Monday, October 24, 2011

Sargent and Sims Press Conference

Although I encourage you to watch the entire video, I want to draw attention to the following quote from Sargent:
So here's a phrase that you hear; it's partly about language. You hear that US fiscal policy is unsustainable. You hear that over and over again. You actually hear it from both parties. And that can't possibly be true because government budget constraints are going to make it sustainable. So what they mean is that certain promises that people have made about taxes, entitlements, medicare, medicaid---those are incredible. They are not going to fit together. So the US fiscal policy is sustainable. It's very uncertain. It's uncertain because it's not clear which of these incredible promises are going to be broken first.

UPDATE: Peter Schiff engages in some creative editing to make it appear as if Sargent and Sims are know-nothings. Schiff uses an awkward pause and disclaimer by Sims (wherein Sims cautions the audience not to take the views of the two newest Nobel Laureates in Economics as irrefutable) to suggest Sims avoids the question. Schiff then skips from 15:35 to 16:13 (during which Sims presents his view) where Sargent says "I don't have much to add to that ... I was hoping he was going to ask about Europe." As the above quote captures, Sargent goes on to discuss his view of recent fiscal policy.

Schiff then manipulates a humorous move by Sargent---requesting a question about Europe and then, when the question is asked, deferring to Sims---to appear as if Sargent knows nothing about Europe as well. The audience recognized the humor with laughter and applause.

Shame on you, Schiff.


Nicolas Cachanosky said...

Very interesting, we had a very similar discussion (and conclusions) a few days ago. It is, however, in Spanish...


Will Luther said...

Thanks for the link, Nicolas. I especially like this comparison between Sims/Sargent and Krugman (please excuse the horrible translation):

"Yo valoro la posiciĆ³n de Sims y Sargent. Antes que la posiciĆ³n de Krugman, de responder cualquier pregunta, sea o no de su campo de estudio, prefiero la humildad de limitar a los galardonados a responder sobre aquello por lo cual obtuvieron el premio."

"I appreciate the position Sims and Sargent take. I prefer their humility to limit questions they will answer to those for which got the prize to Krugman's position, which is to answer any question regardless of whether it is within his specialized field."

I am surprised more people are not making this comparison. They are humble and reserved; he uses the prize as leverage in the policy world. The only thing I would add is that Sims and Sargent are humble EVEN IN their narrow course of study. I think that is a very respectable position to take.

Their contributions to macro are much broader than vector auto regressions. Sargent played an important role in overturning the Keynesian consensus through rational expectations and has also done some groundbreaking research on less-than-fully-rational expectations. His work on the unpleasant monetarist arithmetic and the fiscal origins of hyperinflation is great also. And, contrary to Schiff's claim, he mentions most of this in the press conference.

Here is an excellent interview with Sargent:
I know much less about Sims, but I plan to read a lot about him in the coming weeks...

Nicolas Cachanosky said...

You're welcome,

I agree with Adrian's assessment, and his comparison with Krugman.

As you say, they are humble even in their own field. One needs a humble mind, with questions rather than certainty, to keep the ideas working and research moving.


Harry David said...

Right on, Will. I was disgusted by the Schiff video, too. The distortion goes a step beyond what you explained, though. Sargent did go on to talk about the issues that are salient in the public discussion about Europe -- though he set his discussion in a different time and place, namely, 18th century America at the time of the Articles of the Confederation.

It's a great way to say, 'I don't know all the facts of the matter as they are unfolding in real time today, but I do know that whatever the specific problem and solution, we can learn about it by studying the principles at work in a similar case in history.' And that's refreshing.

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