Essays in a Keynesian Mode — In a period marked by revisionism in economic theory and retrenchment in the public goals of economic policy, Tobin remains committed to the standard he has upheld throughout his professional life. He is an “eclectic Keynesian” in theory whose socioeconomic concern is to reduce poverty, inequality, and discrimination through the maintenance of full employment and economic growth and through such policies as the negative income tax and other income transfers.
These 28 essays, covering Tobin’s work in macroeconomics from the early 1940s to 1970 are grouped into three parts — macroeconomic theory, economic growth, and money and finance. James Tobin is Sterling Professor of Economics at Yale.
Volume 2: Consumption and Econometrics
MIT Press | July 1987 | ISBN: 0262200643
Volume 2 of James Tobin’s Essays in Economics brings together twenty papers published between 1940 and 1972. These cover macroeconomics, particularly the theory of the relationship between unemployment and inflation and the dilemma their connection poses for policy; consumption function, which is also related to macroeconomic theory and to the theory of individual behavior; consumer theory and statistical method applied to the problem of rationing; and the development and application of econometric methods suitable for the empirical analysis of consumer behavior.
Volume 3: Theory and Policy
MIT Press | 1982 | ISBN: 0262200422
Volume 3 contains a collection of James Tobin’s professional papers contains his most recent work, written mainly since 1974. Essays covers monetary theory and policy, macroeconomic fiscal policies and economic growth, international monetary economies, and welfare and inequality. The book concludes with sketches of other economists Tobin has known — Alvin Hansen, Kermit Gordon, Paul Douglas, Harry Gordon Johnson, Milton Friedman, and John Kenneth Galbraith.
Volume 4: National and International
MIT Press | June 1996 | ISBN: 0262201011
This fourth volume in the series of Nobel laureate James Tobin’s classic papers represents his work since 1980. Both national and international views are intermingled among the 36 chapters on macroeconomics and fiscal policy, savings, stabilization policy, international coordination of macroeconomic policy, monetary policy, and exchange rates. Several tributes to colleagues — including Walter Heller and Seymour Harris—round out the collection.
Nobel Prize winner James Tobin has made outstanding contributions to modern macroeconomics. In this final collection of his work he examines the economic policies of the United States and its relations with other major economies after 1990. In James Tobin’s view, the welfare of populations depends uniquely on these policies and it is important to be aware of their impact. This book brings together James Tobin’s recent work, both published and unpublished, on finance and globalization, currency crises and bailouts. Emphasis is placed on international economic relations and policies, and on the IMF and World Bank. In particular, economic and monetary relations among nations, exchange rate problems and policies and the ‘Tobin Tax’, popular in Europe but much misunderstood, are discussed. Professor Tobin also examines the impact of his earlier work on recent US fiscal policy. The Clinton administration followed a tight fiscal policy leading to budget surpluses, and this enabled Alan Greenspan at the Federal Reserve to follow an ‘easy’, low interest rate, monetary policy. This mix was advocated back in the 1950s and 1960s by Paul Samuelson and James Tobin. The memo Professor Tobin wrote for the J.F. Kennedy campaign of 1960 is published for the first time. The policy was not applied until 30-35 years later. Presenting a framework for understanding monetary and fiscal policies and how they determine full employment and growth, the book will prove invaluable to students and scholars of macroeconomics, as well as economists wishing to gain an insight into Professor Tobin’s unique contribution to economics.
Paperback: Edward Elgar | June 2005 | ISBN: 1845422287
In 2001-02 the United States has been hit by two quite different shocks, terrorism and recession. As usual in time of war, national defense is the highest priority for use of the country’s resources. Although the opportunities for international warfare are limited, the challenges to the homeland are virtually unlimited. The president’s fiscal year 2003 budget includes $48 billion additional for the military and $38 billion additional for homeland defense. Given the gravity of the threat, it is hard to understand why new expenditures are not undertaken as soon as and as large as possible. This would also be timely for stimulus to the economy, more effective than tax cuts and other proposals — with the nation in peril, the country is ready to make sacrifices, not to enjoy further tax reductions. Pearl Harbor in December 1941 occurred with the economy not yet recovered from the Great Depression, with unemployment still 10 per cent. Expenditures for war were increased sharply and rapidly, and full employment was restored in 1943.
In 2001-02 the United States has been hit by two quite different shocks, terrorism and recession. As usual in time of war, national defense is the highest priority for use of the country’s resources. Although the opportunities for international warfare are limited, the challenges to the homeland are virtually unlimited. The president’s fiscal year 2003 budget includes $48 billion additional for the military and $38 billion additional for homeland defense. Given the gravity of the threat, it is hard to understand why new expenditures are not undertaken as soon as and as large as possible. This would also be timely for stimulus to the economy, more effective than tax cuts and other proposals — with the nation in peril, the country is ready to make sacrifices, not to enjoy further tax reductions. Pearl Harbor in December 1941 occurred with the economy not yet recovered from the Great Depression, with unemployment still 10 per cent. Expenditures for war were increased sharply and rapidly, and full employment was restored in 1943.
Keywords: Fiscal, War, Recession, Stimulus, Tax, Deficit
President George W. Bush is preparing a drastic permanent reduction in federal income and estate taxes. He cites as precedents tax cuts by Kennedy-Johnson 1962-64 and Reagan 1981. In those cases, however, the economy was operating well below full employment and needed a “demand-side” stimulus (even though Reagan advertised his tax reduction as “supply-side”). In 2001, however, the economy is very close to full employment, and if it needs a stimulus at all, it is a quick modest temporary one instead of the large permanent one proposed. And why can’t monetary policy do the job of stabilization, as it did successfully in the 1990s? A policy mix that assigns short run demand stabilization to the central bank is for several reasons preferable to a tight-money-easy-fiscal mix. In the case of Reagan and Bush the younger, federal tax cuts are advocated on philosophical and ideological grounds, diminution of the size and scope of government. But formulation of the issue as government versus people is a misunderstanding of democracy and of the reciprocities between public and private sectors.
President George W. Bush is preparing a drastic permanent reduction in federal income and estate taxes. He cites as precedents tax cuts by Kennedy-Johnson 1962-64 and Reagan 1981. In those cases, however, the economy was operating well below full employment and needed a “demand-side” stimulus (even though Reagan advertised his tax reduction as “supply-side”). In 2001, however, the economy is very close to full employment, and if it needs a stimulus at all, it is a quick modest temporary one instead of the large permanent one proposed. And why can’t monetary policy do the job of stabilization, as it did successfully in the 1990s? A policy mix that assigns short run demand stabilization to the central bank is for several reasons preferable to a tight-money-easy-fiscal mix. In the case of Reagan and Bush the younger, federal tax cuts are advocated on philosophical and ideological grounds, diminution of the size and scope of government. But formulation of the issue as government versus people is a misunderstanding of democracy and of the reciprocities between public and private sectors.
(Edited with George L. Perry) In November 1999 the Brookings Institution and Yale University jointly sponsored a conference to reconsider the national economic policies of the 1960s and the theories that influenced them, in light of subsequent events in the economy and of developments in economic theory and research. This volume contains the papers and comments of the participants. The 1960s were years of difficult challenges to U.S. policymakers and of important initiatives to meet them. The economic doldrums at the start of the decade gave way to strong expansion and prosperity, which, however, ended with excessive inflation. The decade that followed was the most turbulent of the postwar period, with global shock waves from oil prices, two deep recessions, and historic changes in the international financial system. Both policymaking and economic thinking have evolved since the 1960s. The papers gathered in this volume examine the economics of the 1960s as the starting point in this evolution.
Several of the contributors to this volume were involved in policymaking in the 1960s. Their papers provide firsthand insights to the analyses and priorities of that period and a prelude to examination of subsequent ideas and policies. Younger scholars represented in the volume bring different perspectives. All participants have been active in economic research since the 1960s; collectively they represent a wide range of expertise in economic analysis.This volume is dedicated to the memory of Arthur Okun, a major figure in economics and economic policy throughout the Kennedy-Johnson era, at Yale, at the Council on Economic Advisers, and at Brookings. He served as chairman of the council and chief economic adviser to President Johnson. At Brookings, he and George Perry founded the Brookings Panel on Economic Activity and its journal, Brookings Papers on Economic Activity.
Fixed exchange rate, pegs to hard currencies that can be adjusted, are fragile, the more so the more mobile are capital funds across currencies and national markets. Once market participants doubt, for whatever reason, the ability of a developing or emerging economy’s central bank to meet its commitment to redeem it currency in hard currency at the promised rate, they will race to claim the country’s external reserves. Vulnerability to crises becomes greater as financial markets become less regulated and more internationally open. To escape currency crises, a country may lock its money to that of a reserve-currency country, as by a “currency board.” This may, if an only if reserves are ample and all other economic objectives are subordinated, maintain the peg and hold down inflation. But it sacrifices monetary autonomy and seignorage, leading in effect and perhaps literally to substitution of the reserve currency for the local currency as unit of account and means of payment.
When crises hit, the IMF and other lenders give highest priority to restoration of credibility and confidence in the currency under attack. They require the victim country to take drastic restrictive monetary and fiscal measures, whether or not irresponsibility in these policies brought on the crisis. Since these measures damage the economy, businesses, and banks, they may not restore confidence. Lenders of last resort are essential and should concentrate above all on replenishing liquidity.
The adjustable-peg system has outlived its usefulness. For most countries it is better to let exchange rates float in markets, like those of the big three currencies, dollar, yen, and deutsche mark (or euro). Even so, unimpeded inflows and outflows of liquid funds result in unwelcome exchange rate movements. Protection against them, by taxes or special reserve requirements, are desirable, and need not curtail useful capital flows. Banks and businesses need to be prevented from incurring net short term debt positions in hard currency. Equity and direct fixed capital are the desirable vehicles for developmental capital movements.
The paper reviews the major developments of the last three decades: the rise and fall of monetarism as theory and as targeting of intermediate monetary aggregates; targeting of nominal GDP in order to escape volatility of velocity of money; the abandonment of intermediate targets as superfluous; the use of money-market interest rates as operating procedure, except in the U.S.; their replacement by reserve aggregates in 1970–82; inflation stability and price level stability as policy objectives, often exclusive of other macroeconomic goals; the U.S. Federal Reserve as aiming successfully at both low inflation and low unemployment, goals mandated by law; the rules–discretion debate; the necessity for rules conditional on economic states and the impossibility of anticipating all circumstances, thus the inevitability of discretion but in the spirit of rules; John Taylor’s algebraic rule for the Federal Reserve, relating Federal Funds rate to inflation and unemployment deviation from goals.
Fixed exchange rate, pegs to hard currencies that can be adjusted, are fragile, the more so the more mobile are capital funds across currencies and national markets. Once market participants doubt, for whatever reason, the ability of a developing or emerging economy’s central bank to meet its commitment to redeem it currency in hard currency at the promised rate, they will race to claim the country’s external reserves. Vulnerability to crises becomes greater as financial markets become less regulated and more internationally open. To escape currency crises, a country may lock its money to that of a reserve-currency country, as by a “currency board.” This may, if an only if reserves are ample and all other economic objectives are subordinated, maintain the peg and hold down inflation. But it sacrifices monetary autonomy and seignorage, leading in effect and perhaps literally to substitution of the reserve currency for the local currency as unit of account and means of payment.
When crises hit, the IMF and other lenders give highest priority to restoration of credibility and confidence in the currency under attack. They require the victim country to take drastic restrictive monetary and fiscal measures, whether or not irresponsibility in these policies brought on the crisis. Since these measures damage the economy, businesses, and banks, they may not restore confidence. Lenders of last resort are essential and should concentrate above all on replenishing liquidity.
The adjustable-peg system has outlived its usefulness. For most countries it is better to let exchange rates float in markets, like those of the big three currencies, dollar, yen, and deutsche mark (or euro). Even so, unimpeded inflows and outflows of liquid funds result in unwelcome exchange rate movements. Protection against them, by taxes or special reserve requirements, are desirable, and need not curtail useful capital flows. Banks and businesses need to be prevented from incurring net short term debt positions in hard currency. Equity and direct fixed capital are the desirable vehicles for developmental capital movements.
The paper reviews the major developments of the last three decades: the rise and fall of monetarism as theory and as targeting of intermediate monetary aggregates; targeting of nominal GDP in order to escape volatility of velocity of money; the abandonment of intermediate targets as superfluous; the use of money-market interest rates as operating procedure, except in the U.S.; their replacement by reserve aggregates in 1970–82; inflation stability and price level stability as policy objectives, often exclusive of other macroeconomic goals; the U.S. Federal Reserve as aiming successfully at both low inflation and low unemployment, goals mandated by law; the rules–discretion debate; the necessity for rules conditional on economic states and the impossibility of anticipating all circumstances, thus the inevitability of discretion but in the spirit of rules; John Taylor’s algebraic rule for the Federal Reserve, relating Federal Funds rate to inflation and unemployment deviation from goals.
Volume 2: Consumption and Econometrics
Volume 4: National and International