We don’t see eye to eye on many issues of economic policy, but Noah Smith is quite possibly even a bigger smart*ss than me, so I try to follow his blog out of solidarity. I have to agree with Noah that the gushing over Thomas Sargent’s 2007 graduation address to Berkeley students has been completely overblown. (I saw people on Facebook referring to it as the greatest economic lecture ever, etc.) Also, in case you’re curious, I have no idea why people starting talking about it now, when the event occurred 7 years ago. Perhaps something to do with asymmetric information.
Anyway, Noah is mad because it smacks of policy advocacy. It’s not the neutral discussion of objective economic law, the way Noah’s heroes Paul Krugman and Brad DeLong dispense.
But I’m more concerned that at least two of Sargent’s 12 principles don’t even make sense. First and most serious: “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.”
Huh? One out of twelve main points that the science of economics can teach young people, is that it’s difficult for government policy to make things worse? (If you read the whole thing, I think it’s pretty clear that Sargent is including the possibility of well meaning outsiders working through the government to try to change things for the better.) And doesn’t this superficially at least conflict with Sargent’s 5th principle, that there are tradeoffs between equality and efficiency? Or is he saying in #5 that there are tradeoffs, but in #6 that we can never really move along that dimension much from our starting point?
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.
This is the kind of thing where it sounds like he’s saying something deep, but if you actually read the above three times in a row, you see it doesn’t really make sense. If I can break it down, it’s something like:
a) Sometimes it would benefit you today, if you could promise to do something in the future that is against your interest. But when it comes time for to follow through on that promise, you won’t, because you will be responding to the incentives at that time. However, recognizing this, people won’t believe you today if you try to make such a non-credible commitment, meaning that in practice you will not be able to benefit today from issuing such a promise.
b) Try to gain a reputation as someone who will not respond to the incentives you will face in the future. Then people will believe you when you promise to do something that is not in your interest.
Look, I know what Sargent is trying to say in the above, or at least I think I know what he’s trying to say. But my point is, what he actually said makes no sense to me.
So in summary, I agree with Noah that this is hardly a “summary of economics.” Not only is it an odd collection of principles (the last one seems to come out of left field), but at least one is flat-out wrong and would (if it were true) justify getting rid of 99% of the world’s economists, and another one is very poorly worded.
Yet having said all of that, I’m sure the kids loved it, because the whole thing was 297 words.