Who and what does Nobel laureate Thomas Sargent think, listening to Bulrich?

The economy, and inflation in particular, is at the center of the political and pre-election scene in Argentina. Patricia Bullrich The meeting today will underline his determination to fight the scourge of inflation Thomas SargentAlong with the student and fellow economists of this event Robert Lucas– One of the greatest exponents of the “rational expectations” theory.

Sargent won the Nobel Prize in Economics in 2011 Christopher SimsFor his research on cause-effect relationships in the functioning of the economy, Bullrich was already in contact with him in April 2022, on a tour of the United States, where he spoke with Sargent via Zoom along with two of his advisers: Juan Pablo Arenaza And Alberto ForicCoordinators of their technical teams.

“Thomas Sargent is an expert on inflationary issues, James Heckman He is an expert in human resources and Michael Creamer Understands everything related to social policies. Raghuram Rajan He was responsible for stabilizing India’s economy,” Bullrich tweeted after his New York days interview.

At that time, the current presidential candidate later recounted, Sargent told him about two serious victories in the fight against inflation: Margaret Thatcher 80s in the United Kingdom and better known as Vladimir Ilyich Ulyanov LeninAs in the post-October Revolution monetary stabilization of the Soviet Union, the struggle against inflation was not a left or right issue and was beyond ideological questions.

Thatcher stabilized the British economy, which had come out of deep crisis in the 70s, when she had to resort to two packages from the IMF – an affront to English pride – essentially privatizing companies and violently cutting public spending. Lenin did so by imposing an almost defensive discipline on the functioning of the state that served at least the first years of socialist experimentation; Although he fought against capitalism, he firmly believed that currency could not be played with, and in fact the best thing to destroy a country was to destroy its currency. Argentina has done a lot of self-inflicted damage in recent decades.

Sargent was the star guest at a workshop on international economics and finance in Buenos Aires that started yesterday and ends tomorrow with a debate. Luciano LaspinaHe was Bullrich’s chief economic adviser during the campaign Gabriel RubinsteinDeputy Minister Sergio Massa.

The 2011 Nobel laureate is best known for his contributions to the so-called rational expectations theory. Economic agents (entrepreneurs, workers, consumers, savers, investors) cannot be fooled by economic authorities in the long run.. If they lie to you – for example, they say they’re reducing inflation, but they continue to run deficits and release money – you stop believing them.

Rationalists therefore place importance on the “reputation” and “credibility” of governments and officials and political leadership. To combat inflation, it is important to be credible, to create the belief that things are serious, so that people adapt their behavior to the new situation.

Born in Pasadena, California, in July 1943, Sargent studied at Berkeley in his native California, where he was named top of his class in 1964, completed his master’s at Harvard, and later became a professor at many of the most prestigious. Universities in the US: Pennsylvania, Minnesota, Chicago, Stanford, Princeton and New York, where he currently teaches.

Two of his papers from 1981 stand out. One of his sole authors is the “Four Great Inflations,” in which he examines and exposes the hyperinflation of Germany, Hungary, Austria, and Poland at the turn of the 20th century. He explained not only the cause of these events, but also how they were dealt with: basically, freeing the central bank from the obligation to finance state deficits, suddenly cutting off currency issuance and forcing the government to finance itself. By placing value debt with its own revenue (and bought or rejected) by the market independently.

He modeled this relationship between a country’s monetary and fiscal authorities with his colleague. Neil WallaceAnother rational expectations theorist, in an essay popular among academic economists: “Some Bad Numerical Arithmetic,” a work full of formulas and equations that even seasoned practitioners of the “dark science” find difficult to read.

Beyond formulation, one of the article’s corollaries is that if “monetary authorities” dominate monetary policy and management, and ultimately inflation, they will lose control. That is why, Just as the father of inflation, Milton Friedman, said that inflation is “always and everywhere a monetary phenomenon”, Sargent went a step further in the causal chain and said that “high and persistent inflation is always and everywhere a financial phenomenon”..

Hence the importance of an “independent central bank” capable of saying no to the Treasury (in Argentina, the Ministry of Economy) and face to face with its own accounts and, in the event of a deficit, with the regulation of the bond market.

In Argentina, Bullrich promises to achieve that discipline. It is one of the components of economic planning Carlos Melkonian Prepared over the last 20 months with the help of more than 70 liver economists from the Mediterranean Foundation: it includes a reform of BCRA’s organic charter. The candidate will formalize the meeting of the “Federal Voices” cycle in Córdoba tomorrow, choosing Melkonian as a media sword in the campaign and eventually as a minister in his presidency.

Bulrich would arrive there with his credentials, not only in protection but also against inflation, thanks to his relationship with Thomas Sargent, the economist most critical of Keynes. Javier Miley, He named one of his dogs “Bob” after Robert Lucas, Sgt’s partner. The others I didn’t name “Tom”.

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