Interview with the 2011 Laureates in Economic Sciences Thomas J. Sargent and Christopher A. Sims, 6 December 2011. The interviewer is Adam Smith, Editorial Director of Nobel Media.
The Laureates describe how computer models help them conduct large-scale economic experiments and disagree on whether people behave rationally in an economy. Christopher A. Sims reveals that economists still don’t have models to explain why money is so important in the modern economy. They also discuss why previous models weren’t able to predict the current economic crisis.
The 2011 Nobel Laureates met at the Bernadotte Library in Stockholm on 9 December 2011 for the traditional round-table discussion and TV program ‘Nobel Minds’. The Laureates discuss issues of global concern, their own research, and their early influences.
Telephone interview with Thomas J. Sargent recorded immediately following the announcement of the 2011 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, 10 October 2011. The interviewer is Adam Smith, Editorial Director of Nobel Media.
[Thomas Sargent] Hello?
[Adam Smith] Hello. May I speak to Thomas Sargent, please?
[TS] Yeah, this is Sargent.
[AS] Oh, hello, my name is Adam Smith, and I’m calling from Nobelprize.org, the official website of the Nobel Prize in Stockholm. Congratulations on the news of your award.
[TS] Yeah, thank you.
[AS] We have a tradition of recording extremely brief telephone interviews with new Laureates. Would you be able to speak for just a few minutes?
[TS] Yeah, sure, okay.
[AS] May I just first ask where you were when you heard the news? Did you get the call from Stockholm?
[TS] Yes, I did. I was in my study. I get up early so I was in my study.
[AS] Right, so you already … because it’s only … it’s still early where you are, yes. And, you’ve been awarded with Christopher Sims, and you were PhD students together in Harvard, and got your PhDs together in 1968. But, you haven’t really worked together?
[TS] Oh, no, we were colleagues at Minnesota.
[TS] And, we had many students together. I learned a tremendous amount from him. And, so, we’ve had wonderful students together and we interacted a lot through our students. So, we were at Minnesota for fifteen years together.
[AS] Right. And, indeed, you’ve had a tremendous number of students. I think one of your great contributions has been your mentorship, I gather?
[TS] I’ve had great students. I’ve been very lucky. Yeah.
[AS] It’s quite a time to be chosen to be a Nobel Laureate, with so much of the world’s attention focused on the economy. Do you find it a daunting prospect to be the subject of so much media attention?
[TS] Well, I … sorry, I don’t know what’s involved in that. You know, we’re just … yeah, we’re just bookish types that look at numbers and try to figure out what’s going on. So, I don’t know what to say to that!
[AS] It’s a nice description. I mean, broadly, would it be true to say that among your contributions has been the demonstration that – the demonstration of the importance of people’s expectations in macroeconomic modelling?
[TS] You know that’s an insight that economists have had for a long time. I mean Marshall had that and Keynes had it. And what I try to do – figure out – and I wouldn’t even say I did it by myself, I wouldn’t say I mainly did it – but I tried to use methods of John Muth and Robert Lucas … pointed out how to discipline – you know, the thing, expectations matter is, it’s true, but it’s loose. You have to have … You know, to make progress on that, you have to have some idea about how expectations are formed. And, that was a loose end in econometrics and quantitative analysis and we tried to discipline and tighten that. And, under certain circumstances that works, under others it doesn’t work. There’s a lot of people who have worked on that just, you know, scores who made … And, people now when they’re thinking about the crisis, are thinking about new ways of extending theories of expectations. In panics and crises, are all about – you know what’s going on in Europe right now with the euro – that’s all about expectations about what other people are going to do. So, that’s what many economists work on and I do too.
[AS] And, the work basically allows us to better predict the roles and limits of policy intervention?
[TS] Yes. Well, we try to [lines cuts out] the limits and possibilities of policy, yeah.
[AS] Broadly, your models provide, if you like, a laboratory where you can experiment with what the effect of a policy intervention might be?
[TS] Absolutely, that’s what we try to do. We try to experiment in our models before we wreck the world.
[TS] … so that we don’t wreck the world, right?
[AS] And how close do you think those laboratories are to equating to the real situation?
[TS] Some are quite good. Some need improvements. Some are extremely influential in terms of influencing policies for good or bad. I mean, there are … Models guide what the central banks do now to a very large extent. And, competing models do. So like models of bank runs and models of moral hazard, those are all models about expectations and about how expectations and incentives interact. So, there’s some really close calls. But, I know for a fact that, now at central banks, and at some treasuries, very sophisticated … people who are very knowledgeable about economics are worried about exactly the forces that our models are about. Many of the practical problems are ahead of where the models are. But, that’s why …
[AS] Yeah, I guess one always needs to refine the models. But, yes, yes. Okay, well I promised to take up only five minutes and you’ve been extremely kind in talking to me. When you come to Stockholm in December we have a chance to speak at greater length.
[TS] Okay, I’d like to, I’d like to.
[AS] I look forward to it very much. Okay, congratulations again and enjoy your day. Thank you.
[TS] Okay, okay, thanks, bye.
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