Paul Krugman: No Time for Sargent

I’m a little late to this, but there’s lately been some buzz about the unearthing of Tom Sargent’s 2007 graduation speech, in which he briefly laid out 12 principles of economics. For the most part the speech is getting favorable attention. So let me be a spoilsport. It’s not so much that what Sargent said is wrong, although some of his principles are by no means universally agreed upon, even in normal times. What’s so striking about Sargent’s points is that it’s hard to think of a worse time to cite them. And the people citing that old speech clearly have ulterior motives.

So, about the not so time-dependent points: Sargent declared as a principle, “There are tradeoffs between equality and efficiency.” Well, every economist would agree that Cuban-type equality is bad for efficiency. But would reducing our current level of inequality reduce efficiency? That’s far from clear: there are a number of reasons to believe that high levels of inequality have adverse effects on economic growth – and evidence to that effect is coming not from fringe leftists but from places like the IMF.