Thomas J. Sargent

(1943- )
Thomas Sargent was awarded, along with Christopher Sims, the 2011 Nobel Prize in Economic Sciences. The Nobel committee cited their “empirical research on cause and effect in the macroeconomy.” The Swedish economists who spoke at the press conference announcing the award emphasized the importance of Sargent’s and Sims’ thinking about the role of people’s expectations.

Sargent was an early and important contributor to the rational expectations revolution in macroeconomics, an area for which his sometime collaborator, Robert E. Lucas, Jr. won the Nobel Prize in 1995. One of Sargent’s key early contributions, along with University of Minnesota economist Neil Wallace, was the “Policy-ineffectiveness proposition”—the idea that people’s expectations about government fiscal and monetary policy make it difficult for government officials to affect the macroeconomy in the ways they intend to. If, for example, people get used to the Federal Reserve increasing the money supply when unemployment rises, they will expect higher inflation and, thus, will adjust their wage demands higher. Therefore, the lower unemployment rate that the Fed was trying to achieve with looser monetary policy will not occur.

This conclusion was at odds with the Keynesian model, which dominated economic thinking from the late 1930s to the early 1970s. The Keynesian model posited a stable tradeoff between inflation and unemployment. In 1970, major U.S. econometric models, built on Keynesian assumptions, predicted that the government could get the unemployment rate down to 4 percent if it accepted an increase in inflation to 4 percent. In a 1977 article, “Is Keynesian Economics a Dead End?” Sargent wrote: “[I]nstead of 4-4, in the mid-1970s we got 9-9, a very improbable occurrence if econometric models of 1969 had been correct.”

In the 1980s, Sargent explored expectations in other contexts. Sargent and Wallace argue in their highly influential paper, “Some Unpleasant Monetarist Arithmetic,” that good monetary policy requires good fiscal policy. Building on this, Sargent detailed how a government can end high inflation in “The Ends of Four Big Inflations.” Sargent studied four countries that had hyperinflation in the early 1920s: Germany, Austria, Hungary, and Poland. All used inflation to finance high government deficits. They all succeeded in eliminating hyperinflation, but to do so, they had to be credible. They had to affect people’s expectations by committing to substantially lower budget deficits or even balanced budgets. All four governments did so.

Sargent is actually quite ecumenical. In a 2010 interview,1 Sargent praised articles by left-wing economists Joseph Stiglitz and Jeffrey Sachs. Stiglitz and Sachs, he pointed out, “executed a rational expectations calculation to compute the rewards to prospective buyers” of toxic assets under President Obama’s Public-Private Investment Program of 2009. “Those calculations,” said Sargent, “showed that the administration’s proposal represented a large transfer of taxpayer funds to owners of toxic assets.”

Although the Nobel committee did not cite his work on unemployment insurance, Sargent, with Swedish economist Lars Ljungqvist, found that high, long-lasting unemployment benefits in Europe have caused many European workers who lost their jobs to stay unemployed for years and, thereby, erode their human capital. This makes them less employable in the long run. The fact that the U.S. government extended unemployment benefits in many U.S. states to 99 weeks, said Sargent in the 2010 interview referenced earlier, “fills me with dread.”

One of the main ways that Sargent has had influence is through his many, many students. An image of the students he has influenced, with Sargent in the middle of a flower, is worth a thousand words.2

Thomas Sargent earned his B.A. from the University of California, Berkeley in 1964 and his Ph.D. from Harvard in 1968. He taught at the University of Pennsylvania from 1970 to 1971, the University of Minnesota from 1971 to 1987, the University of Chicago from 1991 to 1998, and Stanford University from 1998 to 2002. In 2002, Sargent began teaching at New York University, where he has since remained. Sargent was a Research Associate for the National Bureau of Economic Research From 1970 to 1973, and has been again from 1979 to the present. Between 1971 and 1987, Sargent was an Advisor to the Federal Reserve Bank of Minneapolis. He has been a fellow of the Econometric Society since 1976, a member of the National Academy of Sciences and American Academy of Arts and Sciences since 1983, and a senior fellow at the Hoover Institution since 1987. He was President of the American Economic Association in 2007.

Selected Works

1975 (with Neil Wallace). “‘Rational’ Expectations, the Optimal Monetary Instrument, and the Optimal Money Supply Rule.” The Journal of Political Economy Vol. 83, No. 2 (Apr., 1975), pp. 241-254.
1977. “Is Keynesian Economics a Dead End?”, Federal Reserve Bank of Minneapolis Working Paper #101.
1979. Macroeconomic Theory. Boston: Academic Press.
1981 (with Neil Wallace). “Some Unpleasant Monetarist Arithmetic”. Federal Reserve Bank of Minneapolis Quarterly Review Vol. 5, No. 3 (Fall, 1981), pp. 1–17.
1983. “The Ends of Four Big Inflations” in: Inflation: Causes and Effects, ed. by Robert E. Hall. University of Chicago Press, for the NBER, p. 41–97.



“Interview with Thomas Sargent,” The Region, Federal Reserve Bank of Minneapolis, September 2010 at:


The image is on Sargent’s web site at

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