Government Spending

Quite Simply The Greatest Graduation Speech Ever Given. And Just 335 Words Long


The speech was delivered in 2007 to seniors at the University of California at Berkeley by Nobel-winning economist Thomas Sargent. Here 'tis:

I remember how happy I felt when I graduated from Berkeley many years ago. But I thought the graduation speeches were long. I will economize on words.

Economics is organized common sense. Here is a short list of valuable lessons that our beautiful subject teaches.

1. Many things that are desirable are not feasible.

2. Individuals and communities face trade-offs.

3. Other people have more information about their abilities, their efforts, and their preferences than you do.

4. Everyone responds to incentives, including people you want to help. That is why social safety nets don't always end up working as intended.

5. There are tradeoffs between equality and efficiency.

6. In an equilibrium of a game or an economy, people are satisfied with their choices. That is why it is difficult for well-meaning outsiders to change things for better or worse.

7. In the future, you too will respond to incentives. That is why there are some promises that you'd like to make but can't. No one will believe those promises because they know that later it will not be in your interest to deliver. The lesson here is this: before you make a promise, think about whether you will want to keep it if and when your circumstances change. This is how you earn a reputation.

8. Governments and voters respond to incentives too. That is why governments sometimes default on loans and other promises that they have made.

9. It is feasible for one generation to shift costs to subsequent ones. That is what national government debts and the U.S. social security system do (but not the social security system of Singapore).

10. When a government spends, its citizens eventually pay, either today or tomorrow, either through explicit taxes or implicit ones like inflation.

11. Most people want other people to pay for public goods and government transfers (especially transfers to themselves).

12. Because market prices aggregate traders' information, it is difficult to forecast stock prices and interest rates and exchange rates.

More context here.

Hat tips: Rob Wile of Business Insider, Craig Newmark of, and Mark J. Perry of AEI and the Carpe Diem blog

I highlighted number 10 because it is an obvious truth that has been widely forgotten or ignored by Republicans and Democrats alike. The House Republican budget proposal envisions spending $3.7 trillion in 2015 and $5 trillion in 2024 (see summary table 1). Barack Obama's proposal suggests spending $3.9 trillion next year and $5.9 trillion in 2024. Both show deficits in the year 2024. Which comports with Congressional Budget Office (CBO) predictions that well into the next decade the government will spend much more than it takes in.

NEXT: Kurt Loder Reviews In Your Eyes

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  1. Well if it’s good enough for Ezra Klein…

    1. Interesting that Rachel….err…I mean Ezra would post that while having absolutely no grasp of it’s meaning!


      1. I actually read this when Irish posted it over the weekend, loved it, and, after seeing the Klein thing, went back and re-read it to see if somehow there was a secret message in it that somehow I missed.

        Nope. Klein is just clueless enough to post something that basically invalidates his entire worldview.

  2. This is good. A recitation of The Iron Laws would have been better.

    1. R C approves of your obeisance to the Iron laws.

    2. Is that when you pay the Iron Price for everything?

  3. If you remember College, you weren’t really there

    I’m offended by that alt-text. I was spending a lot of money, I was motivated to learn despite the best efforts of the tenured faculty.

  4. Plenty of good nuggets in there. I’m partial to #4.

  5. They let someone give that speech at Berkeley? I’m surprised he wasn’t mau-maued off campus for insufficient leftism.

    1. He only wasn’t because the students were too stupid to understand what he was saying. After it was explained to them later, they were outraged.

      1. Actually, I forgot that Sargent has a Nobel Prize. If people started discounting the credentialism of the Nobel Committee, what other individuals would be open to criticism based upon their actual performance after receiving such a prize. I’m pretty sure nobody in the Berkeley Orthodoxy really wants to open that discussion, so Sargent will be ignored and life will go on.

    2. Maybe he gave them a fake speech beforehand. That’s what I did for my high school graduation when they told me to do a longer speech.

  6. Things have changed since I was there.

    Pro: People like Thomas Sargent are giving graduation speeches. My commencement speaker was Johnny Moseley.

    Con: Robert Reich is a professor there now.

    1. My senior convocation speaker (Cornell ’98) was Keith freaking Olbermann. I shit you not.

      I did not attend. It’s one of those times I’m glad Cornell did things differently, because I would have been forced to sit through that shit if he were the commencement speaker.

      1. I didn’t go either. But I hear that Johnny Moseley did an on stage reenactment of the first time he did the dinner roll.

      2. I skipped my Cornell graduation entirely. I’ve got no clue who spoke at it.

        1. I graduated in December, it was held in the ROTC building, and no fake important people spoke.

          1. Now that I think about it, I also have no clue who spoke at my undergrad graduation, which I did attend (solely at my parent’s insistence).

    2. Con: Robert Reich is a professor there now.

      Yeah but he has no interaction with stoodintz.

      He writes that “column” of his where he wheedles the reader for more taxes and moonlights as a lawn gnome at Janet Napolitanos house.

    3. “My commencement speaker was Johnny Moseley.

      Oh, for pete’s sake! There’s a real good reason to play hookie and get drunk.

      1. Done and done.

  7. So, according to MMT (the only theory of money that makes much sense with non-convertible currency), taxes don’t fund the government but act primarily as a damper on aggregate demand: i.e., if you imagine a full pie as the economic output of the US for one year, and the government as consuming 20% of it, you won’t get real inflation as long as the disposable private sector money left after taxation can buy at most the 80% that is left. Of course some sectors will attract more demand than others relative to the norm, which is why you get high price rises in college tuition, gold, etc., all while TVs and wheat are dropping in price. You’ll only necessarily spark an economy-wide rise in prices when aggregate demand exceeds supply.

    What this says to me is that entitlements will only come “due” in the sense that #10 implies when payouts exceed the ability of taxes and reduced non-entitlement government spending to keep aggregate demand down. I.e., when the government directly buys X%, non-entitlement income buys Y%, and entitlement promises exceed (100-X-Y)%. I would argue that it’s at that point that you’ll see entitlements scaled down, not because the government can’t afford it (the government can create as much of its own currency as it wants), but because the central bank knows that a general price rise is the only alternative.

    1. continued….

      MMT will be understood by those in power precisely when it starts explaining something that makes no sense without it. Until then, politicians will continue to act as if we’re on a gold standard, and treat taxes as a way for the government to raise revenue even though there is no logical reason for it to do such a thing.

      1. If MMT is so great why doesn’t someone use it?

        Some Scandinavian country or some dump elseswhere?

        1. Argumentum ad populum.

          Thanks for playing, Tony.

        2. It isn’t a question of “using” it: you don’t “use” the law of gravity, either, but you are subject to it whether you like it or not. MMT is simply a theory that attempts to describe how fiat currencies actually act, and provides clear, testable distinctions between them and convertible currencies like gold standards.

          For example, MMT is easily able to explain why lowering interest rates to zero and keeping them there for years or even decades doesn’t automatically result in runaway inflation.

          1. I only know MMT in connection of a proponent named Michael Hudson and he maintains that deficit spending can never be an issue (Hudson hangs out with quacks).

            1. One of the arguments is that the deficit by itself is just a number, and doesn’t necessarily signify anything about the overall price level.

              The banking system is deceptively simple. “Paying off the debt” would just involve decreasing a bunch of savings accounts at the Fed (that is, Treasury bonds) and increasing a bunch of checking accounts at the Fed by the same amount, essentially moving money from one type of account to another.

              Does that by itself have any impact at all on aggregate demand? If not, then why would it have any effect on price levels?

              It would be a very different situation if the Treasury had to come up with a lump of gold for every bond redeemed. But it doesn’t. That’s what distinguishes MMT from theories that assume convertibility: there is no further redemption. What has happened is that foreign governments have accepted dollars (in the form of either bonds or demand deposits) in exchange for real goods. In return, they get… more dollars. This is never a solvency issue in a sovereign non-convertible currency, and is a problem inflation-wise if and only if the creation of dollars causes total aggregate demand to exceed supply.

  8. Damn, there is that Clinton surplus again.

    Cue the Peanut outrage!

    1. It didn’t happen even according to the government’s own numbers:…..stdebt.htm

    2. Cue the Peanut outrage!



    3. Look at the horrible thing that happened to outlays. Clearly, everyone starved to death.

      1. I know I’d be alive today if those cuts hadn’t occurred.

        1. And we miss you so… (sniffle)

  9. The chart is misleading. It shows a surplus around 2000. If there were really a surplus the debt would not have increased. The last time the federal debt went down was 1956 through 1958.

    1. Its a current accounts thing. Because they are required to call all of the income from payroll taxes that doesn’t go to social security a debt, AND they spend it in the general ledger, the “debt” technically went up, but that part really is just an accounting device. There were a couple of years where the revenue for a year and the spending for a year summed to zero.

      1. They shouldn’t be spending Social Security funds for on-budget general spending. Looks to me more like it’s evidence of malfeasance with funds for future obligations.

        1. The government doesn’t have to comply with the same accounting rules that it makes EVIL KORPRAYSHUNS comply with.

          Unfunded liabilities (or, off balance sheet liabilities) are over $100 trillion.

          1. So what happens when SS, Medicare and Medicaid swamp the tax base and all those “non-marketable securities” come due?

            Ever try to change 4 flats with one spare?

            1. There will be a lot of pissed off people somewhere.

        2. Eh. I’m not saying right or wrong. LBJ technically went through all the proper channels to get that revenue into the general ledger. If you want to bitch at the voters who bought the shit and thought they got a bull, I’m with you. But facts is facts, they brought in more money than they needed on the social security tax versus social security payments, and the excess revenue almost exactly equaled the deficit in revenue from all other sources. The idiocy is the pretense that its okay for the revenue to fall short of the obligation in the future.

      2. Use gaap and there was no recent year reasonably approaching balanced.

    2. I have explained this many times but perhaps you were not here.

      FICA surpluses by statute are required to be put into special-issue US Treasuries.

      A surplus in FICA collected is a good sign.

      1. They are not “put into” anything.

        The treasury takes the money and Congress spends it.

        It gives SS a piece of paper saying IOU.

        That is not a debt instrument.

        1. Thank you, sir. I had something to run take care of and it took a while to come back to send my response.

        2. You don’t know shit.

          A US Treasury is certainly discrete debt instrument.

          1. It isn’t a US Treasury, ass clown. The Treasury Department will suffer no consequences for reneging on it. That is the difference between the two and a (yet another) clear indication that you are a total moron.

          2. You don’t know shit.

            A US Treasury is certainly discrete debt instrument.

            The government has to buy a bond, i.e., take out debt, to pay back that note when there are shortfalls, dumbass–in both SS and Medicare. It’s the equivalent of using your Mastercard to make a payment on your Visa.

            I’ve already made you my bitch on this before. Don’t start whining just because you don’t know what the fuck you’re talking about.

      2. A surplus in FICA collected is a good sign.

        I’m impressed. PB is now on record as favoring the funding of government operations with regressive payroll taxes. As we all know, those surplus FICA taxes are all “loaned” to the Treasury’s main account to cover expenses, after all.

        Regressive taxation? Check.

        Used to fund government operations? Check.

        And, as a bonus (well, for PB, anyway), total debt outstanding increased and the tax/inflation burden of future generations increased.

        1. But RC, these are basic tenents of classical liberalism, right? I have been assured this is right.

        2. Wow, I didn’t say any of that.

          I merely noted surpluses were better than deficits on a program that is never going to go away.

          And FICA is a flat tax with a cap. Only a progressive would call it regressive.

          1. And FICA is a flat tax with a cap. Only a progressive would call it regressive.

            Really? Advocating that people should not be pointed out for extra harm for being richer does not imply the poorer should be excessively harmed either.

      3. Palin’s Buttplug|4.21.14 @ 12:11PM|#
        “I have explained this many times but perhaps you were not here.”

        No, shitpile, you have lied about it and been busted many times and we’re all sick of reading your lies.

        1. Except I’m still chuckling over his imbecillic bit about converting Bitcoin to welfare on a phone app and “Am I the only one thinking here?”

      4. Excess Ponzi is not good.
        Those special-issue US Treasuries are “non-marketable securities.” That means nobody buys them. They are IOUs inside the government. They will still need to be paid for out of the tax base when the retirees get their checks.

        1. The main difference is that the money is owed by the Treasury. What happens if Treasury decides to not pay it back?

          If a corporattion or a government defaults on maketable securities it suffers the consequences. If the Treasury does for inter-government IOUs – well, repeat after me…because FYTW.

    3. The Federal government uses cash-based accounting, not accrual-based accounting so borrowing counts as income, not liabilities.

      The Federal government could run a surplus every year by borrowing more than they need.

      1. Cash-based is fine for your checkbook, but not for running your household, and certainly not for a business. For a government… it’s deepest madness.

  10. Great speech, especially for its brevity. My graduation speaker was an astronaut. The speech wasn’t bad, I guess. Still too long, though.

    My brother’s graduation speaker was Michael Freakin Bloomberg. As you might imagine, Narcissus would not shut the hell up.

    1. In space, no one can hear your graduation speech.

  11. The chart given doesn’t correlate to which party holds the White House. The correlation, to the extent there is one, is to which party control the Congress and more specifically the House. Notice, what happened to the budget deficit from 07 to 11 and contrast that to what happened between 95 to 06. You have a war thrown in during 01. Yet, things were coming back towards balance until something happened in 07.

    It is almost as if the House controls the budget or something.

    1. The 07-08 Congress was a do-nothing one (except for TARP). Bush was the ultimate lame-duck.

      On spending the Dems opposed Bush’s war spending to little avail.

      Of course in your fevered little mind those Dems created all types of welfare programs they forced Bush to sign or overrode his veto on.

      1. On spending the Dems opposed Bush’s war spending to little avail.

        That is why war spending went down when the Dems took over Congress. LOLOLOLOL

        Just because you are retarded, doesn’t mean the people reading this are.

        The 07-08 Congress was a do-nothing one (except for TARP). Bush was the ultimate lame-duck.

        Sure, if exploding the rate of spending is “do nothing”.

        Of course in your fevered little mind those Dems created all types of welfare programs they forced Bush to sign or overrode his veto on.

        Yes, Bush was the master of creating bi-partisan majorities in Congress to pass things like Medicare D and NCLB.

        Again, just because you are retarded, doesn’t mean we are.

        1. You’re deliberately stupid.

          “On spending the Dems opposed Bush’s war spending to little avail.”

          Name a program that the 07-08 Congress created.

          Not the old GOP Congresses of 2001-06. We know they created NCB and Part D.

        2. The 07-08 Congress was a do-nothing one (except for TARP). Bush was the ultimate lame-duck.

          So, Bush couldn’t do anything, and Congress refused to do anything.

          Yet spending skyrocketed. Since nobody could or would do anything, how did that happen?

          1. The Bush stimulus of Jan 2008.


            The surge in Iraq, UE benefits, money to prop up Fannie and Freddie, SSDI exploded, this:


          2. Why are you asking it questions when it can’t comprehend any of the concepts involved in the debate?

            Do you want it to post *more* inane and infuriating drivel and are doing your bit to tune its neural net in that direction?

        3. “Sure, if exploding the rate of spending is “do nothing”.”

          That is a great line.

    2. In any analysis of the budget deficit in the 2000s, you can’t ignore that the recession hit in 07-08. The budget deficit still would have exploded had Republicans held the House in 06

      1. The recession didn’t hit until the third quarter of 08. Exactly what is your excuse for the spending increases in 07 the first part of 07? That spending line started going up at the same sharp angle well before the fall of 08.

        Try again.

        1. You seem to think that the ‘same sharp angle’ predicts the shoot up we see following it, but not necessarily (there is the ‘same sharp angle’ in 83 it appears, but no comparable shoot up immediately follows it).

          1. Bo, what happened in 1981-1983 that hasn’t happened yet? You might check out Paul Volcker’s record during that period. I’ll bet if we raise the Fed rate by 10%, we’ll see the same behavior.

            1. Brett, all I am saying is that I think it is not correct when John says there was the ‘same sharp angle’ increase in 07 to, I think, imply that inevitably led to the shoot up following 07, because we see the ‘same sharp angle’ rise in 83 but no comparable following shoot up.

        2. John, spending and tax figures by year are available in the link below.

          In FY 2001, the last budget submitted by Clinton (October 2000-September 2001 by the calendar), spending was $1.8629 trillion. In FY 2006, it was $2.6551 trillion. Spending increased by at least 6% every year, and at between 7 and 8% in all but one year. Spending for FY 2007 (Which was October 2006 to September 2007) was $2.7287 trillion. That’s an increase of 2.8%. So I’m not sure what spike in early 2007 you’re referring to. FY 2007 was by far the year of slowest growth in spending during the Bush years (Note: I’m not crediting Democrats for this. You seem to think that if I don’t buy into the myth of fiscally responsible Republicans, I’m actually ds efending Democrats). FY 2008 saw the budget increase to $2.9826 trillion, an increase of 9.3%. FY 2009 saw a massive spike to $3.5177 trillion, an 18% increase. The numbers support my assertion that the rise in the deficit (not just spending – tax revenue plummeted in 08 and 09) coincided with the recession – as Bush, Obama, and Congress pushed through “emergency” measures that boosted spending, in addition to increases in “mandatory” spending for things like unemployment (which later got extended several times) and various welfare programs.

          1. My point is that I don’t see any way how you can spin this to fit a narrative of fiscally responsible Republicans who were getting spending under control until the Democrats took control of Congress and immediately jacked up spending, despite Republican objections. My point is that I don’t see any way how you can spin this to fit a narrative of fiscally responsible Republicans who were getting spending under control until the Democrats took control of Congress and immediately jacked up spending, despite Republican objections. This isn’t to say Democrats had no role in the spending increases since then. Just that the simplistic narrative you’re trying to portray isn’t true.

            1. Finally, an honest fact bringer.

              1. Um, I still wouldn’t say the 07-09 Congress was do nothing. A massive spending spike did begin under them (larger than the previous increases under Bush), just near the end of the term, not the beginning as John suggested.

  12. The only grad speech I can remember was for Daughter #2’s college – Sen. Debbie Stabenoow (D[umbass] – MI). We literally started laughing about halfway through due to her sophomoric errors and miscues.

    Then my wife and I grieved that others in our state actually voted this paramecium into office. What a maroon…

  13. Whatever Nick, you know the best commencement speech ever was Bloombergs given to Kenyon College. You know where he made the rant about gun control. Im sure it “touched” those students in a way they had never been touched before.

  14. Way back in 1994, I got thrown out of a bar in Berkeley. Like, the bouncer picked me up by my belt loop and threw me on to the sidewalk like a used rag. I was being a dick to the bouncer, but he was being a dick to my friends. We went to another bar and got drunk.

    1. Was it Kips? Henry’s?

      1. The lead singer of Counting Crows is at Henry’s prior to every home Cal Bears football game.

        1. Yep. He grew up there. Henry’s was a little bit expensive for my budget at the time. I went to Kip’s instead.

          1. I used to go up and visit a girl I was dating at Cal the year after I graduated from Davis and got my first big boy job. I’d stay at Hotel Durant during the times her sorority banned male guests.

  15. Many things that are desirable are not feasible.

    YOU LIE!

  16. Ezra Klein ? @ezraklein
    Everything you need to know about economics, in 297 words
    Harold Pollack @haroldpollack
    @ezraklein That’s pretty good. Revealing that there’s basically nothing about market failure.
    4:15 PM – 19 Apr 2014

    You don’t say.

    1. It is almost as if the “market” is a set of laws describing behaviors rather than something that succeeds or fails.

      1. Impossible. Behavior is for judging, not describing.

  17. Damn, there is that Clinton surplus temporary reduction in the rate of increase again.

    I’d take Bill Clinton over just about anybody whose name is mentioned, but he’d take the Boooooshbama ball and run with it, so we’d be fucked no matter what.

    1. I think we should re-run the period experiment. Give Obama an impeachment to defend against and two hostile chambers of Congress and see if that affects the debt.

  18. In 1990, our commencement address was given by Alexander Dub?ek, with Arnost Lustig translating. I was happy my school took graduation seriously. Of course, our school prez had just been busted for making dirty phone calls, so the joke was that our commencement address would consist of panting over a telephone.

  19. A surplus in FICA collected is a good sign.

    If you’re the one running the Ponzi scheme, sure.

    1. I know you know this, but it isn’t sentient. It’s reptilian brain can barely regulate its respiratory functions.

      1. And I broke my own rule. I am ashamed.

  20. When I graduated, Elie Weisel came and talked to us about how war is bad. Which is a good and valuable thing to say, but it seemed to me to be not the best material for a graduation speech.

    1. Maybe if you were graduating from West Point it would have been more appropriate.

      1. More useful at Harvard and Yale perhaps.

    2. That’s ironic.

      1. Like 10,000 spoons.

  21. Number seven is about marriage, right?

  22. #1: So how much did the college pay this guy?

    #2: I had Ted Kennedy talk at my college grad in 82. People forget just how crazy he was during the Cold War.

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