Your Majesties, Your Royal Highnesses, Your Excellencies, Ladies and Gentlemen:
Chris Sims and I thank you for recognizing the many women and men like us who use statistics and economic theory to understand how governments and markets can improve peoples' lives. I state 7 practical lessons taught by my beautiful subject, which investigates the consequences of time and chance and cooperation and competition and foresight and incentives.
1. Many things that are desirable are not feasible.
2. There are tradeoffs between equality and efficiency.
3. Other people have more information about their abilities, their efforts, and their preferences than you do.
4. Everyone responds to incentives, including people you want to help. That is why social safety nets don't always work as intended.
5. When a government spends, its citizens eventually pay, either today or tomorrow, either through explicit taxes or implicit ones like inflation and defaults on debts.
6. Most people want other people to pay for public goods and government transfers (especially transfers to themselves).
7. It is feasible for one generation to shift costs to subsequent ones. National government debts and the U.S. social security system do that (but not the social security system of Singapore).
Wednesday, December 14, 2011
Economical with the Truth
Thomas J. Sargent's speech at the Nobel Banquet on 10 December 2011 was economical with the truth in the very BEST senses of that phrase: