Thomas J. Sargent

Contact Information

Email: thomas.sargent@nyu.edu

Department of Economics, New York University:19 W. Fourth Street, New York, NY 10012-1119

“In our dynamic and uncertain world, our beliefs about what other people and institutions will do play big roles in shaping our behavior.” – Thomas J. Sargent

There are numerous individuals who have impacted the world of economics. American economist, Thomas J. Sargent was born July 19, 1943 and continues to influence the complex economic world today. Before earning his Ph.D from Harvard University in 1968, Sargent was a first lieutenant and captain in the U.S Army. Most recognizably, he was awarded Most Distinguished Scholar in his 1964 university graduating class and the Nemmers Prize in Economics in 1997. He was also elected to be part of the National Academy of Sciences and also the American Academy of Arts, where he has been a member of both since 1983. It is important to emphasize Sargent’s teaching background in economics throughout the years. He was a professor of Economics at the University of Minnesota (1975-1987), a David Rockefeller professor at the University of Chicago (1992-1998), and a Donald Lucas professor at Stanford University (1998-2002). Today, Thomas J. Sargent is the first W.R. Berkley Professor teaching at New York University. Not only has Sargent made an impact on the academic portion of economics, but he has become one of our society’s most notable authors. Sargent is known for his specialization in macroeconomics, monetary economics and time series economics. He has been called “one of the leaders of the rational expectations revolution”, which leads to his greatest contribution to economics.
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Thomas J. Sargent


Sargent’s “Rational Expectations” Contribution

In the early 1970’s, American economist, Robert Lucas paved the way for Sargent to further his impact in economics. Lucas argued that the macroeconomic theory should be an “aggregated version of microeconomic models” (Robert Lucas, Jr.). The ‘Lucas Critique’, which later led to the birth of what is known as New Classical economics, explains that those variables that seem to hold the economy together (inflation and unemployment) should ultimately change in response to changes in the economy. In regard to Sargent’s idea of ‘rational expectations’, Lucas created the theory of supply “which suggests people can be tricked by unsystematic monetary policy” (Robert Lucas, Jr.). Sargent and his colleagues from the University of Minnesota took Lucas’ notion and extended the macroeconomic theory into more complex ideas. Previous macroeconomic models held the notion that “people respond passively to changes in fiscal and monetary policy”, however, “the rational expectation models, people behave strategically, not robotically” (Rolnick). Before Sargent, policy makers believed that although there would be changes in fiscal and monetary policy, people would remain unaffected and continue spending and saving just as before. However, the idea of rational expectations believes that people will strategically plan their economic activity based on previous patterns. This new theory believes “people [will] look to the future, anticipate how governments and markets will act, and then behave accordingly in ways they believe will improve their lives” (Rolnick). This model explains that people are not tricked by the changes in fiscal and monetary policy, and they will seek to benefit themselves in the future. Policy makers will no longer be able to “manipulate the economy my systematically ‘tricking’ people with policy surprises” (Rolnick). There is a great example to explain this idea that Sargent brought to the forefront of economics. Suppose the Central Bank lowers unemployment by limiting monetary policy. Although they can do this temporarily, the Central Bank can not permanently minimize the unemployment rate. Sargent and fellow economist Neil Wallace explain that people will expect (rationally) high future inflation and will ultimately demand higher wages for their work and higher interest rates for their capital (Rolnick). This idea leads to further research for Sargent, resulting in more complex mathematical ways to procure more accurate rational expectations.

Further Contributions

Sargent’s contributions were not only limited to his theory of rational expectations. He began to do econometric work in the early 1970’s which included studies of “ the natural rate of unemployment, the neutrality of real interest rates with respect to money, dynamic labor demand, empirics of hyperinflation, and tests for the neutrality of money in “classical” rational expectations models” (Evans 1). Furthermore, Sargent and his colleague Lars Hansen explored and developed econometric methods for estimating his rational expectation model. In addition to these previously stated, Sargent made several key contributions go theoretical macroeconomics which include the characteristic of stability in the rational expectations equilibrium and “the observational equivalence of rational and non-rational theories of monetary neutrality” (Evans 2). Thomas Sargent introduced this rational expectation idea into different areas of economics. Two notable examples include “the implications of the government budget constraint for inflation (with Neil Wallace) and the sources of the European unemployment problem (with Lars Ljungqvist)” (Evans 2). Although Sargent’s achievements have been centered on this notion of rational expectations, his influence is certainly not confined to only this one area. The contributions of Thomas J. Sargent are evident even throughout the economic crisis of our time.Sargent_2.jpg

Other Areas of Study

Econometrics: This idea is also one of Sargent’s numerous contributions to the economic world. Econometrics is the “application of mathematics and statistical methods to the analysis of economic data” (Econometrics). Sargent uses these equations in determining more accurate rational expectations for people anticipating economic changes in the future.
Time Series Economics (forecasting): Time series economics is seen frequently throughout Sargent’s economic studies. By definition it is “the use of models to forecast future events based on known past events: to predict data points before they are measured” (Wikipedia: Time Series). This type of economics is evident when using Sargent’s idea of rational expectations. He used these models in order to plot the actions of people before there were changes in fiscal and monetary policies. The ability for people to predict the future outcome based past results can be clearly seen through a type of time series model.
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More About Thomas J. Sargent

Current Positions

  • William R. Berkley Professor of Economics and Business, New York University, since 2002

  • Senior Fellow, Hoover Institution, Stanford University, since 1987
  • Research Associate, National Bureau of Economic Research, 1970–73 and since 1979

Previous Positions

  • Donald Lucas Professor of Economics, Stanford University, 1998–2002

  • David Rockefeller Professor of Economics, University of Chicago, 1991–98
  • Visiting Scholar, Hoover Institution, Stanford University, 1985–87
  • Visiting Professor of Economics, Harvard University, 1981–82
  • Ford Foundation Visiting Research Professor of Economics, University of Chicago, 1976–77
  • Adviser, Federal Reserve Bank of Minneapolis, 1971–87
  • Associate Professor of Economics, University of Minnesota, 1971–87; Professor from 1975
  • Associate Professor of Economics, University of Pennsylvania, 1970–71
  • First Lieutenant and Captain, U.S. Army; served as Staff Member and Acting Director, Economics Division, Office of the Assistant Secretary of
Defense, 1968–69

Professional Affiliations

  • President, American Economic Association, 2007; President-elect, 2006; Vice President, 2000–01; Executive Committee, 1986–88

  • President, Econometric Society, 2005; First Vice President, 2004; Second Vice President, 2003; Council, 1995–99, 1987–92; Fellow, 1976
  • President, Society for Economic Dynamics and Control, 1989–92
  • Member, Brookings Panel on Economic Activity, 1973

Honors and Awards

  • Moore Distinguished Scholar, California Institute of Technology, 2000–01


  • Marshall Lecturer, Cambridge, England, 1996

  • Erwin Plein Nemmers Prize in Economics, Northwestern University, 1996–97

  • Fellow, American Academy of Arts and Sciences, 1983

  • Fellow, National Academy of Sciences, 1983

  • Mary Elizabeth Morgan Prize for Excellence in Economics, University of Chicago, 1979

  • Most Distinguished Scholar, University of California, Berkeley, Class of 1964

  • Phi Beta Kappa, 1963

Education

  • University of California, Berkeley, B.A., 1964

  • Harvard University PhD

Work Cited

"An Interview with Thomas J. Sargent." Interview by George W. Evans and Seppo Honkapohja. University of Oregon, 11 Jan. 2005. Web. 25 Nov. 2010. <http://economics.uoregon.edu/papers/UO-2005- 2_Evans_Sargent_Interview.pdf>.

"NYU Stern - Thomas Sargent - William R. Berkley Professor of Economics and Business." NYU Stern: Leonard N. Stern School of Business. Web. 25 Nov. 2010. <http://w4.stern.nyu.edu/faculty/facultyindex.cgi?id=299>.

Rolnick, Art. "Interview with Thomas Sargent - The Region - Publications & Papers." The Federal Reserve Bank of Minneapolis. 15 June 2010. Web. 25 Nov. 2010. <http://www.minneapolisfed.org/publications_papers/pub_display.cfm?id=4526>.

"Time Series." Wikipedia, the Free Encyclopedia. Web. 25 Nov. 2010. <http://en.wikipedia.org/wiki/Time- series_data>.