Monday, October 10, 2011

Nobel Prize to Thomas Sargent

I’ve been familiar with Thomas Sargent--at least his reputation--since he taught at the Univ. of Minnesota.  Sargent who along with Robert Lucas was a leader of the rational expectations school of economics has now won the Nobel Prize.  That school of economics can be summarized as the belief that “policymakers can’t manipulate the economy by systematically tricking’ people with policy surprises.”  No surprise then to see that Sargent wasn’t a fan of the stimulus program.

Keeping in mind the rational expectations view consider the current economic situation and the Obama economic program:

Ø      Wealthy defined as $250K per year in income, above that is money you don’t need.
Ø      Calls for dramatically increasing taxes on “the rich.”
Ø      Extremely high debt levels with no signs that it will be dealt with by decreasing spending.  Proposed spending cuts when offered have all been pushed into the out years.

If Thomas Sargent’s work has any validity why would a person with money risk it investing in startups and the like?  As it currently stands a rational view of the future includes singly or in some combination: a) much higher taxes on wealth b) inflation c) severe fiscal stress.   

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