Kaldor’s capital/labor income distribution theory relied on differential saving propensities from profits and wages. Robinson’s growth models typically specified constant-coefficient technologies in which marginal productivities cannot determine distribution. Here these two insights are combined in a two-sector (capital goods, consumption goods) economy. Two technologies are available, but only as either-or alternatives. The choice of technology and the income distribution depend on the saving propensities. Steady-state consumption need not be greater when the economy is more capitalized and profit rates are lower.
Kaldor’s capital/labor income distribution theory relied on differential saving propensities from profits and wages. Robinson’s growth models typically specified constant-coefficient technologies in which marginal productivities cannot determine distribution. Here these two insights are combined in a two-sector (capital goods, consumption goods) economy. Two technologies are available, but only as either-or alternatives. The choice of technology and the income distribution depend on the saving propensities. Steady-state consumption need not be greater when the economy is more capitalized and profit rates are lower.
Keywords: Growth model, technology, income distribution
Jan Tinbergen was and is of course a scientist, full of curiosity about how the world works. But his motivation has always been more than curiosity. He wants to know how the world works so that he can make it work better. Knowledge is the foundation of policy. It was natural for Tinbergen to set forth a formal theory of policy nearly fifty years ago and it was equally natural from him to relate the theory to practical problems of policy in the Netherlands and else where and to implement it and illustrate it with the help of theoretical and econometric models. Thus Tinbergen was the originator of the subject on which I propose to speak to you today.
Jan Tinbergen was and is of course a scientist, full of curiosity about how the world works. But his motivation has always been more than curiosity. He wants to know how the world works so that he can make it work better. Knowledge is the foundation of policy. It was natural for Tinbergen to set forth a formal theory of policy nearly fifty years ago and it was equally natural from him to relate the theory to practical problems of policy in the Netherlands and else where and to implement it and illustrate it with the help of theoretical and econometric models. Thus Tinbergen was the originator of the subject on which I propose to speak to you today.
Keywords: Public policy, social welfare, macroeconomic policy
(Edited by Peter M. Jackson) In these timely essays, Nobel prizewinning economist James Tobin shows how Keynesian economics offers corrective treatment for the economic ailments we have faced under the Ford, Carter, and Reagan administrations.
Essays in the first part of the book focus on theory and policy in Keynesian economics, particularly on the modern anti-Keynesian movements of the 1970s and 1980s. Tobin’s writings on the events, controversies, doctrines, and policies of the Reagan era make up the book’s second section, Essays in part three continue to discuss the Reagan revolution, focusing on fiscal policies and presenting some general macroeconomic principles that can be invoked to remedy the situation; those in part four are concerned more specifically with the conduct of monetary policy. A fifth section addresses inflation stagflation, and unemployment, recommending income policies that Tobin believes must become a “permanent tool of macroeconomic policy.” The book concludes with several essays on various aspects of political economy, including a timely reminder that economic policies should serve ethical values.James Tobin, who received the Nobel prize in economics in 1981, is Sterling Professor of Economics at Yale.
This paper establishes the asymptotic normality of series estimators for nonparametric regression models. Gallant’s Fourier flexible form estimators, trigonometric series estimators, and polynomial series estimators are prime examples of the estimators covered by the results. The results apply to a wide variety of estimands in the regression model under consideration, including derivatives and integrals of the regression function. The errors in the model may be homoskedastic or heteroskeclastic. The paper also considers series estimators for additive interactive regression (AIR), seimparametric regression, and semiparametric index regression models and shows them to be consistent and asymptotically normal. All of the consistency and asymptotic normality results in the paper follow from one set of general results for series estimators.
(Edited with Murray Weidenbaum) The juxtaposition of Kennedy and Reagan approaches to economic problems is particularly instructive in that they express the two major — and quite different — approaches of macroeconomic policy in the past three decades: the 1962 Kennedy Camelot which relied on traditional Keynesian economics, and the 1982 Reagan program which called for a supplyside solution to the country’s economic difficulties. From today’s vantage point it is useful to compare what these two different groups of economic advisors planned to do, what they did, and what the results were.
Sales today were made possible by inputs of factor services and intermediate goods at various previous dates. Prices change between the input dates and the sale date. Especially in periods of general inflation, these price movements create ambiguities in the reckoning of profits. The accounting definition used in taxing profits can have significant economic effects. Tax accounting is generally not neutral vis-à-vis general inflation. Costing inputs at their historical nominal prices (FIFO) is a real burden and disincentive, greater the higher the inflation rate. It is analogous to depreciating durable capital at historical cost. However, it may be partially, completely, or excessively offset by another non-neutrality, the deductibility of nominal interest from taxable income. This too has analogous effects on after-tax returns from fixed capital.
Sales today were made possible by inputs of factor services and intermediate goods at various previous dates. Prices change between the input dates and the sale date. Especially in periods of general inflation, these price movements create ambiguities in the reckoning of profits. The accounting definition used in taxing profits can have significant economic effects. Tax accounting is generally not neutral vis-à-vis general inflation. Costing inputs at their historical nominal prices (FIFO) is a real burden and disincentive, greater the higher the inflation rate. It is analogous to depreciating durable capital at historical cost. However, it may be partially, completely, or excessively offset by another non-neutrality, the deductibility of nominal interest from taxable income. This too has analogous effects on after-tax returns from fixed capital.
Three interrelated issues must be faced in assessing the future of OASI. I shall discuss each in turn. Balancing Contributions and Benefits. The overriding long-run issue about OASI is the balance between the tax contributions of the young and the benefits of the old. The system is now geared to scale up benefits automatically so as to maintain the ratio of benefits to contemporaneous wages, the replacement ratio, at its historical level of roughly 40 percent. Payroll tax rates are the residual balancing item in the OASI financial equation. They have been raised steadily for years, and according to current projections they will have to be raised substantially next century if the replacement ratio is to be maintained. The generations involved, however, may at some point prefer to move to or toward a different option-freezing the tax rates and adjusting future benefits instead. This would mean that in the 21st century the benefit/wage ratio would fall; OASI benefits would still be rising in absolute purchasing power, but they would decline relative to the wages of active workers. It is not too soon to begin serious consideration of the options.
Erosion of Confidence. The confidence of young workers in Social Security has eroded in recent years. Some are worried that the system will go broke. Others perceive that their rate of return on the payroll tax contributions they and their employers make will be quite low, in contrast to the interest rates they observe in financial markets today. They wonder why participation itself should be compulsory. The link between the contributions of, or on behalf of, any individual participant and his or her eventual benefits is quite loose, and quite mysterious. The system is a hybrid, mixing social retirement insurance with some intragenerational redistribution in favor of workers with low earnings. This is bound to diminish the rates of return high wage workers perceive they can earn through OASI. Old issues return anew: Should OASI be made more purely an insurance program, letting the general federal budget handle redistribution via needs-tested transfers? Should the link between contributions and benefits be actuarially fair for individual participants? Should the benefit entitlements earned by past contributions be reported regularly and clearly to participants throughout their careers? Should compulsory participation be limited to defined levels of contributions and benefits? As Robert Ball recounts in Chapter 1 of this volume, the founders of Social Security confronted these questions and compromised. Compromises, even theirs, are not graven in stone. Times, circumstances, and attitudes change. At the end of this chapter I shall sketch, as an option worth considering, a system that links contributions and benefits more explicitly and tightly.
Financing Social Security. The issues just raised regarding the links between contributions and benefits for individual participants are related to questions about the financing of the system as whole. Until now Social Security has been mainly a pay-as-you-go system, using its current receipts from workers’ contributions to pay its current benefits. Its trust fund, as its reserves are called, has been deliberately kept small. Under the 1983 legislation, this fund will grow to unprecedented heights relative to annual outlays over the next 15 to 20 years. Thereafter it is projected to decline, and to vanish after midcentury. A case can be made on macroeconomic grounds for a funded system in preference to pay-as-you-go. Full funding would mean a trust fund commensurate to OASI’s liabilities for the future benefits accumulation of such a fund, it can be argued, would add to national saving and investment enough productive capital to yield the promised benefits. That yield might well be a higher rate of return than pay-as-you-go can offer. History cannot be rerun. A shift to funding would take nearly a half century to accomplish. Moreover, the proposal inevitably raises the question of the relation between Social Security trust funds and the overall federal budget. I shall discuss these financial issues, and in my sketch of possible reforms for the next century I shall describe how the long transition to a funded system might be managed.
This is an essay on Financial Intermediaries written for the New Palgrave. It includes sections on national wealth, financial markets, assets, risk and regulation.
This is an essay on Financial Intermediaries written for the New Palgrave. It includes sections on national wealth, financial markets, assets, risk and regulation.