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Dave Backus @ NYU
Oct 11, 2011, 9:35:56 PM10/11/11
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Sorry, but I'm in nerd heaven right now. This comes from the press conference, my transcription. Links to video and related material below.
Sargent on US deficits (starting 16:38): Here’s a phrase that you hear. You hear that US fiscal policy is unsustainable. You hear it from both parties. That can’t possibly be true, because government budget constraints are going to make it sustainable. What they mean is that certain promises people have made -- taxes, entitlements, medicare, medicaid -- those are incredible, they’re not going to fit together. So US fiscal policy is sustainable, [but] it’s very uncertain. It’s uncertain because it’s not clear which of these incredible promises are going to be broken first.
Sargent on Europe (20:05): I’m going repeat the same theme [as Chris Sims], just give you an example. The US, at the founding of our republic, after our second revolution, which is the one at which our constitution was written. Here’s the initial conditions. In the 1780s, the US is a basket case. There are 13 sovereign governments, 13 states. They have the ability to raise taxes and print money. We have a weak center -- does this remind you of anything? -- that can print money, can’t raise taxes. It’s dependent on the individual states for contributions, who typically don’t make them. … The constitution does the following. It gives the federal government the monopoly to raise tariffs, the one tax that matters. The federal government assumes all states debts, and raises tariffs. The first thing Alexander Hamilton and George Washington did was raise taxes. They were spending 85% of their revenues to service their bonds. Bonds go from being at deep discount, to going at par. That’s how we were born, with a determined solution to the problem that Europe is facing now. It was ... a miracle. … There are no new issues in economic theory. Alexander Hamilton knew them. The difficult thing is the politics, and I can’t help you with that.
Sargent on hyperinflation in Brazil (23:40): I wrote a paper a long time ago about how to stop hyperinflations. … It was about how to start and how to stop a hyperinflation. The way to start it is you get fiscal policy to run sustained deficits and then you have a monetary authority that has to monetize government debt. That will always work. How do you stop hyperinflations? Stop doing it. … This isn’t high economic theory. … If you look at Latin America in the 1970s and 80s, they stopped [hyperinflations] using this old-time religion. If you ask who stopped hyperinflation in Brazil, it was the poor people, because inflation is a tax mainly on poor people.
Sargent on answering the phone this morning (28:00): Someone called me, and they said: Do you know how to get ahold of Chris Sims?
Sargent on Europe (20:05): I’m going repeat the same theme [as Chris Sims], just give you an example. The US, at the founding of our republic, after our second revolution, which is the one at which our constitution was written. Here’s the initial conditions. In the 1780s, the US is a basket case. There are 13 sovereign governments, 13 states. They have the ability to raise taxes and print money. We have a weak center -- does this remind you of anything? -- that can print money, can’t raise taxes. It’s dependent on the individual states for contributions, who typically don’t make them. … The constitution does the following. It gives the federal government the monopoly to raise tariffs, the one tax that matters. The federal government assumes all states debts, and raises tariffs. The first thing Alexander Hamilton and George Washington did was raise taxes. They were spending 85% of their revenues to service their bonds. Bonds go from being at deep discount, to going at par. That’s how we were born, with a determined solution to the problem that Europe is facing now. It was ... a miracle. … There are no new issues in economic theory. Alexander Hamilton knew them. The difficult thing is the politics, and I can’t help you with that.
Sargent on hyperinflation in Brazil (23:40): I wrote a paper a long time ago about how to stop hyperinflations. … It was about how to start and how to stop a hyperinflation. The way to start it is you get fiscal policy to run sustained deficits and then you have a monetary authority that has to monetize government debt. That will always work. How do you stop hyperinflations? Stop doing it. … This isn’t high economic theory. … If you look at Latin America in the 1970s and 80s, they stopped [hyperinflations] using this old-time religion. If you ask who stopped hyperinflation in Brazil, it was the poor people, because inflation is a tax mainly on poor people.
Sargent on answering the phone this morning (28:00): Someone called me, and they said: Do you know how to get ahold of Chris Sims?
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