 John, are you about ready? Have you got the same as Elaine giving you the signal? Yes, I have a signal from Linda. Let's go. Okay. Ladies and gentlemen, good evening. Let us begin this last evening of our deliberations with a prayer of thanks. I was thinking at least I'm thankful to get this far. It's always David, it's always the panel. Lord, we thank thee for this place in which we dwell, for the love that unites us, for the peace accorded us this day, for the hope with which we expect tomorrow, for health, for work, for food, for the bright skies that make our lives delightful, for our friends in all parts of the earth, for our guests at these tables. Keep them in your care and strengthen them in your service. Amen. I call upon the president of the college, Dr. John Kendall. One of the special advantages that I have as a person involved in these annual conferences is that I often have a chance to speak individually with our participants and learn a bit about their fields. More often than not, they represent a field about which I know very little. This has been especially true, I think, in the conference this time. Professor Leon Hoved has been instructing me for the last few minutes on the distinction between thin markets and thin markets, and I think I have some sense of that now. I know only one very brief story that even remotely applies, the field of economics, has to do with a graduate, an alumnus of a college similar to this who had been voted the person least likely to succeed in his class. And he returned on his 25th anniversary to step out of his silver cloud. His wife draped in mink and sable and diamonds in great evidence. His friends from his class were amazed. They said, Joe, we don't understand this. You really didn't show much promise in college. And how have you done this? And he said, well, it's really very simple. He said, I invented a little device, and I was able to produce it for a dollar. I sold it for five dollars. And believe me, I'm here to tell you that if you can make five percent on your money, you're going to be in good shape. So much for my economics lecture. We'll move on to the next thing. It's always difficult to know who one should introduce at an evening such as this. The panelists will be introduced in a bit. Many of you here have heard them and met them earlier in these two days. There are just two people that I would like to recognize this evening, people that play a very important role in the life of this college. The chairman of our board of trustees, Clyde Allen and his wife Lois, and the bishop of the Minnesota Synod of the Lutheran Church in America with which this college is affiliated, Bishop Herbert Chilstrom. During the past two days, as we have considered the legacy of John Maynard Keynes, some of the panelists have on occasion expressed a concern that they might be repeating themselves. And I feel that way this evening. I made similar comments to the ones I'm about to make at the opening, but because many of you were not there, I would like to say essentially the same things again. Each time as we gather for another Nobel conference, those of us here at Gustavus are thankful and appreciative for a number of things. For the fact that nearly 24 years ago, a group of Nobel laureates, the president of this college at that time, Edgar Carlson and others, had an idea. His idea was to have a conference on a topic of significance and general interest, invite the very best scholars that we could bring to the campus and have them join in a conversation and allow us to listen and participate. We are also thankful in a special way for the commitment and interest of Russell Lund and his family who have provided the endowment that gives the ongoing support that makes this conference possible. We appreciate in a very special way the relationship which we have through this conference and as a college with the Nobel Foundation in Stockholm and a relationship that extends to a very personal level with our relationship with the current president of that foundation, Baron Stig Rommel, who has been one of our participants in this panel this year. We are also thankful, of course, to those who make it possible for us to do this in specific ways. The panelists who travel, in some cases, great distances, in one case, all the way from Hayward, Wisconsin, where Professor Tobin has his summer cabin, others from overseas, to share with us their thoughts and ideas, to our staff, to our faculty, all who make it possible. So we thank you, all of you, those of you who are our guests this evening for coming. At this point, I would like to turn the lectern over briefly to the Council General of Sweden, located in Minneapolis, Carl Eric Andersen, for a greeting. Carl Eric. President Kendall, scholars, friends and students of Gustavus. My wife and I are happy to attend the prestigious Nobel Conference for the fifth consecutive year. That, Baron Stig Rommel, the president of the Nobel Foundation, is among the distinguished lecturers who give this conference an added dividend. Now, may I mention an example of the new economic thinking in practice and on the ground floor level, so to say. According to Wall Street Journal, the kids in early grades now have to learn that the whole is equal to the sum of its parts until you add the finance charges. That is, in practice, the Congress would be the ties that have bound Gustavus and Sweden since this college was founded in 1862 have become increasingly stronger through the years. This is emphasized by the Alfred Nobel Hall of Science, the Volker Bernadotte Memorial Library and the Jose Björning Concert Hall. Having been named after famous Swedes who have distinguished themselves in various fields, they are further underlined by the most recent development of the Lineos Arboretum. These ties will be manifested when the college opens its 125th anniversary celebration on February 2, 1987 with a concert by the Gustavus Choir at the Royal Dramatic Theater in Stockholm, Sweden. Now, the historic links between Sweden and the United States, dates not only to 1783 when a treaty of friendship and trade was signed, but also further back to 1638 when the first Swedish settlement took place in Delaware. Plans are now developing in Sweden and in the United States for a grand celebration in 1988 of 350 years of Swedish presence in the United States. Other ties are through the student exchange programs. Last year, eight students from Sweden were enrolled here and this year, there are nine. I'm happy to say that these nine students are present this evening and are seated together over at the two tables there. Now, at their table, they have Anne Swanson, who was the Svenskans dog's midsummer queen this year. And Anne is a sophomore at Gustavus. Anne represented the state of Minnesota in Sweden at the various Swedish-American celebrations which always take place during the summer month over there. And especially as representative of Minnesota at the Minnesota Day in Vexur, in Kronoberg in Småland, a county from where so many people left to find the way to this great state, Minnesota. I would like to say to all students whether you come from foreign countries or various parts of the United States that the Nobel conference presents a unique educational experience. It will be an important event in your book of memories to relate later to family and friends. My warm congratulations on the success of the 22nd annual Nobel conference. Thank you. Thank you, Carl, Eric, for that cordial greeting. I now call upon Professor Lawrence Owen in the Department of English here at Gustavus who will introduce the speaker for the evening. Lester Thoreau is a P.K. as are John Kindle, Chaplain Elvie, and my wife. That is not an honorary society. Lester Thoreau is a preacher's kid, a Methodist preacher's kid. He attended high school in Anaconda, Montana which experience gave him firsthand knowledge of life in a company town. Now, I'm not sure how that influenced Mr. Thoreau's thinking but I suspect that the behavior of the Anaconda Copper Company played a role in the making of Mr. Thoreau's mind as an economist. From Montana, he went east to a liberal arts college to Williams College. From there to Oxford as a Rhodes scholar then to Harvard where he earned his Ph.D. in economics. His alma mater, Williams, was the first of five colleges and universities to award him an honorary degree. Among his many honors, I will mention two because they confirm my judgment of Lester Thoreau's skill as a writer. He received the Gerald Loeb Award for Economic Writing in 1982 and in 1983 prizes the first place columnist awarded by the Champion Media Award for Economic Understanding. I asked him to talk about how he came to his interest in writing. He said, I had two teachers in high school who encouraged me and I knew then that I wanted to write well. As an English teacher, I know how satisfying it is to work with students who want to write well and are willing to work at it. Mr. Thoreau works at his writing. He's written at least eight books by himself, co-authored a half dozen more and has written contributions to some 50 other books. He writes articles for the academic journals in his profession as well as for such journals as Deadless, New England Journal of Medicine, Harper's and the Harvard Education Review. He's also a journalist and columnist writing for the New York Times, Newsweek, Wall Street Journal and several other periodicals. He has worked in a variety of jobs as consultant and advisor to governments and institutions. He has professed economics at Harvard, at the University of Arizona and at MIT where he now holds the Gordon Y. Billard Professorship in Economics. Lester Thoreau is something of a media personality. I've watched him on Meet the Press and on the McNeil-Lairer News Hour. He appears on a business news program on PBS television. He shows up regularly on our screens analyzing, commenting, explaining. He, as did John Maynard Keynes, responds quickly and regularly to the passing, changing scene in economics. We know that Keynes made a fortune playing the stock market. I don't know if you've made your fortune yet, Lester. I hope so. The title of Mr. Thoreau's paper is Constructing a Microeconomics which is consistent with Keynesian macroeconomics. There are about 20 copies of the lecture here and the first 20 of you to come up after the proceedings tonight may have a copy. I look forward to hearing your lecture. Mr. Thoreau closes chapter three of his 1984 book called Dangerous Currents with the following. Homo economicus should not, as a rational being, worry about the rate of inflation, whatever it is. Yet real citizens are worried. Why? The prevailing economic theories have no answer. I look forward to hearing this lecture because I'm worried about the economy, that is the macroeconomy, and the economy, the microeconomy, mine. And it would be nice to hear an explanation or two which might ease my worries. Lester Thoreau. What I want to do tonight is go back to the beginning and I want to take you back to when God and the devil were putting the world together. And God created day and the devil responded by creating night. God created rain and streams and water and Florida. The devil created snow, ice, blizzards, glaciers, and Minnesota. And they went back and forth for a while with God doing something good and the devil doing something bad, and finally God created an economist. And that kind of rocked the devil back on his heels and he sat there and he scratched his head and then his eyes lit up and he created a second economist. Now, if you remember one thing tonight, you'll be on the right track. And that is, John Maynard Keynes was created by God and his critics were created by the devil. Now, there is a serious problem, however. And that is, if you went off and read a textbook, as we teach them in Act I, there is a fundamental inconsistency because if you looked at the microeconomics we teach and then compared it with the macroeconomics, they are in some very fundamental ways inconsistent. In the microeconomics, there is no such thing as involuntary unemployment because wages fall to make everybody who wishes to work at that wage level employed. Inflation either does not occur or being fully expected does not matter because it doesn't change any of the real variables. And if you look at the rate of growth of the economy, it takes care of itself because it's as high as it can possibly be given all those individual decisions to make saving and work effort and put it into the economy. Now, I think Lord Keynes had an error of omission and perhaps it's simply because he had pressing problems in the Great Depression and didn't have time to address them. But I think certainly the followers of Lord Keynes and I would put myself in that category made a mistake to not think more seriously about how you make a microeconomics that's consistent with the macroeconomics. Now, I agree entirely with the point that Jim Tobin made this morning that you don't want a kind of one-to-one correspondence because that's kind of an empty system. But I look around at other things. For example, if you look at wave and particle theory and physics, in some logical level, they shouldn't both have to be employed, but it's often useful to employ both, although on some logical level, they must be inconsistent. Same thing in quantum mechanics. At the level of the atom, micro, it's random behavior. But at the level of the mass, you can tell intelligent things about what the distribution of atoms is going to do. Now, I think the real problem with microeconomics is not that it's different than macroeconomics. It is that it's fundamentally inconsistent. It, for example, says there can be no such thing as involuntary unemployment while our macroeconomics starts from the proposition that there is some involuntary unemployment and then it attempts to deal with it. And so I don't think we have to build the two-on-one-to-one correspondence. We can allow for diversity in human behavior, but I think there is a fundamental problem there. Now, that's the problem I want to focus on tonight. Now, one of the problems we've got in economics, and it was referred to in the introduction, is economics constructs a person which I have called homoeconomics, who's a very rational person. The problem is he doesn't have many other characteristics of actual homo sapiens. For example, homoeconomics never has envy. Economists call that interdependent preferences. He never has envy because if you put envy into the system, you start to get some very peculiar results out of the system which economists don't like to contemplate. And so by fiat, we get rid of that envy. One of the other stories it's told about economists is two economists on a desert island with no boat needing to get off desperately, and one says to the other, let's assume we have a boat. Well, in this case, we've assumed away something that's important. Now, let's go back to the Great Depression. See, I think we have built up an inconsistency at the moment that didn't exist in the 40s and 50s, because if you remember our solution to the Great Depression, it really ran on two levels, both on a micro level and a macro level. On the macro level, the solution was Keynesian economics, where if you have something like the Great Depression, the government should take active steps with either expanding demand, cutting taxes, aggressive monetary policies that are going to raise that level of demand in the Great Depression. But we did something else. We had a whole set of government rules and regulations at the micro level, basically designed to stop the kind of financial collapses we had during the Great Depression. Now, the interesting thing about what's going on in economics, you heard a lot in the last two days about rational expectations, which is essentially junking macroeconomics and saying that simple microeconomic model is really the true model and there are no macroeconomic models in the system. Now, if you look at the economic literature, what you would have find is that prior to the growth of rational expectations, there was something that happened in microeconomics that I would argue led to rational expectations. And that was the article argument, basically, that all government regulation in the micro market was either worth nothing or perverse encounter. And therefore, that if you just left those microeconomic markets alone in an unregulated fashion, they would perform better than they could possibly perform with any set of microeconomic regulation. Now, if you believe that, which was widely believed in the economics profession, then it's not a very big leap to say, well, in macroeconomics, the rational expectations must be on to something because there are no imperfections down there in that micro model that need to be dealt with with rules and regulations in institutions. For example, take financial deregulation, as we're now doing it. This is an area where I've been involved for a long time because way back in, I think, 1971, there was something called the Hunt Commission, which where I wrote one of the background papers on what you should do about financial deregulation. At that time, I remember writing that some of the regulations that came out of the Great Depression were simply wrong. They were a misdiagnosis of the problem. For example, the sharp break that we have between commercial and investment banking, where commercial banks legally cannot do investment banking. There were other regulations that may have been right or wrong, but with modern technology could not be enforced like prohibitions on interstate banking. With modern telecommunications, you and I can do a deal in the Bahamas without ever being in the Bahamas and the idea of stopping me from dealing with an out-of-state bank just isn't there, given modern technology. On the other hand, there's some of those regulations that make sense that are very important to an economy. For example, the idea that everybody ought to have a safe place to put their money where they can get it back, that's called an insured bank account. And at the beginning of the Reagan administration, there were a group of economists who seriously argued that we should get rid of that rule and regulation, ensuring bank accounts. Because the idea was that if a bank had a lot of insured bank accounts, then it would take two risky investments, and what you needed to discipline that bank was a lot of depositors who were afraid that they were about ready to lose their money, and then you would have a disciplined banking system. And that was seriously suggested at the beginning of the Reagan administration. And in fact, it was put into place, briefly. Because under American law, everybody up to $100,000 in a bank is insured. But de facto, up until, I guess, 1983, the federal government had insured everybody regardless of how big your deposit was. Because after the Great Depression, they had let no bank go broke in which anybody lost any money no matter how big their deposit was in that bank. Well, then comes the Penn Square collapse, which is a bank that collapses in Oklahoma City. At that point, these same people who want to do away all insurance of all banking accounts say, well, we can't change the law exposed, but we don't have to insure those people that have more than $100,000 in the Penn Square, and they didn't. And that was the first time, since the Great Depression, that they had let people lose money as a bank went broke. Now, it had almost immediate consequences. Within two months, the rumors started that the Continental Illinois, the 11th largest bank in America, was going broke, started somewhere in the Far East, Hong Kong, Singapore, somewhere. The orders started rolling in, withdrawing money by the billions, and within a day and a half, the Continental Illinois bank was broke. And it was broke precisely because of what was done at Penn Square. Because if you're a big depositor and you've just learned the lesson, you're going to lose your money if the bank goes broke, then any time you hear the rumor that the bank's about to go broke, you want to get out. And you don't care whether the rumor is true or false, because if you think about what you lose today versus what you lose if you go, all the incentives are going. Well, the Continental Illinois had to be nationalized because the only way you could give confidence to those big investors was for the federal government, basically to take over the Continental Illinois bank and publicly announce it would guarantee all deposits, no matter how large, in the Continental Illinois bank. Now, that's the case of taking care of institutions. And see, one of the drifts in microeconomics is the idea that institutions do not need to be taken care of. And that they just kind of automatically bubble up and society has the right institutions that fit it on all sides. Now, what I would argue to you that what we need to do to be consistent between micro and macroeconomics is we need the basic proposition that individual free decisions in both the micro and the macro level do not necessarily always lead to the desired results. That's what led to Keynesian economics and macroeconomics, and I would argue exactly the same thing in some circumstances is true in microeconomics. And the second part of that proposition is there is a difference between a society which is simply an aggregation of individuals and something which is a society which is more important and different from an aggregation of individuals. And so you've got to pay attention to social details and individual details. Things don't just help happen along to come out right. Now, what that means at the micro level is you have to make room for the argument that there are places where coordination or strategic intervention, and they may be government or some other form of coordination or strategic intervention, makes sense. And so what I plan to do is make an argument that there are places in the microeconomy that look same type of activities that we do in the macroeconomy make sense and in that sense the two things are on the same level. We don't have a perfectly functioning macroeconomy where nothing ever has to be done just like we don't have a perfectly functioning macroeconomy where nothing ever has to be done. Now, given that this is a Swedish institution and you are all of Viking heritages I am going to ask you to join with me on a voyage. I want you to strap on your Viking helmets with the horns. Do a little bolder lifting to make yourself stronger. Enjoy your mead and we will row down the fjords of macroeconomics and we will slash, rape, pillage, burn at least some of the outlying villages of microeconomics. And perhaps we will get to the Citadel. Now, where I want to do that slashing and burning is basically on a problem that is fundamental to the American economy. It's fundamental to every person in this room. And it is in fact the thing that will determine your future standard of living and the future standard of living of your children just like John Maynard Keynes was addressing a fundamental problem in the 1930s. That is the slowdown in the American rate of growth of productivity. If you go back to the period from 1948 to 1965 American productivity grew at 3.3% per year. After 1965 there was a gradual slowdown until you get to the seven years between 1978 and 1985 American productivity was growing at 0.8% per year. And in 1985 the most recent year non-farm business productivity only grew at 0.5% per year. Now that is a rate which is one fourth to one sixth that of our industrial competitors. German productivity was growing at 3% over that period of time. Japanese productivity was growing at 4.5% over that period of time. And if you think about the competitive pressures that period of time was precisely the period of time when American industry was rapidly losing market share to the rest of the world. And if competitive pressures would ever get you to tighten up the ship and raise productivity that should have been precisely the period of time you saw an acceleration in the American rate of growth of productivity as opposed to a deceleration in the rate of growth of productivity. Now productivity is essentially what in Keynesian economics is called the aggregate supply function. It's the long run thing that determines our ability to supply goods and services and as Jim Tobin pointed out this morning it's the long run variable that determines our standard of living. It is absolutely central to economics. Now what I want to argue to you is that at the micro level there are a whole set of things that are going on which would be irrational from the point of view of home economics. And the interesting way to see that is if you go off and read the literature written by standard micro economists on why the rate of growth of productivity has fallen you will find that they come up and say it is a mystery. We cannot explain it. They say we can't explain it because from the point of view of conventional micro economics the thing that determines the rate of growth of productivity is the quality of labor or the quantity or quality of physical capital natural resources or technology with which that labor works. And so if you're going to find a decline in the rate of growth of productivity you have to find some kind of a decline in those quantities and qualities. Either the American workforce is going downhill or we're investing less or we've got lousy technology or something out there has to get worse. Now the interesting thing when people like Denison and Kendrick do that kind of analysis they can't find those declines they can't find exactly the reverse. For example if you take investment in plant and equipment just to be illustrative investment in plant and equipment in that period when we had a plus 3% rate of growth between 1948 and 1965 was 9.5% of the GNP went into plant and equipment investment. In the last 7 years when we had a rate of growth of productivity of less than 1% investment went up to 11.6% of the GNP. On the 5th when productivity was being cut by a factor of 4 very hard to explain that decline in productivity based on a decline in investment because in fact there's been an increase in investment not a decline in investment and that's why the leading analysts of productivity throw up their hands and say mystery. Not too long ago I was at a meeting where Charles Schultz who was the economic advisor I respect somebody's judgment the less they know about why productivity has fallen. At the same meeting Martin Feldstein who was the economic advisor to President Reagan said it can't be true and if it is true we can't do anything about it so I suggest we don't think about it anymore. Because if people are saving and investing less or working less hard and as long as it's freely chosen individual decisions it's like sex between consenting adults who are you to object? Well the answer you are to object because if with those individual decisions we produce a low rate of growth of productivity we produce a non-competitive American economy and we collectively produce a low American standard of living in the future and we have every reason to have a social concern in that even if it's produced by perfectly rational individual human choices. Now what I want to argue to you is that if you look at this problem from a different perspective and I think it's a perspective that we're going to have to start to bring into economics more than it has been in recent years this is it not at all a mystery. But it requires you to start with a couple of hypotheses that may sound very sensible to you but are not hypotheses that sound sensible inside the discipline of economics at the moment. One is the idea that social institutions don't take care of themselves they require some tender loving care and feeding to make social institutions in anybody's economy work. The second is that managers in the American economy are not simply rational homo-economicists they're not simply agents of the capitalists they are in Carl Bruner's sense self-interested but they are very complicated human beings. Their behavior depend on habits, customs goals of the firm and such strange things as role models. Now the way I want to get into this and try and basically illustrate it is let's start out looking at the productivity problem from a slightly different perspective. Suppose I was to give you a roar shock test and I simply said the words productivity. What words would you write in your mind? Well what you would probably write in your mind is that somehow there's something wrong with those lazy lautish blue-collar assembly line workers who are screwing up and putting coke bottles and door handles on Friday afternoon. That's the American problem, right? Well if you look at the data you have a problem. Problem is very simple. If you take business productivity as I mentioned from 1978 to 1985 it was 0.8% per year. Over that 7-year period of time American private firms permanently fired 1.9 million blue-collar workers which was about 6% of their blue-collar workforce. Over the same period of time real output after correcting for inflation went up 16%. Now if you produce 16% more with 6% less that's a 22% gain in productivity over a 7-year period and if you do you're compounding that's a 2.9% rate of growth of productivity for blue-collar workers. That's essentially world-class. In some sense in the American factory nothing was going wrong. On the other hand if you look at those same American firms and ask how many white-collar workers were they adding to the system the answer is they were hiring 10 million white-collar workers which was a 21% gain in white-collar employment only a 16% gain in output and a 5% fall in white-collar productivity. And the fall in white-collar productivity offset a lot of the gain in blue-collar productivity because on American private payrolls at the moment not counting service workers we have 58 million white-collar workers and only 30 million blue-collar workers. The average firm has two people in the office for everyone on the factory floor. Now what we've got now is a system where the American factory works the American office does not work but that's a very hard story to start to talk about from the point of view of conventional economics because you've got to start talking about something being wrong with the managers and managers not being 100% efficient but in conventional micro-economics you will find that in the textbooks the word management almost never appears because we assume managers are always the most efficient they can be and there's lots of evidence that isn't true, empirical evidence and it's given to us by the Japanese. For example if you take the famous studies of the escort car and what it cost to produce the escort car in different countries you will find the Japanese a few years ago could produce it for $2,500 less than the Americans but if you then said where did that cost differential come from 40% of it came from the fact that the Japanese operated with fewer white color overheads than their American car manufacturing competitors and there have been too many instances in the American economy where Japanese companies have taken over failing American companies and been able to get dramatic increases in productivity partly by getting rid of white color workers when Misha Hita took over Motorola Quasar they fired 25% of the white color workforce and turned out more television sets than Motorola Quasar was turning out and that tells you something out there was wrong with American management and whatever it was that was wrong with American management is wrong right up to this date because if you read the business press you will see a lot of talk about how American firms are getting those white color overheads under control if you go off and look at the data no such thing in 1985 our most recent year real output rose by 2.1% what do you think happened to the number of executives and managers on American payrolls while output was rising 2.1% they rose 5.6% almost three times as fast now recently the U.S. Department of Labor has gotten modern and junked that Marxist category called blue color and white color workforce we now use the term administrative support staff how much do you think the administrative support staff rose while output was rising 2.1% the answer is 3.5% or almost twice as fast as output a lot of talk and of course something else is peculiar going on if you look at investment almost somewhere around 40% of all the investment in the United States in recent years is going into office automation yet there's no evidence that any of that office automation is paying off the marginal efficiency of capital in Keynesian terms is zero if you look at office automation because we put all this capital in we get no productivity coming back out of the office now that's the mystery how would you explain it what standard microeconomics does as I've already said is they throw up their hands and say mystery I want to argue it's not a mystery at all it's only a mystery if you have a very narrow set of hypotheses and set of behavioral characteristics which are willing to allow into your model for example the standard model does not allow the whole concept of power economic power does not appear in the model but we all know that American bosses exist the boss right that's what a boss is all about it says nothing about style but a good boss of course is somebody who should know everything and in principle have the knowledge to make all decisions it says nothing about institutions but most middle level managers in the United States get paid based on the number of people who report to them what are you going to do if you get paid based on the number of people who report to you about reducing the number of people who report to you it says nothing about peer pressure much harder to fire somebody who works next to you or your own secretary than it is to give an order to fire somebody out there on that factory floor it says nothing about beliefs of course the common belief is that our system is based solely on individual effort and there's no need to think about group motivation voluntary cooperation or teamwork now none of those things appear in microeconomics in what an economist would call the theory of the firm I would suggest to you all of those things are in fact the heart of the theory of the firm and when we put them back on we all have a much richer microeconomics which will give us a much richer macroeconomics now let me say something about heroes and role models I remember a basketball coach not too long ago saying that if you go back to the 50's and 60's and you think of Bob Cousy the great Boston cellic who could dribble behind his back and he was the only person in the United States playing basketball who could dribble behind his back within 5 years of seeing that on TV you started to see it in the high schools and within 10 years everybody in the NBA could dribble behind their back now somehow we think that's just standard operating procedure when you talk about people like Karim Jabbar that make $3 or $4 million a year but it's not standard operating procedure when you talk about other economic activity where people are making $100,000 a year let me suggest to you that it's exactly the same phenomenon and part of the American problem is setting up a role model which was inappropriate in some very fundamental ways if you go back to the late 1960's or the early 1970's and read the business press you would find a hero that was written about many times he was a man called Harold Janine who was head of IT&T and he was set up in the business press Forbes Fortune Business Week as the prototypical American manager and every American manager should try to be just like him just like my two boys would love to be like Larry Bird I'm not going to tell you which business magazine all these come from but all of these quotes which I'm now going to read come from either Business Week, Fortune or Forbes Harold Janine he was the world's greatest manager it was a manager system of tight control with elements of a spy system he worked extraordinarily long hours and absorbed thousands of details about IT&T's business tales of Janine's incredible stand at these marathon affairs and of his brutality to any manager who dared to disassemble before him a retold like today's epic poems everything the company does is completely numbers oriented his unique form of management allows him fingertip control over his vast empire he is an ogre with a business suit the greatest corporate manager of his time an unimaginative number grubber a great leader of men that's Harold Janine and the meeting that was talked about in those quotes was where you would basically bring in the IT&T executives and he would prove to middle level managers that he knew more facts about what they were doing than they knew about what they were doing he was the prototypical boss who bossed he was a macho manager now the problem is that such beliefs usually aren't terribly harmful when they become terribly harmful is when they are put with a technology when average human beings can carry them out and what happened in this case is we then invented the office revolution the computer telecommunications and all that and so it became possible in practice as well as theory to know all of that information that Mr. Janine supposedly knew but that required you to build up enormous information bureaucracies sending information up the system information down the system that was the essence of management management by objective, management by the numbers let me give you an illustration in the last 7 years of course we have done a lot on computerized accounting right we've introduced computers into accounting and almost everything probably no accounting in America what do you think happened to the number of accountants on American payrolls well back in 1978 there were 1 million accountants on American payrolls as I said we had 16% rate of growth by 1985 how many accountants were on American payrolls in 1985 1.3 million a 30% increase in accountants a 16% increase in output and an enormous investment in hardware to computerized accounting now why didn't it work well I would argue it didn't work because with that role model in the back of all of our minds we say my god now I can be Harold Janine I can know all of that information and so I will calculate things every day which I used to calculate only once every 3 months and I will invent management information systems cost accounting, inventory control financial accounting and a dozen other set of accounts of which have much to do with improving output but the ideal is perfect knowledge and the institutional arrangement is that the boss who calls for the knowledge the cost of getting the knowledge is not on his cost center it's on somebody else's cost center and the guy who provides the knowledge is not even interested in calculating the cost because the boss has just ordered it up you don't say to the boss to hell with that form it's too expensive you know anybody in industry who's ever done that still remain in industry and see it's exactly like medicine as was mentioned I do some writing in medical economics the medical system is going wild like the white collar system in America is going wild and some of it's the same system and if one of the things that's happening in that area is it goes back to what's taught in medical school the role model the role model is when it comes to stopping giving treatments do no harm give every treatment you can until the side effects of the treatment are to be worse than the disease that's what an American doctor's taught now as long as the only thing you can do is give people a little opium to make them feel better no great harm the problem comes when you get a lot of very expensive technologies a friend of mine who's a bit of wag in the medical field recently said everybody in the United States is going to die of a catastrophic illness in the sense that we spend three or four hundred thousand dollars on them except those people who die quietly in their sleep and we can't get to them and depending on whose estimate you take anywhere from forty to sixty percent of all the money spent on medicine in the United States is spent on people in the year before they die we put an enormous number of resources into something that has no payoff because the stopping rule is put those Herculean efforts in even though there's every reason to believe that those Herculean efforts won't pay off because that's the role model and the way it's done now I would argue to you that do no harm and know everything in the business community are essentially equivalent stopping rules now it is true what we teach in economics that eventually the efficient will drive the inefficient out of business first of all that can take a long time and secondly the efficient can be all Japanese and the inefficient can be all American and beliefs about what's the right style change very slowly now one of the things that foreign companies have done to give them better productivity is various forms of participatory management basically where you delegate decisions down the hierarchy rather than making them yourself and of course the great advantage of that is that you then don't have to have an information system coming back up and down the hierarchy participatory management has not been a great success in the United States and I would argue it is not a great success in the United States precisely because of those role model things that I mentioned earlier again let me read you a set of quotes from the business press about participatory management in the United States the participatory process does not always fit easily with traditional management methods and measurements fearing a loss of power many middle level managers torpedoed early participatory programs the higher up corporate ladder the higher you went up the corporate ladder however it seemed to be to shift to the participatory mode information is power and it remains a clear badge of rank with managers now participatory management is the idea that you're going to get rid of clear badges of rank and if you're giving up information in some sense you are giving up power Japanese managers have other systems of rank and power other than making millions of management decisions you can take shop floor inventory control at Toyota which is one of the big competitive advantages in terms of productivity that they have on American firms some people have looked at that and said well that's a device for motivating blue collar workers to do better because you let the blue collar workers do inventory control at the end of the day and it gives them a little variety in what they do if you look at the data that's not where the productivity is the productivity is there because then you fire all of the white collar workers who traditionally confirm or the process of participatory management where you let employees directly purchase equipment sign purchase and sales orders rather than having industrial engineers who order and purchase equipment there again it may be a motivational device but the real savings is you have much smaller staffs of industrial engineers who spend their time ordering conventional equipment and let me think about mention to you something that's interesting here it's a distinction what are called locked numerical control machine tools and unlocked numerical control machine tools in America most numerical control machine tools are called locked and by that you mean that the blue collar worker operating the machine is not allowed to touch the programming in both Germany and Japan most numerical control machine tools are what are called unlocked which means that you teach the blue collar worker to do the programming and let him or her change the program when something seems to go wrong with the machine now if you look at the analysis all of the efficiency would seem to be on the side of the unlocked numerical control machine tools because then when something goes wrong you don't have to pick up the phone call somebody get him there tell him what's going wrong wait for him to do it have two people standing around and then have the machine fixed but almost all American machines are locked why are they locked let's look at the words of iron age which is a trade journal dealing with numerical control machine tools it says and I quote workers in their unions have had too much say in manufacturers destiny many metal working executives feel that large sophisticated flexible manufacturing systems can help rest some of the control away from labor and put it back in the hands of management where it belongs well if the issues control then of course the locked machine is better than an unlocked machine because you don't let that bastard on the shop floor have any say about what's going on but if the issue is efficiency and in the long run of course it's the efficiency that improves your standard of living not the control then the Japanese or the German system unlocked the numerical control machines would seem to be the best now let's think of something that strikes a little bit closer to home let's take the word processor word processors ought to raise productivity right you know that there is no scintilla of evidence in the United States that any office automation has ever paid off for any firm and I say that with some confidence because in the last six months I have spoken to the top executives of IBM Apple and Wang and I have challenged them to show me the data that office automation has made their own firms better and they are all incapable of doing it yet as I mentioned 40% of all the investment is going into this area of office automation the reason I say word processors is a more sensitive thing probably most of you in this room are white collar workers see two ways to use a word processor one way to do it is you give it to your secretary and you don't really get much productivity because she spends maybe 20% of her time typing anyway she's a pretty good typist who didn't make very many errors anyway and it all gets slightly speeded up but nothing of very much significance happens the other way of course to use the word processor is to junk the secretary and do it yourself anybody with good keyboard skills can type faster than the world's fastest dictator can dictate any American business executive keyboard skills is in some sense technologically obsolete now I worked for the New York Times for a year when I was on a sabbatical and the New York Times is one of the few places I know of where there's only one person in the entire organization that has a private secretary the chairman of the board now that's partly because people in the newspaper business have always been able to type but I remember one day being in the business office and there was somebody there doing this kind of typing and I said to him what the hell are you doing and he said oh I went to prep school and they told me I'd be so important I'd never have to do this kind of stuff but of course the secretary is a mark of power prestige, status people give up secretaries and do it themselves very reluctantly most middle aged managers don't have good keyboard skills to get them means you go through a period of looking clumsy human beings don't like to look clumsy in front of their subordinates they will resist to the nth looking clumsy in front of their subordinates but you will never find anything about looking clumsy among your subordinates in the traditional theory of the firm but it may be precisely things like that that stop a word processor from paying off now the other problem you've got of course in this whole business if you think about reducing white color overheads if you fire people like yourself what is the immediate problem you may be fired I will give you an analogy which Jim Buchanan will say is only true because it's government but I would argue it's just as true in private industry as it is in government and Jim Tobin who was in the Navy during World War II will appreciate this in World War II there were 12 million troops in the American Armed Forces today there are 2 million troops in the American Armed Forces what do you think has happened to the number of generals and admirals we have as many generals and admirals today as we did in World War II and the same things true in private industry private industry has used none of the modern technology to reduce the number of generals and admirals because what admiral is going to fire an admiral if you fire admirals then you have less opportunity for promotion because if you fire people below you you know the people above you are going to fire down too in a world of some of our competitors where salaries are less dependent on position and more dependent on seniority and some other variables people are less reluctant to make some of those changes because it doesn't impinge so directly on their own personal economic circumstances if you get redeployed it won't mean a 50% cut in income which it will typically mean in the United States I was at the management institute of a big company which I guess will have to remain nameless where I had 30 division managers in the room and we were talking about their economic problems and it came that in this big company that went all the way from mining to electronics and that will probably tell you the name of the company that the the payout period was 2.8 years every project in that company was supposed to pay for itself in 2.8 years and I said to these people how many people in the room think that's the right payback period not a single hand went up how many people are going to go back to the division you're managing and change your payback period not a single hand went up because of course they were going to be judged and promoted and paid based on meeting that 2.8 payback period now that's irrational not supposed to happen in microeconomics but the real microeconomic world out there the world of Homo sapiens rather than Homo economicus I would argue is full of those kind of things that basically have to be bought brought into the economic analysis take the choice that American firms often face between investing in R&D and building up new industries which of course is the way to make the economy bigger and simply having a merger or a takeover which is the way to make the company bigger but not necessarily the way to make the economy bigger one of the problems you have is if you got yourself a new environment where everybody is self interested in defensive it can be very difficult to make the kind of changes necessary to set up a new activity in your company and at least in theory it is much easier to have a takeover now not too long ago I was down at Tulane University and the students at Tulane were running a week seminar which had kind of an interesting theme it was called heroes and every night they had a different type of hero and then they had somebody to be a social commentator on those heroes I was asked to be the social commentator on economic heroes what do you think the economic heroes were that those Tulane students picked they got to pick three actual human beings who were their economic heroes well the three people they picked were the guy from Drexel Burnham who invented junk bonds Irv Jacobs who is kind of a minor league boom pickens takeover artist and a black woman who runs an advertising firm in Chicago and was brought by Ronald Reagan to his State of the Union message and pointed to as a hero now think of that the heroes are advertising junk bonds and takeovers not one of those things will make the GNP one iota bigger I pointed that out during my social commentary but during the question periods from the students there was not a single question about the substance of the activity every question from the students was how can I be like you and make a lot of money and of course they were making a lot of money but they were not contributing to the GNP and that kind of boom pickens mentality that's the way to get rich of course that is true microeconomics that is the way to get rich but that's not the way for society to get rich and it's those kinds of social organizational details that you have to have some way of controlling for example take United States steel suppose we lived in an institutional world where it could not have bailed out of steel by buying marathon oil do you think its current steel facilities would be better or worse run than their run today we know the answer to that question they would be better run because of the choice of the top management was make those damn steel facilities work or lose your own job they would make the steel facilities work better if the choice is hey I can get out of this messy situation and fire all the employees and everybody else that's precisely the step you will take I see that very dramatically in my hometown because as was mentioned I grew up in an Anaconda Montana which when I went to high school and worked underground for summers had 20,000 people working underground in the mines and mills butte in Anaconda and shut down like northern Minnesota the interesting thing about American copper companies is every copper company where the copper was just a subsidiary of a bigger conglomerate shut their mines down every copper company where they did nothing but copper is still operating because if you did nothing but copper and shut your mind down you had to fire yourself and very few presidents fire themselves and those companies that had no choice found a way to cut the costs they managed to survive even with 50 cent of pound copper while the Anaconda which was part of Arco big oil company was shut down with not a much of a backward look because from that point of view hey it's a big tax right off we'll just take right off the loss and it's not much it was a too easy route now see what I want to argue to you is that standard operating procedures have a very strong hold on the mind let me tell you one other thing that I think points out the same kind of a problem not too long ago somebody from Wang noticed that they had facilities in Taiwan which were producing exactly the same things as facilities in Boston and even after you corrected for wages the cost per unit were half as much in Taiwan as they were in the United States and as any sensible executive would that's an interesting phenomenon we better find out why that's going on it clearly doesn't have anything to do with wages we've already corrected for that he said that when you got there you found thousands of little details different no one of which explained the difference but in some total explained the difference for example it is standard American operating procedure that every white collar worker gets a telephone on their desk blue collar workers in America don't get a telephone on their desk most white collar workers have very few business phone calls they have to make every day no one phones terribly expensive maybe $30 a month but you multiply by that by thousands of white collar workers and pretty soon you're talking about real bucks but of course taking telephones away from white collar workers my god that would cause a revolution because by right American white collar workers get a telephone on their desk that's the way it's always been well it isn't the way it's always been but we think it's always been that way but it's those kind of things that require a change in American behavior but it's also those kind of things I would argue that you have to basically build into your macroeconomics now what this means of course is if you have the traditional blinders there are a whole set of things which various economists have suggested for raising productivity some of them may work they may not work but from the conventional point of view you can say I know that's wrong not because I've done any empirical investigation but simply because it must be wrong it contradicts my theory or initial hypotheses for example there is an American economist by the name of Martin Weitzman who's argued that the bonus system could do certain things to improve our performance both in terms of macroeconomic activity in the sense of having less inflation and in terms of microeconomic activity in the sense of having more productivity but there are many American economists and I've heard him do it will stand up and say that's nonsense because you're telling me how people are paid whether they're paid once a week or once a month or once every six months with a bonus makes the difference to what they do and I know that isn't true because rational home economics works because he's paid a marginal product and how the check comes weekly, monthly or in a bonus makes no difference to how hard home economics works therefore that's nonsense other people have suggested that maybe we should shift maximization to something the Japanese called value-added maximization where you basically treat the firm more like a partnership where you're maximizing the value-added of the partners and then you're worried about how you distribute it among the partners same thing there and the idea is that you give people job security and with job security then they're willing to accept some of those technical changes and redeployment that they would not be willing to accept in the conventional system Standard Economist says that's nonsense I know that's nonsense because the way you get productivity is hard-nosed, fire him when he isn't needed and the way you get productivity is anytime a worker isn't needed you fire him that pushes him off in the general labor pool where he can redeploy to the most efficient part and anytime a worker gets one nickel more he quits because that's income maximization and by moving to a job that pays one nickel more you're raising your marginal product and that needs to efficiency now of course the problem is that it also may lead to an environment where everybody's very resistant to technology because if a new piece of technology comes in you get fired and on the standard model you're not worried about being fired because you just go out there in the labor market and if you want a job you walk up to the factory gate and you offer to work for one penny less and the guy there is working and they take you on now I don't know anybody economist or anybody else who's ever actually done that walk up to the factory gate knock and say whatever your wage is I'll work for a nickel an hour or less and I suspect economists would be scandalized if somebody came to MIT and did that to me or came to UCLA and did it to Professor LeAvon Hoven take the fast track in business schools what is basically taught not by the faculty but by students one to another is the way to succeed is to get on the fast track and what you do is you go to work for a business firm and you try and have some dramatic success which calls attention to you so that people see you as a comer and if you don't find an opportunity to do that within two years you quit and go to a different corporation and look for another opportunity and for example if you look at Harvard Business School graduates something like 80% of them have changed jobs within two years of graduating from the Harvard Business School there's a problem with the fast track the problem with the fast track is it says if you maximize the opportunities for these comers that's going to be a real incentive for them to get out and work but what is of course is going to happen to the 99% of the population who don't make it on the fast track if he's so good let the bastard solve the problem and you've got tremendous mismotivation among everybody else now the interesting thing in the United States is we stop start the fast track in the late 20s the Japanese start the fast track in the mid 40s and for a 20 year period of time they basically force everybody to march along more or less in a cohort without making these distinctions as to who's on the fast track or not on the fast track they rotate jobs, they more or less all get the same wage rate regardless of whether they're the best in the group or the worst in the group now from a conventional point of view that's inefficient because you're not sorting people out of marginal productivity the problem is if you look at the data it may be the essence of efficient because those companies that are doing those inefficient things are getting more efficiency out of the system than the American companies who are supposedly doing the things that are efficient relative to those microeconomic models now those are the kind of things you have to think about in this area now my final comment is if you I think if we built up a rich microeconomics based on homo sapiens then we wouldn't really have the problem with all of these perfect markets that are supposed to instantly clear and they wouldn't be not clearing because of market imperfections see economics on one level is very peculiar suppose an astronomer saw a planet in the wrong spot that made his theory wrong what would he say well he'd say I gotta go back to the drawing boards what does an economist do when he sees a planet in the wrong spot he says market imperfection get rid of it change the data to make my theory right now see in some sense as I do I teach part time in a business school and part time in the economics department I see that one of the things that business schools exist to do is to force homo sapiens into being closer to homo economicus and I think often times that's not a smart way to move now for both economists and managers I understand that you can have blinders that leads to low productivity what I've argued tonight is that managers in America have a set of blinders that have led to low productivity but of course I'm also saying something else I'm saying the economics profession that is in love with precisely that microeconomics which I've been describing also has blinders which leads to a low set of productivity because it leads into a theory about microeconomics which is not consistent with reality with economics and so if you come to the bottom line my reading is that the real analytical defects are not to be found in Keynesian economics although that's not perfect the real analytical defects are to be found in this kind of uncontested microeconomic model that has this all knowing perfectly rational free market behavior by that great animal homo economicus thank you this conference two years ago a group of joyful economists in this college McCrasty and Anderson and Bungham and Reese and our leader was Anderson he was not permitted to come this all the way the journey to the conference and so we have carried out this conference these last two days as a memorial to him his dear friend Dr. Brunner came from Switzerland to pay to him an unforgettable tribute yesterday which he followed with a classic speech without a note it will surely stand as a classic in the book when we see it next year Andy's sword was passed on to Dr. David Reese who came to this college eight years ago to whom I've had great admiration since he came my admiration has increased he understands our topic he has articulated it for us he has carried us along in the literature for the conference we said this in many ways this is Leonel's conference from behind the scenes I also know that this is very much Dr. David Reese's conference before you leave tonight I would like to have him our panelists who are with us for these two days and have you meet them please Dr. David Reese chairman of Nobel 22 thank you very much the hour grows late and our conference draws to a conclusion there are numerous thanks I could give to the help and support I've gotten I will forego naming persons my name they will forgive me for that I am sure but I am deeply appreciative for all the help that we've received from the staff, from the student hosts from the faculty hosts and from the many people who have made this conference possible I know that some of you have not been with us throughout the entire conference and so to close the conference I will call on each member of the Nobel panel and give them a brief opportunity to speak to you they may respond in some way to Professor Thoreau's comments or to other members of the panel who have made other comments or may greet you and speak to you in whatever manner they wish to do so I'll begin on my right may I call on Baron Stig Ramel that was not fair to let me to shoot the first shot I think I have had already so many opportunities to say far well I think we got one in the afternoon but I'm glad to have this last opportunity to say what a marvelous experience has been to be here at Gustavus Adolphus with this brilliant performance we heard from Les Thoreau I think was really the right way to end it the only thing I can say to Les Thoreau that all the problems you have here in America apparently are staggering you are welcome to Sweden we have sold them all we had we had an army of 30,000 men when we Gustavus Adolphus as a general conquered 50% of Europe now we have an army of of 100,000 and we have not yet done anything seriously but we don't know let me say that I arrived to this conference I have two heroes in my life and besides Alfred Nobel of course and one is Thomas Jefferson and the other one is John Maynard Keynes and I was a little afraid coming here that my picture of him would be destroyed because he has a lot of men enemies even if I have not met him here at Gustavus Adolphus but I come we leave this conference with a better picture of Keynes what he has done and what he means today and what he will mean for the future and I think that is a fine thing to have happened in this small conference of two days with but a small conference but with great participants thank you so much I may now call on our Nobel Laureate and recent recipient of the Doctor of Humane Letters honorary degree from Gustavus Professor James Tobin now thank you very much I certainly have been greatly impressed by Thomas and the efficiency and smoothness of the arrangements for this rather ambitious conference and I congratulate President Kendall David Rees and all the student hosts particularly my own Greg and faculty host Wangum and all of you and Elaine Brostrom for doing all this so well and it's a very ambitious enterprise for college to undertake it gives a difficult assignment to bring technical matters from some science or even non-science like ours before a large audience of varied interests and varied experience subject matter and I can only hope that our presentations didn't leave you too confused about the subject and might excite your interest in macroeconomics and in the missing foundations for macroeconomics that we heard about tonight now all of them wrote an operetta called HMS Pinafore and in that story as some of you may remember there's a lowly economist named Ralph Rackstraugh who is working in the probably with a word processor or computer in the bowels of the Federal Reserve System and had the temerity to try to run off with the chairman's order and he was caught of course and he was asked what he had to say for himself and he said I am a Keynesian and so then the chorus of of all the crew of the Good Ship Federal Reserve or HMS Pinafore may be saying this rousing song which I can't sing so I just have to give you the words he is a Keynesian for he himself has said it and it's greatly to his credit that he is a Keynesian for he might have been Valrasian Supplyside or Lucasian or perhaps Freedmaniac but in spite of all temptations of the rational expectations he remains a Keynesian he remains a Keynesian the Reverend Kennan, Ronald Hayden Preston as I said this afternoon I am the odd man out in this company as an amateur among the professionals I have a great admiration for John Maynard Keynes he took ethics very seriously he never succeeded in integrating his different pictures of humanity into his finally formulated thought and our pictures of humanity and human beings and how they operate and how they might and ought to operate are fundamental and they certainly underlay a lot of the exceedingly interesting reflections we heard from Professor Surow this evening I am by profession a what I suppose is called a moral theologian but it is impossible for a moral theologian to sit in his study and cogitate by himself whole series of either analyses or recommendations about human behavior he simply has to get into the thick of it with others and this makes life very strenuous it forces people like me to have to try and keep up with and make some contribution to people in different fields but unfortunately one can't be a specialist in all of them either but one still has to try and cope and economics is only one of them but he's one among others but one that I had to try and cope with I think economics is a very difficult discipline I quoted this afternoon to someone saying that the job of an economist is like someone trying to lay like a hen trying to lay an egg for a few days and I think if you think that out you can see the essence of his problem which is a very real one so I've been very grateful for having to face up to this challenge it's caused me a good deal of hard work and anxiety in advance but the conference itself has proved well worth it and I feel honored and grateful for the invitation and I must say the word of appreciation for the extremely kind and efficient way in which I have been looked after and I know the rest of us as visitors here have been too we've heard just a moment ago from Professor Thoreau I'd be very pleased for him to give any comments if he cares to although I'll also excuse him if he would prefer Professor Axel Landhofen the evening goes on there's one act after another that is harder and harder to follow I think it's in a sense unfair to Lester Thoreau not to discuss his paper but I think it would because there's a lot of things I would like to discuss and I was greatly stimulated by it and I liked it I also think it would be unfair to all of you if I diluted his splendid presentation by starting something at this hour so let me just say my thanks to my hosts it has been great experience for me to be here and get startled all over and over again hearing my name pronounced right it's very invigorating for me I must say more seriously I came partly out of curiosity I have lived in this country now for 26 years and I had not yet visited a Swedish college with Lutheran traditions or Lutheran college with Swedish traditions and I'm very much impressed by Gustavus not just by the facilities not just by the hospitality which has been fantastic and I thank Byron and Craig in particular but I've had the opportunity to speak with I don't know 12, 15 or 20 Gustavus students and I've been very impressed with the morale of the place the students are impressive they like their college they would obviously try to convince anybody else to come here too and that kind of morale is you don't find very often and I think that's the most impressive thing about Gustavus and I congratulate the president and the faculty of this place for that accomplishment thank you very much Professor Jeffrey Harcourt my mother always taught me to say thank you for people for having me and so I say thank you very much for having me I'd like especially to thank Bill and Joel who've looked after Joan and myself magnificently and it's been a great pleasure to meet them both I hope one gets his blue for gridiron becomes a great accountant and I hope the other one has his books properly appreciated because I'm sure they're very good books I've always described myself as an Australian patriot and a Cambridge Economist and one of the reasons why I decided to spend the second half of my life working in Cambridge which was too old to play Australian rules was because I wanted to do something to preserve the tradition which was associated with Keynes and Cambridge and supported by the great love of my wife Joan and my children I've been privileged to be allowed to do that and I've been privileged by your invitation to come here and try and explain why I think that's an important thing to do so I thank you for allowing me to have that opportunity and I thank you very much for your hospitality I'm very relieved that the American economy anyway has such a astute and acute mind examining it as the American economists on the panel that I've heard and of course I include in the American economists since it's not a homogeneous group Axel and Carl Brunner who I've been delighted to meet as well as the homegrown varieties some of whom I've known who I'm glad to have the opportunity to meet and all of whom I've greatly admired let me tell you one story which I think illustrates some of the themes which we've dealt with Mitterrand, Gorbachev and Mrs. Thatcher were discussing the nationality of Adam and Eve in the Garden of Eden and Mitterrand said they must be French they live on love and apples and Gorbachev said knit there is cooperation there is no competition they are Russian and Mrs. Thatcher said belt up you two they have nothing to eat they have no clothes and they have no houses to live in and they think they're in paradise they're obviously British Professor James M. Buchanan well I can't follow that one but first of all I would like to extend my apologies to Jeffrey Harcourt because I accused him this afternoon of introducing irrelevant material but after Les Thoreau to give that talk about the legacy of Keynes I surely assure oh Jeffrey Harcourt a major apology apparently there's a sort of a silent conspiracy that we don't talk about what Les Thoreau said there's a lot of things I could say about what he said but I think I will say a little bit about what he didn't say now underneath his criticism here underneath it all somehow was something he didn't say was the sort of implicit silent notion that somehow if we just had the government to take care of things and correct all these things intervene all over the place that things would be better well let me assure you living in the Washington Beltway is about damn bureaucrats every day now if it would be different if we're out here out here I feel every time I come to the Great Midwest and certainly this has been reinforced in spades in this particular occasion there's something solid about the whole setting and the whole culture it's a culture that I admire tremendously it extends all over the Great Midwest but I assure you the climate around Washington is quite different and let me let me agree to some extent with every criticism that Les Thoreau has made about the inefficiency in American industry but let me warn you it would be quite different in turning something over to some people from out here and turning it over to the Washington bureaucrats thank you very much we'll pass the microphone for Professor Carl Brunner Professor Thoreau gave us a superb performance lots of entertainment and as to the rest I mean I'm not quite sure I agree that it is really a pity that we have no opportunity to discuss in detail some of the substance of what has been said to which Jim Buchan indicated now let me first however indicate the following I enjoy this conference very much I wasn't quite sure how it would be and how it would go but I found it superbly organized a very friendly atmosphere indeed in every respect particularly for me who have a bit a minor structural clause in so respect and I really enjoyed it I enjoyed very much to listen to some of the papers some of the papers were more attuned to my interest in work like Reverend Preston some of the others I was very interested also to listen to Geoffrey Harcourt which I met to the first time and I knew about his work and I followed his work and so it gave me an opportunity to round up my horizon a bit in this respect and I found this very very useful I also was very intrigued to visit the Gustafus Adolphus College the reason simply that well say shortly after Caesar conquered Gaul I was a young man and that I was very intrigued when I was about 12 or 13 years old I crossed as one of my hobbies in the history of the Third Year War in Germany and I read diligently and Gustafus Adolphus was my great hero well I read Friedrich Schiller's history several times again but every time when I came to the passage at the battle in southern Germany where he was killed I skipped reading the battle I didn't like it at all I thought history should be rewritten you know well but then the conference was not Gustafus Adolphus the conference was the legacy of Cairns and indeed it was highly appropriate for the college to organize something like this 50 years after the general theory was published the legacy is still alive indeed after all we are testimony of it we were discussing the whole issue and whether you discuss it critically or approvingly there is this legacy which we have to contend with a variety of wide range of problems serious problems which we are confronting still today in our society on the aggregate level or on the level of allocation and use of our resources domestically, internationally on the variety and the wide range of these issues I mean the Cairnsian legacy or the legacy of Cairns which we will properly say however it was transmitted and transmuted in many different ways is of relevance for us to contend with my specific interest and theme in this context at this time was associated with problems which are I think very much in the forefront of our discussions namely with issues of what is a moral order and how do we achieve and maintain a moral order and what does Cairns to contribute in this respect for instance we have very serious problems to contend with because one of the easy answers seems to be well and there has been a certain tradition in various branches well man is immoral so let's make him moral by just imposing a moral society on him but the basic point which I want to make is that we have to be very, very attentive to what this means in the institutional arrangements because institutional arrangements however the motivation however the best design which we have in our mind have their own momentum and their specific consequences and incentives which people respond and which shapes their behavior and the result may very well be then that we have an immoral society imposed on ambivalently moral or ambivalently immoral man which is a very strange animal indeed this man or a very strange being in many, many ways a fascinating being I always found throughout my life with this potential a potential ranging from people from Stalin and Hitler on the one side which each one murdered directly or indirectly millions and millions of people until Franciscus of Assisi El Poporino what is then well we have to take account of that and so the point is I repeat what I said at the conference if we are concerned for a moral order then one of our basic questions we should ponder and very carefully assess is do we fit the man to the institutions or the institutions to the man well that's not a good way of putting it as I indicated the issue is do we accept the ambivalence basic nature of man with all his potentials and design institutions which try to channel and give incentives to channel his efforts in the average in directions of which the community can benefit or do we try to shape institutions which are designed or hopefully attempt to shape and change his basic nature where I maintain that if we do the latter we will result in a disaster just from a moral point of view now that remains to be seen I think some of you who are young enough may have an opportunity to check the evidence probably you can give me some signals perhaps I can learn indirectly thank you this concludes our program tonight and our conference good evening welcome what's your autograph oh ok I'll be back so what's your autograph ok ok ok ok ok ok ok ok ok ok ok ok ok ok ok ok ok ok ok ok ok ok ok ok Anyway, good luck with that next book. So did I.