants to get to but can't unless they coordinate to get there.

I don't think that you'll find anyone who denies that externalities exist. The problem is getting people to agree to the policy applications to address them. For instance, even if we all agreed that climate change existed and was caused by human actions, we all won't agree that US citizens living in caves is a viable solution. Pretending that your ideological opponents deny that externalities exist because they don't agree with your draconian policy proposals is a well-known play.

OK for summing up what economics majors should keep in mind after they graduate but for a mixed audience it is the most idiotic graduation speech of all time. Why get upset when economics is branded a dismal science?

#7 - don't like this one at all. First of all, a promise only has any meaning at all if you keep it even if you don't have an immediate interest in doing so. Relatedly, you earn a reputation precisely by keeping promises that it is not in your immediate interest to keep. Mostly, it takes an extremely narrow and unrealistic view of "interest". People are wired to view keeping promises as an "interest". In fact, some promises are wired in without even uttering them, like: "If you mess with my family I will pursue you to the ends of the earth." That's what we are wired for and that is how we view our interest. Likewise, "If you are nice to me I will feel indebted to you and put myself out for your benefit". Maybe TS doesn't like these "interests" but they are genuine for most human beings.

I'm curious: Have some economists never made a choice that they later regretted? Or made a bad choice due to lack of information? Or had only poor (or excellent) choices to make due to circumstances beyond their control?

From many points of view, what one chooses is proof that the path is optimal. Hence
Item 6 "In an equilibrium of a game or an economy, people are satisfied with their choices..." is merely circular reasoning at best and utter nonsense at worst.

Further, it has been shown that where groups are concerned, the transitive rules on preferences don't apply.

Note that these are all basically lessons from micro economic theory, even the ones that apply to the macro economy. Where are the lessons from macro-economics?

I am always suspicious of people who claim that "common sense" will support their argument.

In this case, my suspicion is not founded in reality. These conclusions are indeed fairly common sense, and economics does provide logical, mathematical and potential empirical/scientific processes to evaluate the veracity of those statements.

Alex, thanks for the acknowledgement.

Too many on social media such as reddit responded by smearing Sargent as a right-winger and neo-liberal. He is a life-ling democrat.

Sargent's entire string assumes that public spending is entirely consumption and not investment. I don't think economists (at least the ones who speak in public) even think rigorously about those two terms. Feeding the hungry at one level of nutritional support can increase their economic productivity. At another it might discourage work and increase obesity.

An ECONOMIC point is that transactions always have two sides (buyer/seller, lender/borrower). A POLITICAL point only focuses on one side of the transaction.

Alexd, Paul Krugman blogged today that I seem to have posted the Sargent kink as part of a vast right-wing conspiracy to keep unemployment up; and you and david Newmark reposted it as my conspiratorial minions!

As I already said at Marginal Revolution on 20th April: “Too many on social media such as reddit responded by smearing Sargent as a right-winger and neo-liberal. He is a life-ling Democrat.”

"As I already said at Marginal Revolution on 20th April: “Too many on social media such as reddit responded by smearing Sargent as a right-winger and neo-liberal. He is a life-ling Democrat.” "

BTW, so is Larry Summers, so was Sen. Lieberman, so are a lot of people who endorse quite dishonest right-wing views.

Paul Krugman has some comments (

"The main point, however, is that Sargent’s principles aren’t actually immutable truths; they’re statements about a fairly efficient market economy not too far from full employment. Even leaving general issues of market failure aside, they seem remarkably off-point in an economy still suffering from high unemployment and excess desired savings (as evidenced by the fact that interest rates are at the zero lower bound)."

I was intrigued by the mention of Singapore's Social security system. Here's what I found:
- It is compulsory for all citizens to save up to 36% of their income for their own health care and their retirement
- These savings are invested into stocks and bonds, and not used for current spending
-This leads to a more than comfortable retirement
- Because of this scheme, their health care system costs 80% less than in the US
- As a result of this self-financing model, NO DEBT IS PASSED ON TO FUTURE GENERATIONS - unlike in America, where retirees are handed benefit privileges that far outweigh anything that they pave paid in during their working life; and as birthrates have declined, an ageing population only makes the social welfare framework groan under an increased burden that is largely displaced onto younger generations of workers.

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