Thomas Sargent: Making Economic History

Thomas J. Sargent is not resting on his Nobel laurels.

With all the acclaim and demands that came with winning the Nobel Prize in 2011, research and teaching could have taken a back seat. Not so for Sargent, a Distinguished Research Fellow who is busy making economic history—literally. During his spring 2013 visit to the institute, he shared a glimpse of his many projects.

  • He is writing an ambitious fiscal history of the United States with coauthor George Hall. This involves “getting our hands on every bond ever issued by the US. We’re using bonds as a window into federal spending and financing,” he said. His research assistants are scouring newspapers from the Revolutionary War era to derive bond prices.
    Modeled on Milton Friedman and Anna Schwartz’s comprehensive A Monetary History of the United States,1867-1960, Sargent’s painstaking analysis turned up interesting episodes. For instance, during the Civil War when the nation was strapped for cash, the government funded the construction of the intercontinental railroad by selling bonds, then giving the bonds to the railroads—a massive subsidy of the rail industry. The data also inspired Sargent to write a paper comparing how the US financed the Revolutionary War, the War of 1812, and Civil War. “In this history, there are important lessons and messages for today’s fiscal challenges,” he said. The research is funded in part by the institute’s Fiscal Studies initiative, supported by generous gifts from Donald R. Wilson Jr., AB’88, and Edward R. Allen, PhD’92.
  • He taught an undergraduate class on asset pricing at New York University, with the express goal of working out the theory of term structure of interest rates. He needs that theory to analyze the data on bond prices and quantity that the history project generates. “We need a theory of the term structure of interest rates. We’re trying to use modern asset pricing theories, but we also need to understand what the Congress’s theory was at the time,” he explained. Teaching it to others helps him pin down what’s absolutely necessary to know for asset pricing. “That’s how I always think of teaching—it’s a tool to help process and analyze. My attitude is that I don’t understand it until I teach it,” he said. “It’s kind of a racket,” he added with a grin, “but students don’t seem to mind. They like to see you working your way through stuff.”
  • He is expanding his fiscal history research to launch a similar detailed examination of the many fiscal crises in Latin America over the last 30 years. With Juan Pablo Nicolini of the Federal Reserve Bank of Minnesota and teams of collaborating economists, the project will compare the nine largest economies in the region, to determine how fiscal and monetary policies produced extremely low growth. The institute’s Fiscal Studies initiative is supporting this work.
  • He has two books in the works, including one with Lars Peter Hansen that follows up on their 2007 volume Robustness. “We’re calling it Robustness on Steroids,” he joked. Actually it’s called Risk, Uncertainty, and Value, and it’s modeled on the late Chicago economist Frank Knight’s famous book, Risk, Uncertainty and Profit. He is working on other papers as well.

With all this on his plate, Sargent contributes to the institute and the UChicago economics community in many ways. He plays leadership roles in both the Fiscal Studies and Macro Financial Modeling initiatives. During his spring visit he worked closely with Hansen, met with graduate students, and shared fiscal history with undergraduates.

A former UChicago faculty member, he enjoys returning and interacting with colleagues. “I love the (economics) department. It’s a very stimulating place with some of the greatest colleagues in my field.”