Prize winners were colleagues at U of M

  • Article by: JENNA ROSS , Star Tribune
  • Updated: October 11, 2011 - 11:51 AM

Two of the U's "Four Horsemen" claim big prize for groundbreaking work on cause and effect in economy.

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Chris Sims, professor of econimics at the U of M in his office. Photo taken 6/22/1982

Photo: Tom Sweeney, Star Tribune

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The two winners of the Nobel economics prize were once half of the "four horsemen" at the University of Minnesota, debating theories that would change how governments manage the economy.

Thomas Sargent and Christopher Sims were honored Monday for work they did while part of the U's economics department in the 1970s and 1980s. A third "horseman," Edward Prescott, won the same prize in 2004. Colleagues hope the fourth, Neil Wallace, won't be far behind.

"They are the idols of a new generation of economists and graduate students," a 1983 article said, "who flock from such places as Harvard and MIT to study here."

The academy noted that Sims' and Sargent's distinct but complementary approaches were developed independently of one another. They wrote just one paper together, in 1977. But those who knew them then emphasize their back-and-forth.

"They influenced each other an enormous amount," said Prof. Varadarajan Chari, who worked at the Federal Reserve Bank of Minneapolis at the time. "Both will happily acknowledge that."

While at the U, Sargent and Sims both held part-time positions at the Minneapolis Fed, where their theories were put into practice and affected national economic policy.

"We took that theory right to Washington," said Art Rolnick, former research director at the Minneapolis Fed.

Folks there say they knew long ago what the Nobel academy recognized Monday: Sargent and Sims were superstar economists.

Sargent "was writing papers faster than I could read them," Rolnick said. "He took some of the most advanced mathematical courses offered, and by the end of the year, he was teaching them."

With his colleagues, Sargent showed that the public bases its decisionmaking not only on the past, but on what might happen in the future.

So to curb inflation, a government ought to not only take steps in the short-term but also publicly commit to keeping inflation low in the long-term, Rolnick summarized. As a result, the Federal Reserve "moved to much more transparency about our long-term objectives," he said.

"Once you realize that expectations are forward-looking, not just backward-looking," Rolnick said, "you have to work a lot harder in designing economic policies."

At first, the rational expectations idea was described as unrealistic and "out-of-touch with how people work," Chari said. But "the march of time has proved Tom right."

The lag in recognition was good fortune for the U, Chari noted. It kept the offers from richer universities at bay, at least for a bit.

Sargent is now a professor at New York University. Sims is at Princeton. This semester, a Wall Street Journal article noted, the pair are teaching a course together.

Jenna Ross • 612-673-7168

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