 Good morning my welcome again to all of you For the beginning of the second day of the Nobel conference program in keeping with our tradition of so honoring those Nobel laureates who Participate in our conferences We will begin this morning's program with the conferral of an honorary degree on Professor Tobin To begin those proceedings I call on Dean David Johnson From time to time Gustavus Adolphus pauses for a high occasion The awarding of an honorary doctorate It is a time for this college To assert through the persons we choose to honor That for which we wish to be known One of those ways is to exalt scholarship and we do so today by the Honoring of a recipient of the Memorial Prize in economics In honor of Alfred Nobel Dr. James Tobin Who will be awarded the degree of? Doctor of humane letters honoris causa I? Asked the platform party to step forward John Bungham will be the citator Elaine brostrom and John Holt a the Lictors for this occasion Mr.. President today we honor James Tobin Sterling professor of economics and a recipient of the Nobel Memorial Prize in economics James Tobin born and raised in Champaign, Illinois Earned all of his academic degrees at Harvard University He was one of the first students selected for Harvard's national scholars program in 1935 graduating summa cum laude in 1939 a Year later. He received a master's degree which was followed by service with the office of price administration in Washington, DC From 1942 to 1945 He served in the United States Navy where he earned the gold watch an award given to the best officer in the training class Returning to Harvard following the war he completed his PhD and was elected into the Valhalla of the Society of Fellows a Society from which many tenured professors at Harvard are selected But Yale called in 1950 and he along with Lloyd Reynolds Proceeded to transform a very conservative Department of Economics Into what Paul Samuelson called the best Harvard Department outside of Cambridge to which Alvin Hansen in response said Yale is the best Harvard Department period Since 1957 he has been the Sterling professor of economics at Yale University Dr. Tobin's accomplishments are legion in In 1955 he received the John Bates Clark Medal an award given by the American Economics Association To the individual generally recognized as the most promising young scholar in the field He was director of the Cowles Foundation for research in economics from 1955 to 1961 and chairman of the Department of Economics at Yale University during two different time periods He served on the Council of Economic Advisors with Walter Heller and Kermit Gordon in 1961 and 1962 During Kennedy's presidency He has been a consultant to the Board of Governors at the Federal Reserve System on numerous occasions as well as a consultant to the United States Treasury Finally he was awarded the Namwell Morial Prize in economics in 1981 Professor Tobin's contributions to the academic discipline of economics are wide-ranging and generally concerned the Interactions of real and financial variables in the determination of national income in the short run and the long run More specifically he is the chief architect of portfolio selection theory This theory analyzes changes in financial markets and how they influence the spending and investing habits of individuals and businesses as He explains it It is simply a theory of not putting all your eggs in one basket because if something goes wrong you lose all of them at once He has also written seminal papers on empirical and theoretical aspects of consumption and saving behavior business investment and econometric methods and is considered along with Paul Samuelson as co-developer of the Neoclassical synthesis of Keynesian and classical economics While self-described as an ivory tower economist the underlying theme of Tobin's work has been that the whole purpose of the economy is The production of goods and services for present or future consumption For Tobin it is without question that full employment is the primary objective of economic policy and The burden of proof is always on those who would leave idle men machines or land in pursuit of some other objective President Kendall, I have the greatest pleasure to present to you Upon recommendation of the faculty at Gustavus at office college James Tobin for the degree of Doctor of Humane Letters honoris causa on the recommendation of the faculty of this college With the approval of its board of trustees and by virtue of the authority vested in this institution by the state of Minnesota I hereby confer upon you James Tobin The degree of Doctor of Humane Letters honoris causa with all of the rights privileges and responsibilities there to appertaining thank you very much for the generous award the It's a great pleasure to Be here for this symposium award or not And I hope you excuse me for disrobing just now. It got a little warm here yesterday In citation at a Quoted my description of My great theory that you shouldn't put all your eggs in one basket. I Want to explain that on the great day in 1981 when I got the word from the Press that It's early in the morning in in the northeast United States when this happened That I was going to get the Nobel award I hadn't yet received the official information from Baron Ramo but what happened is various radio and the press People in New York Get it on the wire and they call you up indeed one of them called the Yale switchboard that morning and asked for the asked for the number of James Tobin and called the number and a sleepy voice answered and The reporter said congratulations You have just been awarded the Nobel Prize in economics and The voice said are you sure of that? So I'm only a sophomore Let's see the implication that if he'd been a senior it would have been perfectly natural Perhaps goes with Yale students Later that morning I Had to go to a press conference, which the University public relations office kindly organized and So not knowing why I was being given this award They said well we see something in this press Announcement about portfolio theory you wanted to tell us what that's about so I explained what that was about in the best language for laypersons that I could Imagine after which the reporters said oh, no you please explain it in language that's understandable to laypersons So that's when I said well, you know, it's not putting all your eggs in one basket And then I received from several alleged friends of mine a cartoon which appeared around the country which showed a man of a certain age standing at a rostrum like this and Saying well here is why I received last year's Nobel award in medicine a Doc an apple a day keeps the doctor away So now a couple of weeks a celebration of the 350th birthday of Harvard a symposium There on Harvard and Keynesian economics there are all kinds of Symposia and programs of this kind in these days Anniversaries of this or that including Keynes's general theory and so of course when Keynes was Writing and living there was no Nobel Prize in economics but Let's hope he would have got it if if there had been Given that the Swedes were in charge probably probably would have Although there were a few Swedish economists who Felt that they'd already done Keynesian economics before the general theory came along only they published it in in the esoteric languages like Swedish and German anyway, I Had been to the 300th anniversary of Harvard when I was a sophomore like that other James Tobin and I knew that at that occasion they had given honorary degrees to 62 of Eminent scholars from around the world So occurred to me to wonder What they had done about economists that day, so I looked it up and Sure enough they had not honored Keynes even though the general theory had been published on February 6th As Jeff Harkart told us and the celebration was in September of that year They did however honor three economists one of whom was from Keynes's hometown and home University Cambridge England But it was Dennis Robertson who was a friend and rival of Keynes At the time My further research disclosed that Keynes received only one honorary degree in America Any time That was from Columbia and that was given prior to his writing of the general theory I Think that not many books are celebrated 50 years after their publication and even fewer deserve to be In the golden anniversary of Keynes's general theory of employment interest and money Is also a golden anniversary for me personally Because shortly after that 300th birthday at Harvard I started studying economics 50 years ago and it happened I cut my teeth on Keynes's new book That was because I had a young tutor Who is also my introductory economics instructor who? Had been in England and who was sort of crazy and He said well for tutorial There's this new book from England that some people think might be important. So let's you and I read it Well, I was too young age of 19 and too ignorant to know that I was too young and ignorant To read that book So I did read it and it was pretty exciting and It was my introduction to Theoretical reasoning in economics and to controversy in economics as well as to diagnosis and prescription For the world's ills during the Great Depression So I learned Keynes in economics at that age and many people think I've learned nothing since Although the initial response of the economics establishment to that book was mostly negative younger members of the profession rallied enthusiastically to the Keynesian standard fairly quickly especially at Harvard and At Harvard they found a mentor in Professor Alvin Hansen Who became the leading apostle and interpreter of Keynes in America? I Mentioned him not just because he was my admired teacher and Dear friend But also because he came from these prairies grew up in South Dakota and before he went east to Harvard in 1937 he was a distinguished professor at the University of Minnesota His initial response to Keynes's book was critical But on the train to Boston so to speak he changed his mind It's rare for anyone to change his mind about anything anytime and especially at the age of 50 Well, ironically just as Minnesota was by Hansen involved in the Keynesian Revolution So it is involved in the current Counter revolutions against Keynes the University of Minnesota Become a major center perhaps the major center of the new classical macroeconomics a powerful theoretical attack on Keynesian economics. I wanted to Begin by a Little history In the 1920s after the First World War Britain was in depression And The question was a question was whether After having suspended the gold standard during the war that Britain should return to the gold standard at the same value of the pound In terms of gold and in terms of the dollar as had existed in 1914 the Chancellor the Exchequer was a man named Winston Churchill and There was J. M. Keynes private citizen He thought it was a great mistake to return to the pre-war value of the pound because it given the wartime inflation and increase in costs in Britain it would make British exports Uncompetitive and he predicted that if it were done Britain would go into depression Nevertheless Churchill supported by the economics establishment of the time Did return to the gold standard at the pre-war parity of four dollars and eighty six cents per pound and Things happened just the way Keynes said they would and Britain went into a depression long before the rest of the advanced capitalist world high rates high amounts of unemployment and rates of unemployment for a long time 1929 Keynes still thought something should be done about the unemployment and in the Electro campaign of that year he made up with his old enemy Lloyd George and Supported a program of public works to give jobs with borrowing the funds to do so George Lloyd George was the liberal leader He lost the election result the proposal however resulted in a Interesting and extensive debate about Economic policy macroeconomic policy in which the British Treasury supported by the establishment of economists of the day Said that there was no room in the economy for public works That's essentially what they said and they're trying to do so would simply cause inflation so you could not create more jobs by borrowing money and spending it because They would simply displace Private jobs which were more productive. That was called the Treasury view and it prevailed the next thing Keynes wanted to do was to Devalue the pound and rectify the mistake of 1925 It wouldn't do that either until forced to do so by the events in 1931 at which time Britain began to pull out of the recession depression earlier than than other countries Much the same effects of the outdevaluation as Baron Ramel Told us from Swedish experience in more recent years last night In the United States in the same period during the Great Depression The depression as it got worse in the early 30s began to unbalance the federal budget You get collect less taxes when incomes go down President Hoover therefore proposed to raise taxes to balance the budget to keep it in balance and Roosevelt Attacked Hoover for having an unbalanced budget nevertheless In the 32 campaign and he raised taxes the first year or two of the Roosevelt administration Now even President Reagan knows now that it's a bad idea to raise taxes and kick the economy when it's already down But that's what they did and that was the Economic wisdom of the time the economic orthodoxy of the time There were also some proposals at the time that the Federal Reserve should take more active steps to lower interest rates and increase money supplies The Hoover administration was scared that that might happen and so the Federal Reserve Congress might even pass a law which said they've got to do that and they Fought against that law and who supported them in doing so the economics establishment of the day That that would be inflationary and unsound just go to Germany in Germany say was very high unemployment during the Great Depression and Getting worse all the time We're in the latter days of the Weimar Republic the Chancellor is a Nice man named Heinrich Bruning He is concerned however about the reputation of Germany in the international money market and about Going further into Public and international debt and he refused to do anything to raise the unemployment compensation relieve the distress increasing in period of extremely high unemployment or to have public works jobs or anything like that In an election shortly following this episode The by-remembering my republic was destroyed forever Hitler became the Chancellor and Bruning went to exile at Harvard Now there's a mythology which says the reason for Hitler coming into power in Germany was the inflation inflation the great hyperinflation but that occurred in 1923 and after that Germany was prosperous really more to the point to say that unemployment depression and the failure of the government to do anything about it was immediate cause Now Keynes's book in coming in 1936 gave some intellectual coherence to the few voices in the economics profession which had been Instinctively and pragmatically inclined to support Measures to do something about this disaster and it really is a striking thing when whole Petitions from the leading members of profession opposed those measures in the United States for example in those years Keynes realized I believe that his Instinctive pragmatic proposals in the 20s and early 30s were not supported by a coherent theoretical intellectual Development and the general theory of employment interest in money written in 1936 was designed to do that I don't think though we Keynesians have to apologize or be defensive after the Second World War in All democratic capitalist societies there was a great resolution Determination in the popular opinion in the politics of the day That we should not have a great depression again and There was a fear that that's what would happen When the artificial stimulus of the war itself was removed And as a result of that determination governments on both sides of the Atlantic became Committed to activist policies to sustain high employment and to damp the perennial business cycle Baron Ramel described the Swedish commitment and its success in Keynesian terms in his country last night There was similar commitment in Britain and in the United States in the United States. It was embodied in the employment act of 1946 It was weaker than in Sweden to be sure, but it's also true that every administration Has used Keynesian activist policies to attempt to stabilize cyclical fluctuations Since the Second World War to greater or lesser degree And even when they Were at pains as the present administration is to deny that they are Keynesian Well, and what's the result? Or at least the coincidence we never can be sure about what's causing what's effect Well Jan Pete growth has been higher on average in this country in the European countries throughout the free world Then and ever any similar length period in recorded economic history the volatility of Output in real income year-to-year has been about a third of what it was before the Second World War and even if you leave out the Great Depression as a Aberrant period The business cycle has been substantially teamed relative to the period before the 1930s And throughout the free world there has been an unprecedented Prosperity growth of GMT and of international trade In the late 60s we ran into some troubles that's to be sure Vietnam War led to a rise in inflation in the United States From around 2% or less to around 5% No 5% doesn't sound like a disaster, but it was so regarded in 1969 I mean if Paul Volcker declared victory over inflation in 1982 and the inflation rate got down to 5% Well anyway The events during that Vietnam War period in the late 1960s were no surprise to Keynesian economists President Johnson was being advised by Keynesian economists who told him that Financing the Vietnam War without raising taxes or taking other restrictive measures Would be inflationary because the economy was already at As lower rate of unemployment as was Consistent with avoiding inflation already at full employment. They told him that he declined their advice for political reasons And the tax increase was substantially delayed You hold that against Keynesian economics, I don't know In the 1970s it's true that The breakdown of Bretton Woods and the beginning of the floating rate system led to a world commodity inflation is Axel Leon Hufford said last night or yesterday But that was not wholly the fault of the United States mismanagement The Germans and the Japanese had the choice at the time between appreciating their exchange rate or Taking as many dollars as they would get at their existing Undervalued exchange rates and they chose to do the latter in the interest of their exporters Following that we had the OPEC Shocks two of them two substantial shocks unprecedented in their nature and magnitude in peacetime economic history modern times And talk about missing words in yesterday's Presentations as less Thoreau said he didn't hear the speakers refer to the Great Depression. I didn't hear them refer to OPEC But that had a lot to do with the disappointments and the stagflation of the late 1970s OPEC was followed by tight money policies by all the central banks of Europe United States and Japan and although The Minnesota boys the new classical macroeconomist told us That if these central banks made it clear to the public what they were going to do and Mrs. Thatcher was certainly doing that in Britain and Paul Volcker was doing that in the United States and That they would stick to a tight money policy Regardless of the consequences then there wouldn't be any consequences because everybody would immediately disinflate wages and prices Keynesian said that would not be true. They said that it would be You would succeed in disinflation, but it would be costly costly in jobs costly in high unemployment Costly in reductions in the growth of GNP or actual reduction in GNP. Who was right the Keynesians were right It was very costly Indeed Europe hasn't recovered yet Mrs. Thatcher succeeded in an anti-Keynesian administration of economic policy in raising unemployment to larger numbers than were existed in the 20s and early 30s and 13 or 14 percent unemployment in Britain The Germans have fewer people employed now than they had employed in 1972 They have 9% unemployment or something like that. They set the tone for all of Europe It's a disaster area It's a disaster His future historians may refer to the 1980s as for Europe anyway, the second great depression Exceptions Sweden Exceptions Austria, I guess where more reasonable less doctrinaire policies have been followed And will the Germans in the British do anything about it? No No, they have done the Heinrich Brunning Herbert Hoover stuff Trying to balance their budgets at low levels of economic activity So we don't have to apologize. I mean, it's like the beauty contest. Look at the look at the other candidate And we'll get the prize Now the United States is true Has recovered better than the European countries and why is that that's because First of all Paul Volcker for all his monetarism is a pragmatic man and in the late 1982 He gave up on monetarism and he violated his monetarist targets and Turned the economy around and then the Reagan administration came in with these vast supply side tax cuts and deficits vast fiscal stimulus beyond the wildest dreams of any Keynesian administration in This country would ever have done or ever did Now they were supposed to be supply side tax cuts to be sure And it was supposed to be a defense build-up not for Keynesian reasons, but for international Geopolitical reasons, but it worked the way the Keynesian textbook says it would the only thing is it's such an unbalanced dose of Heavy fiscal stimulus large budget deficits and High interest rates to keep the fiscal stimulus from carrying the economy too fast That We've got a terribly unbalanced recovery in vast amount of public debt increase the vast amount of international debt increase and a trade deficit that The out of this world if any democratic or Keynesian administration had come up with those results They'd be crucified in the Wall Street Journal tomorrow morning Well Keynes's book is being commemorated this year at a time when perhaps most economists disagree with it and Many attack it as the root of error and evil Decenters and opponents still find it necessary to refute not simply to ignore Keynes's point I guess that in itself is a tribute backhanded though it may be to the books importance in the history of economic thought the least that can be said of it is that it raises significant questions continuing relevance and Anyone doing or applying macroeconomics has to handle them. I just used that word macroeconomics I suspect many of you Are taking have taken will take a First economics course in college and it will be divided between micro and macro Well Keynes is the originator of macro as a distinct topic of study The terminology didn't exist in 1936. I guess it came along around 10 years later one of Keynes's Young colleagues the great economist Joan Robinson called the subject. She was helping to pioneer the theory of output as a whole Standard economic theory of the day provided tools for analyzing quantities and prices of individual commodities in particular markets industries and sectors what Keynes began was the use of formal theory and analytical models for Explaining gross national product GNP and other economy-wide variables This practice becomes second nature now common to all macroeconomists on whatever side of the great debate and It's also the common architecture of statistical econometric models whose forecast and other results all of you read and hear about Businesses banks brokers government agencies have their own models and commercial consulting firms market Their proprietary models and their findings the Federal Reserve consults It's own model and others before every meeting of its open market committee Congress in the White House Depend on macro econometric models in their tortured efforts to agree on the federal budget and so on Keynes himself was skeptical of statistical implementation of his ideas At that time econometric methods were in their infancy and computers didn't exist But Keynes his own theoretical model was ready made for empirical applications of this kind Most econometric models are still built largely on Keynesian specifications for the good reasons that if they're not they don't work And they make bad forecast And most of you are therefore consumers of Keynesian economics whether you know it or not and whether you like it or not At this symposium where most of you in the audience are not professional economists, I think You are looking someone's yesterday said eavesdropping on a continuing serial drama The battle of ideas in macroeconomics is pretty esoteric game And only the participants understand its rules and the weapons that are used and maybe they don't The organizers have assembled several opponents of Keynesian economics But they don't see eye-to-eye on what they are opposing and why and they've assembled several sympathizers Who don't see eye-to-eye on what they're defending and why? Completely I feel sorry for you So I'm going to try to tell you what the argument is about and what it's not about at the same time, of course Expounding my own position I venture to say that very few of you who have read the book we're commemorating here today It's a matter of fact very few professional economists Have read it even those economists who liberally and often scornfully sprinkle the adjective Keynesians through their writing It's possible and even likely that a college student majoring economics today Will never be asked to open the book After I retire from Yale. I'm that would even be true at Yale And we'll never open it The same is true of a doctoral student The general theory is a formidable book and Keynes was a master of English prose But although his style comes through brilliantly in several passages in this book The exposition frequently is opaque and sometimes appears to be self-contradictory And the overall impression is delphin for that reason followers and critics usually take off from some condensed interpretations of Keynes Often more formal and mathematical in Keynes's own presentation The genius of the book is that it generally turns out that the refinements or criticisms advanced by subsequent authors Were in fact anticipated by the general theory if you look back in it Well, it's not surprising that a great work exerts influence without being read very much Or that a great author's name generates adjectives and nouns to describe accurately or inaccurately a set of ideas only loosely connected to the original Or that sympathetic followers disagree with each other as to whose ideas truly reflect the master Well in Marxism, we have another example of the same phenomenon perhaps stronger Those of us who are proud or at least content to be called Keynes today Should not be expected to stand literally on a book written 50 years ago At least two strands of modern Keynesianism are represented here There are others doubtless and even within the two are referred to as considerable diversity The two strands could be called in shorthand American and English though There are devotees of each on both sides of the ocean In America the mainstream of macroeconomics developed after the Second World War is often labeled the neoclassical Synthesis mentioned in the citation a while ago should be called neo Keynesian neoclassical synthesis Anyway, it was an attempt to reconcile Keynesian macroeconomics and orthodox macroeconomics at least to put each in its property main domain Keynes himself said perhaps with exaggeration. I think that he has no quarrel with the way the Capitalist market economy allocates the goods the services and resources that it employs His quarrel is that it doesn't employ all of them Paul Samuelson For whom I'm pinch hitting here was a major architect of the synthesis and he's referred to me as a partner in this crime In my biased opinion a good non-technical exposition of the means of mainstream American macroeconomic theory and policy is the 1962 report of President Kennedy's Council of Economic Advisers on which I served I'm afraid it's out of print In your library in Keynes's home town Home University some of Keynes's own young colleagues and disciples established a somewhat different tradition interpreting the book as a thorough and radical rejection of previous economic doctrine micro and macro I won't try to describe that further Jeff Harkart spoke for himself But anyway today and specifically this conference he and I have enemies to unite against In my American interpretation Keynesian theory and policy refer mainly to demand side phenomena Advanced capitalist industrial economies are susceptible to deficiencies in aggregate demand Periods when the national output of goods and services is limited Not by the capacity of the economy to produce them But by the shortage of willing customers Lacking sales prospects businesses need fewer workers Members of the labor force who can't hold or find jobs are Thus involuntarily unemployed And likewise productive physical capital of industry is underutilized also unemployed These conditions pervade the economy in such times They're not confined to particular industries Whose declines are balanced by expansions elsewhere Those things happen during prosperity This malady deficient demand Was of course virulent and epidemic in the depression But in the recession phases of more moderate business cycles We still experience it and can observe the symptoms of the Keynesian malady The prescription follows from the diagnosis And from the view that the wasteful unpleasant effects of the disease Have no redeeming therapeutic value And some economists have Thought that depressions are good for you, you know Hard hardships build character and get rid of dead wood and all that The prescription that the government should add to economy-wide demand for goods and services That's what it is either directly by spending money itself or indirectly There are two indirect ways One is to add to the spendable resources of the public by cutting taxes Or augmenting transfer payments like unemployment insurance or social security The other is monetary policy giving private businesses households More ability and more incentive to spend by augmenting the availability of credit and lowering interest rate I want to emphasize that Keynesian prescription and diagnosis are two-sided There are times when the problem is the reverse That there's too much demand for the capacity of the economy And inflation is the danger not unemployment In that case you should put the remedies in reverse pretty obviously And failure of Johnson to do that in 1966 was responsible for the inflation of those years If all of this sounds obvious and innocuous to most of you It's because it is Obvious and innocuous. That's why Only economists brainwashed to believe that nothing bad can ever happen in market economies find it incredible Well, I'm going to return to the issues they raise And right now I want to make clear what Keynesian economics is not At least american mainstream Keynesian economics I do that because especially when I talk to non-economists I find they have a lot of ideas About what Keynesian economics is that are inaccurate First contrary to popular impression contrary even to the Impressions given by some economists who should know better Keynesian does not denote liberal In the political and ideological meaning that word has in this country In this century not in the 19th century British usage so Keynesian and liberal are not synonyms Keynesian macroeconomic policies may have been more congenial to liberal politicians than the conservatives Although as I said every federal administration in this country Since world war two has employed them in some degree But advocacy of those policies does not commit anyone to the welfare state To large government activity To regulatory interventions in industry agriculture and labor To supportive trade unions to redistributive taxation To strict environmental protection or to any other planks Generally associated with liberal politics Does not imply opposition to those planks either Those are simply separate issues Keynesian macro medicines can work Within broad limits. However, those other issues are resolved Whether in a liberal or conservative direction The anger and consternation with which american conservatives Have viewed in particular businessmen in their organizations have viewed Keynesian economics From 1936 on to this day has always been a puzzle Keynes was not personally anti-capitalist nor was the message of his book Far from suggesting that capitalism was doomed by irreparable structural flaws As leftists contended then and now Keynes thought that capitalism could be saved without radical surgery Second again contrary to popular impression Keynesian economics is not a recipe for wild deficit spending Whether budget deficits are appropriate or not depends on the state of the economy And on the stance of monetary policy Many Keynesians including this one Would like to see the federal budget in balance or in surplus When and if but only when and if The federal reserve would contrive low enough interest rates to sustain full prosperity The advantage to the nation would be that future generations inherit more productive capital Either at home or abroad And less public debt Keynesian economics did challenge the wisdom of the blind rule that the budget should be balanced every year Challenge that because it's mathematically perverse and fiscally futile to raise taxes or cut spending During recessions and depressions as i already said Well, Jim Buchanan says and he's going to say I bet this afternoon that Keynes let the genie out of the bottle The balanced budget norm Was the only discipline restraining Politicians irresponsible irrepressible Propensities to spend Well from 1946 to 1980 in this country The ratio of federal debt to the gnp fell From 120 percent right after the second world war to 23 percent And then came our first explicitly anti Keynesian administration Explicitly and consciously rejecting the failed theories and policies of the previous half century And under that administration's auspices the debt gnp ratio has risen to 38 percent in five years And I suppose Jim Buchanan will blame that on Keynes too The third Keynesian macroeconomics has been charged with a pro-consumption anti investment bias Thus favoring the present at the expense of the future I really dealt with that in the last point, but I wanted to drive the point home Martin Felstein the formerly the chairman of president reagan's cea Made this blanket indictment in his statement to congress on assuming office That is a canard In the first place, it's no service to future generations to waste in idleness The labor and capacity that could produce more goods and services Much of which would be invested and saved In the second place, it was Keynesian economists who put in place the low deficit fiscal policies and the tax incentives for investment And it's the current anti Keynesian administration that has put our economy on a consumption binge And has now repealed those investment incentives Fourth again contrary to widespread impression Keynesianism is not fiscalism When the word monetarism was coined and the anti Keynesian protagonist of the movement questioned the efficacy of fiscal policy The media jumped to the convenient symmetry of calling Keynesian non-monetarist Fiscalists well if you're not a monetarist you must be a fiscalist Well, Keynes thought fiscal measures could be used to affect aggregate demand Especially in deep depressions when interest rates were difficult to move and responses to their movements might be weak But he thought monetary policy matters too Certainly in normal times And this has certainly been the consistent stance of the post-war american mainstream Keynesian economists I believe contrary to what axl said yesterday Fifth Keynesians are not advocates of large government budgets balanced or unbalanced if like jk galbraith Someone personally believes that the public sector is undernourished in the united states That's a judgment he or she has reached on quite separate grounds It's not derived from Keynesian principles If like Milton Friedman An anti Keynesian believes that the public sector is a leviathan devouring the economy That too is a judgment reached On grounds logically quite distinct from any views about macroeconomic policy or theory According to the neoclassical synthesis fiscal and monetary policies can be used To stay close to the path of high employment growth Whether government budgets expenditures and taxes are big or small relative to the size of the economy Government expenditures of any type should be judged by considering their opportunity cost to the society Is it socially worthwhile to direct resources divert resources that could satisfy private demands to this or that governmental program? We elect legislatures legislators to make those choices about national priorities And that test will not fix any permanent percentage of national output is the right size of the public sector because Priorities depend on the circumstances of the day And on the public and private activities competing for the resources These are important issues, but they're not the issues involved in debates about macroeconomics or Keynesian theory Sixth while Keynesians regard involuntary unemployment as a grave economic waste and a social evil They certainly do not think that all actual unemployment is involuntary Or even that all involuntary unemployment is amenable to Keynesian treatment Keynes recognized the inevitability of frictional unemployment Industries regions and occupations rise and fall and takes time For workers to move from where the jobs were where they are and will be Some workers are voluntarily unemployed while they search for the jobs they really like Some are involuntarily idle because unions and on occasion government regulations set real wages too high In underdeveloped countries where both physical and human capital Education and skill are scarce There are very few high productivity jobs And they pay such high wages relative to the livings available From subsistence agriculture that people crowd into urban shanty towns To gamble on the remote chance that they can land a modern sector job Keynesian remedies are not the cure for that kind of unemployment About 20 unemployment rises from 4 in 29 to 25 percent in 1933 Or from 6 in 79 to 11 percent in 1982 Or from 4 in 78 in the uk to 13 percent in 1986 Or from 2 percent in 1972 in west germany to 9 percent now It's beyond belief that the labor force has become suddenly lazy Incompetent and immobile I want six to emphasize how limited is the domain further Indicate how limited is the domain of macroeconomics For long run trends in living standards for differences among nations in living standards Supply is the dominant side of the story Productivity per worker and its growth are decisive Over the decades and between countries differences In the rates of unemployment and underutilization Will account for much less than differences in capacity to produce The natural forces of adjustment Stressed by the classical and neoclassical economists May work but they take a long time Or it may be that Keynesian remedies will consciously or unconsciously be adopted to bring eventually demand Up to supply That's why economists of the neoclassical synthesis, though not exclusive american and nationality Subscribe to and indeed developed neoclassical theory of growth modeling long run trends in terms Of the same factors that other economists would stress Population saving capital accumulation education technology innovation and entrepreneurship Our formula can be put very succinctly Supply does call the tune in the long run, but demand in the short run In business cycles demand creates its own supply so long as that doesn't exceed potential capacity But in the long run supply does create its own demand Say's law A similar disclaimer applies in the realm of policy Keynesians don't believe their fiscal and monetary prescriptions for stabilizing the economy In the united states japan and western europe can solve the problems of poverty in bangladesh and tanzania Or even significantly speed up the growth of productivity in advanced countries These tasks are much more difficult Require a whole different set of policies a menu of supply side measures To be sure effective and well chosen policies of short run demand management can help For example a tight fiscal easy money mix of policies in the united states right now Would be much better for growth over the long run than the loose fiscal tight money mix to which we've drifted in the last few years Seventh small economies tightly linked to the rest of the world in commodity trade and capital transactions have little opportunity to determine their own macroeconomic policy and fate minnesota can't buck the trends of the national economy Recessionary or inflationary its prosperity relative to other states would depend on the productivity and Competiveness of the workers and businesses Of the state same as true belgium within the common market Canes's book assumed a closed self-contained economy without international transaction It applied better to the united states at the time than to his own country Today it applies better to the seven major Economic summit countries taken as a group than to any one of them alone even the u.s The lesson is still the same world prosperity depends on adequate demand stimulus emanating from somewhere Some stimulus Originating in the u.s. For example, we'll spill into europe and japan and has done Into demand for their exports But not everybody can enjoy export driven prosperity or though although the People who run the economies of germany and japan seem to think so Contrary to widespread impression. Keynesianism is not fiscalism When the word monetarism was and i gave you that already Sorry Got a little out of order here. I returned out of the quarrels about theory and policy As i suggested above Orthodox theorists find it inconceivable that markets could fail in the manner and to the extent that Keynesians allege In the classical neoclassical now new classical traditions markets are supposed to clear i.e. to equate supply and demand And prices do that job if there's excess demand at an arbitrary price A higher price will discourage demand and induce supply enough to clear the market If there's unemployment wages will fall idle workers will be competing for jobs and lower the wages And give employers thus incentive to hire more workers And if business investment is too low to use the saving the country offers to finance it Another kind of price interest rates will fall until investment demand is equated To saving supply 50 years ago Keynes's opponents were confident That adjustments of this kind would work Although most of them admitted That it would take time Well, they really had to admit that because the depression was right there before their eyes Now the counter-revolutionary critics of Keynesian economics think those adjustments are virtually instantaneous That's not because of any new evidence that the economic system works that way It's just because Of the increased attachment of those theorists to our priori assumptions And their logical implications So they interpret business fluctuations not as departures from equilibrium During which excess supplies and demands persist And not as fluctuations in demand relative to a fairly constant supply potential They interpret them as moving equilibrium during which supply and demand curves both shift around But prices move to keep supply and demand virtually always equal Applied to labor markets this approach rules out in voluntary unemployment So the conclusion is unemployed really don't want jobs. They're voluntarily staying out In my opinion the explanations contrive to make this theory of Economic fluctuations fit the observed facts are ridiculously unbelievable The Keynesian explanation the demand and supply are not balanced that unemployment and excess supply capacity Arise from a shortfall of aggregate demand relative to capacity Fit the facts without straining common sense I think you can understand the implied differences in policy between these two views If you think the problem is shortage of aggregate demand, then you prescribe measures to increase demand Confident the businesses will be happy to produce And sell more goods and the workers will be glad to take additional jobs when they're offered But if you think the economies are always in equilibrium to supply and demand You see no need or any social benefit from any such intervention And you think that government's attempt to increase demand Is just going to result in inflation and raise prices Considering the consider the following thought experiment just a common sense basis imagine Let's be thinking of a particular year. I don't know 1989 Imagine two alternative scenarios for the economy that year In scenario one No in scenario two the rate of dollar spending on goods and services significantly larger than in scenario one There's the only difference between the two As if scenarios in 1989 let's say it's 10 larger in scenario two than one To be dramatic You can imagine the scenarios differ because of fiscal and monetary policy or because of world events that are not policy related either way And it could be either the Quantity of money that's involved or the velocity of money. I don't care That the rate of dollar spending is bigger in one case than than the other Now let's consider three possible outcomes a Prices are 10 higher If that's so then output will be just the same the volume will be just the same as before as in One scenario is the other So the prices are 10 higher that prices will take the whole amount of the increase in dollar spending B output is 10 higher and prices are not changed Just the polar opposite of a and c both output and prices are higher in two than in one Both of them each by amounts less than 10 percent Of course the two percentage have to add up to 10 percent because that's the total Difference that has to be absorbed Well the anti Keynesian answer is a Of vulgar Keynesian answer And some textbooks is b But what's Keynes's own answer it's c that's the correct Keynesian answer That's the answer anyone taking an sat test would choose anyway That That middle ground Is the common sense answer it can be Elaborated to say that the shift of the impulse between prices and quantities depends on the state of the economy In a deep recession or depression with very high unemployment and a lot of excess capacity The answer might well approach b in a tight economy like the vietnam war situation With no reservoirs of labor and capacity the answer might well approach a The monetarist answer thus those two answers are special cases of c Well Keynes called his book the general theory I return to the question whether the economy in the absence of policy interventions has effective natural adjustment mechanisms The restore full employment once some disturbing shock has lowered employment and output One of Keynes's bright ideas was to point out that the demand movements of employment and output themselves lower aggregate demand Workers and businesses that receive smaller incomes spend less. It's as simple as that This effect is in the same negative direction as the assumed initial shock It magnifies that impulse some of you may remember or will encounter even now the multiplier From your student days and that's what that's about Thus if price and that includes wages and interest rates are are Weak in their responses or have weak or slow effects in In reviving demand The decline will be reversed if at all only after a long time because The multiplier has a chance to work and to magnify the initial downward shock furthermore Keynes had and Keynes still have Good reason to doubt the efficacy of price deflation is a means of restoring prosperity Lower prices may make creditors better off and more willing to spin that was The pigu effect a real balance effect so when Keynes said that Deflation wouldn't do any good the response was well, it will do some good It will encourage consumption to have prices go down because it will make people think they're richer Vasili Leoni have said if prices go down enough, then I'll be able to buy the whole gmp with one dime Well As a practical matter you have to remember that deflation like that saddles debtors with higher Burden of debt as well as making creditors think possibly that they're somewhat better off the process of so it's really From a practical point of view a pretty weak read to To pin the hopes for self adjustment of the economy on Anyway, the process of lowering prices generates deflationary expectations Well if prices are going down at six percent a year as they were During the early thirties that's equivalent to an increase in the real interest rate so By waiting you're going to be able to buy things cheaper than you are now and holding money is Gaining you holding money and not spending it is gaining you six percent in purchasing power per year as prices go down so That effect of that is just the opposite of the adjustment that's needed the perverse direction so it's quite possible that the Scenario of deflation is Is not a stable one or at least it's not a fast one that's going to remedy unemployment very rapidly History tells us that deflationary times are generally hard times And the same can be said as the early eighties told us of disinflationary times Exemplified by the recessions and stagnations that have accompanied the decline in inflation rates since 79 So as professor landhoof had said yesterday canesian difficulties lapses from full employment equilibrium because of deficient demand I think this is what he said Can't occur even if prices and money wages are completely flexible Although canes did not think they were completely rigid. He didn't think they were completely flexible either But just because he didn't think flexibility would solve the problem He thought as jeffrey harker reminded us the other day That it would be desirable to have stable money wages Or we might say money wages growing at the normal rate of growth of labor productivity So canes thought government should have a wage price policy or an incomes policy people We call it these days And that would make it More surely possible to reduce involuntary unemployment by measures that increase the quantity or the velocity of money Now I agree that canes made a couple of mistakes in tactics in presenting his ideas and in doing so he raised some red flags which have Affended Neoclassical theorists for 50 years and resulted in the many of the difficulties we have now The first error was to Call the under employment situation and equilibrium. That's a sort of sacred work in economics and you don't use it Casually well there's several ideas of equilibrium one of them is There's a supply equals demand but obviously Unemployment equilibrium can't be equilibrium in that sense because its nature is the supply exceeds demand In some markets in It may mean a situation in which Expectations are fulfilled so that What people think is going to happen actually does happen That's not a suitable idea for canes to use because he emphasized I believe the diversity of expectations and the uncertainty essential uncertainty Of the world which would make it impossible for anybody have ready very definite expectations and he estimated He made a point of the fact that savers and lenders may have different expectations from those that apply to borrowers And investors and that that may create some kind of impasse So I don't think he wants to say his situation is an equilibrium In that sense either The third meaning of equilibrium is that a situation which goes on without change Well, uh, that's where this uh over emphasized Debate about rigidity of money wages comes in it's not going to go out without any change because it Sort of bound to produce some decline In wages as a result and prices some deflation So he shouldn't have called it equilibrium and it just doesn't matter for practical purposes if we have long periods of They're protracted periods of High unemployment and low production Uh, it's just as bad from a practical point of view whether you call it equilibrium or disequilibrium Now the other mistake which has already been mentioned is That he the Keynes chose to play the game on the opponent's home Ground using their rules And their rules were pure competition The situation in which everybody Is a price taker That is prices are made in auction markets. Nobody sets them no human hands touch them. They just come out of of quote the market and no individual can Do anything to set his own price Well Keynes talks a lot in a different way Informally in his book You know he talks about wages He acts as if Employed workers do have some power over the actual what actually happens to wages some defense against being just replaced by Unemployed workers who are willing At the factor gate to pick over their jobs of lower wages And he would have done much better to use monopoly monopolistic competition imperfect competition as the micro base of his macro theory And I believe less the row is going to correct that mistake definitively this evening So I won't go further into it Except to say i'm not that fascinated with the idea that macro theory has to be based in a Pure way on On micro foundations Attempts to do so in modern theory are Meaningless because as axl said yesterday They involve assuming that the macro economy is robinson crucio economy so that the behavior of the of a single individual is The same as that of the whole economy that Bypasses the dodges evades all the problems of coordination that are essential in macroeconomics so Macroeconomics is a shortcut Method in which you try to write down some Some hypotheses and equations and relationships That are plausible Considering both what we know about the way Individuals firms consumers Workers behave And which also pay some Reasonable empirically related attention to aggregation over different kinds of agents And There's no That particular method of going about economics or macroeconomics because the complete generality of Of theory any economics is empty of any Empirically interesting propositions or any that could be used For policy purposes That's why we have macroeconomics in the first place because full-blown Generally collaborative theory which Tries to pay attention to the immense diversity of the economy Just doesn't lead anywhere To any definite conclusions about the things we're interested in now At the beginning I gave some Biased history in defense of of kanji and economics And I think that the profession is coming around I notice Younger people writing articles testing the implications of the New classical macro models against Those of kanji and models and I noticed kanji and models winning Increasing percentage of the time in those tests and I notice that There are an increasing number of young economists who have been disenchanted with the unrealism of the Anti-kanji and models macroeconomic models I also think that somebody said yesterday the views of economists have A lot to do with what goes on in the world And kanji and economics took its blows during The 70s when things seemed to be going badly and now Things are going badly for the anti-kanji in policies and the intellectual Foundations of those policies In the 1980s it seems like the 1980s are in some sense a more normal period free of the Extraordinary shocks like OPEC that occurred in the 1970s And if they look what's going on looks a lot more A lot more kanji than superficially what was going on in the 1970s That's the justification for the word renaissance, which I put in the title of this paper before I wrote the paper And always problem to live up to the title but I do think there will be a new synthesis And that new synthesis will come I'm not as pessimistic as land hoofed and the new synthesis will have Some good ideas out of the new classical counter-revolution The good idea we'll have is one that is congenial to kings and that's the idea that policy has to be both workable And believed by the agents It's no good to have a policy that agents in the economy businesses and households believe If it won't work even Given that they believe it that's no good But it may also be no good to have a policy which will work Unless people have confidence in it and the kings is very clear about that and It is difficult to sustain that combination But perhaps we did that for a fleeting period in the 50s and especially in the early 60s in the united states. I think so And we have to restore that somehow But the part of the new classical macroeconomics that we don't need Is the assumption that everything the pan glossy an assumption that Everything is always working out for the best because it would be irrational if it didn't That's that's futile Kind of social science So I think we will have a new synthesis It won't be the same as the one that I participated in In the 50s and 60s, but macroeconomics will be the better for it Thank you very much Yeah Henry Wallach was such an example Henry Wallach was at least a while he was Henry Wallach possibly also an example We're very grateful to professor Tobin for that very stimulating presentation I'm informed by professor Buchanan that he would like to have an opportunity to make comments so I will Call on him at this time I would like to make four four separate points The first point is I think we ought to get the record straight. I think that Jim Tobin may have left the impression That the economic establishment in fact was in opposition to the policy program that Keynes Was recommending that is categorically not correct The university of chicago group there was a petition signed there were Meetings and everything else has been well documented that were strongly supportive of expansionary fiscal and monetary policy As early as 1931 32 33 I'm sure Jim won't agree disagree with me, but I do think it's worthwhile to get the record straight on that Second point I make I I think it is totally misleading to try to talk about the size of the debt in relationship to the gross national product and he did cite a figure on that You can get to tomorrow or next week You can reduce the ratio of the public debt to the size of the product by simply inflating it out of sight Which is what we did in the 1970s. So that is a grossly misleading measure The the third point I would make relates to Jim Tobin's separate scenarios When you in 1989 and you have a 10 power rate of spending I think he left out a fourth possibility that under certain expectationary settings You could well have a price increase far more than the 10 and actually unemployment in that setting if you had the right Expectational situation And the fourth point I would make He referred and said that The big models did not work Unless they used the basic Keynesian analytical framework I would simply add that the best of my knowledge. They don't work even if you do Thank you, professor Buchanan I will I will ask if professor Leigh and hope it would like to make Comments since he was also referred to in the course of professor Tobin's presentation Well, I think Professor Tobin was rather kind to me so that I In that sense, I just as well shut up, but He he ended on a note of optimism A bit different from from how I ended yesterday That's probably because he's not a Scandinavian I'm temperamentally not made for that kind of optimism and and I don't see A quick end to The confusion and the incoherence of the state of macroeconomics right now And I think that many of you I know that there are teachers from lots of different schools here today Who have to stand in in the classrooms and try to make sense of the current state of macroeconomics to to undergraduates I think many of you must must Share this frustration and see no clear lead out of the situation One reaction I also had was Jim Tobin towards the end Voice perhaps in passing the kind of comments that I hear more and more Namely, uh, people says Keynesians the Keynesians is coming back because the other guys failed too And I don't think that's uh, that is going to be a sufficient sufficient basis for a good cheer about the state of the of the subject Um, of it's true that they are failing too or that that uh, the The the the fashion bubble of new classical economics is being pricked, I think um So the question is at at uh, in what direction are we going to find a more viable synthesis uh, if I had a Very clear cut solution to that I would be marketing it for a price I've seen the form of a best-selling textbook or something like that Uh, the reason I haven't written a textbook is I don't think I have a best-selling recipe um I think one element of it Is likely to be uh This emphasis on monetary regimes that I tried to Advance here yesterday and uh, uh, which is of course not original with me And um It is going to be I think make a difference To take a specific point in Tobin's talk He mentioned that The response of the economy to stimulus Would depend upon The state of aggregate activity And he suggested That at low levels of activity the the response would be Keynesians and at high high levels of activity would be monetaries And this is of course sort of a suggested compromise Uh, that we had with us already 20 years ago um, I think There's the following thing wrong with it or there's there's one thing wrong with the models out of which this compromise came And that is that at a time and we were discussing this in the context of the islm model that is familiar to to at least all the teachers here And uh in the 60s say we tended to take the arguments from that model in in two stages And the first stage we discussed the determination of money income And you said well, uh, you can get an increase in money income either by shifting lm or by shifting is and so on Uh, given the at the second stage who says given that I got let's say an increase in money income Uh, let's ask how it breaks down into a price and a quantity Adjustment And you would then consult some phillips occur construction to to see how that breakdown would come about You were then later surprised when that way of doing it doing the second stage Completely fouled you up in the 70s Well, I think the this two stage way of talking about it Uh was wrong to begin with because it did not make the distinction that I tried to rub home yesterday about nominal and real impulses Um, I think that with a nominal impulse Given the state of activity in the system, whether high or low You'd expect Uh more of a price response less of a quantity response uh than for uh fiscal or real impulse at the same level of activity and uh What kind of impulse you get most frequently Will depend upon how you have arranged Your monetary system Perhaps I was I was one last line Uh, it occurred to me after I left the podium yesterday that I should have clay explained to people that I'm not advocating a return to the gold standard with all this talk about Convertibility. I don't think there is a road back to this particular arrange Thank you, professor. You know if it Professor hardcore to ask for a time to make a comment I just like to make a couple of comments I reviewed Jim Tobin's 1980 book, which was a survey of uh macroeconomics as it Then was and I finished it with an eloquent plea for all good men to come to the party and uh former united front And I was glad to see that symmetry is returned when Jim returned the uh the compliment today And I'd like to say that uh on policy issues and on many theoretical issues we are as uh at one Uh What we try to do and what is left in Cambridge, England and the very few Old-fashioned Keynesians like myself that are are left is to take a structure which is not dissimilar to what James Tobin outlined but um We do also In discussing policy, and I'm sure he would agree with this Try to make a distinction Uh a distinction which originally came from Kilecki who originally who independently discovered the main propositions of the general theory That from a political point of view There is a world of difference between getting to full employment and sustaining it And in part of professor Tobin's talk today He outlined How uh the neoclassical synthesis school um Proceeded to model those particular problems which have much more to do Uh with the uh the longer run development of the economy and it is there where there's been some Uh parting of the ways uh on on emphasis on what are the important theoretical and empirical relationships to make That's the first point I want to make The second point I'd like to make is that uh if we are going to Use macroeconomic frameworks and I applaud his emphasis on that and also his aside That we should not worry ourselves too silly about getting rigorous and precise Microeconomic foundations after all as Keynes himself said implicitly and mark said explicitly The macroeconomic foundations of microeconomics may be just as important if not more important than the The the the microeconomic foundations of macroeconomics that if we are going to do that We we should um we should Bring back an emphasis in our in our models on not only the aggregate demand side But on the aggregate supply function which Keynes thought as I tried to say yesterday was possibly even more Important uh than the aggregate demand side in explaining certain phases of the uh of the operation of the economy and had With few exception had it not been the fact that with few exceptions that the aggregate supply function has conceived of by Keynes and modified by people like sydney weintraub and lorry tarshis Had it not almost disappeared from mainstream discussions Then I don't think the Keynesians would have been put so much on the defensive In explaining what was going wrong with the world after the vietnam war mistakes the opec shocks the breakdown of breton woods And uh and the uh the fact that in the early 70s the world trade cycle for one synchronized So that we boomed like mad commodity prices Really shot up and with an aggregate supply function approach and the distinction which Jim Tobin referred to between how you price and industrialized sections of the community and how you price in the raw material sections Keynesians could have made a very good fist of explaining what was going on and would not need it to have yielded the ground to the rather unreal as if models uh associated with the new classical macroeconomics So in summing up I mean I say I I think we were privileged to hear such a sterling defense of 50 years of a Harvard freshman, I think is yeah, I never understand american terminology. We call them first years 50 years when he was Handed the general theory up until the day where he himself has played such an important part in establishing the way in which Keynesian theory is thought about within the american context Thank you, professor harcourt Professor brunner has indicated that he would like to make a Comment and then we will allow professor tobin a moment to respond or if he has a no lengthy response We have perhaps we can take at least one of some very excellent questions that we've gotten from the floor. So professor brunner One or the other point first The point which already axel took up in connection with the jim tobin's comments and comparisons of the fate of the alternative Views or hypotheses Keynesian non Keynesian monetaries non monetaries or non non whatsoever The his point was that The non Keynesian or monetaries or whatever you want to call the animal View suffered the serious problems in the last years And what I find interesting in this context is the following namely that In many discussions or what I've seen or read or heard Is that it is not very clearly stated sometimes and I would be very interested if what would be very specifically stated What specific propositions Are in trouble in this context One example, for instance, professor robin gordon made in his update, which is regularly sends out The pretty much noise about the velocity behavior that you observe the velocity behavior of the last four or five years Simply was inconsistent with monetarist analysis Well, I think we have to be very careful. I find it's a very interesting and useful example In one sense, it does create the problem for a very specific monetarist proposition The proposition which is which is troubled thereby Is Actually the dominant nominal impulse hypothesis Another one incidentally, which 11 years ago Alan Meltzer and I made very explicitly clear that we think that's one hypothesis which should be revised and Abandoned as a matter of fact Another point is The following that Milton Friedman in the late 50s Somewhere in one of these I think it may have been in the preface to the studies in the quantity theory of money Indicated that the crucial significant proposition of monetarism was The stability of the demand function for money Which is related to the problem raised by bomb gordon. I at the time Objected quite strongly to that that this was not the crucial fundamental property And I have still held on today that this is not the crucial fundamental property in this context at all It is significant In one respect again if you want to adhere to the dominant Impulse hypothesis, but for other aspects say for instance as a basis to derive a monetary rule It is neither necessary nor sufficient as a matter of fact in this context you can show that If the run if the velocity behavior is approximately a random walk then any systematic Feedback rule for instance is suboptimal compared to a constant monetary growth rate in terms of the variance it produces About nominal g and p so the issue which I simply want to emphasize in this context that It would be useful if We sort of mutually when we attend to these issues are a bit more explicit In terms of specifying the nature of propositions which we are attending to and which are in trouble and which are not really affected By whatever observations we make the second point is the following namely that On policy questions jim tobin. I understood I may not be quite sure that I understood correctly Listening that there has been a change in policy patterns more to the Keynesian directions in recent years Well, let's look at the various policy patterns in this context budget policy well We have one party which seems to be essentially to make hay or the political hayloft By concentrating on spending and spending Programs and another party which seems to make hay on their hayloft by concentrating on tax reductions As a matter of fact an interesting example in this respect Alan melzer told me years ago when I was young like six years ago That you had long conversations with jack camp And these conversations came to an abrupt and final halt When Alan tried to argue with him that the issue Was to a large extent the size of the budget and the size of expenditures and so on And jack camp made a mistake to be clear that he had the slightest interest about spending whether they were large or whether small This was a hayloft of the democrats on which they had made a whole lot of hay And on the other side, I mean it was time for the republicans to make some hay as we say in switzerland and To have a sellable product and tax reductions for a sellable product and never mind what happens with spending Now under the circumstances our budget policy I would argue Can be called policy But it's only policy in mr. Magoo's sense. You may some of you may remember mr. Magoo Who used to say there's no reason it's just policy now So I don't see anything particular canzian in In this context and this relates to a point which less of saroh made yesterday which I fully agree and Elaborate it quite some years ago in some papers Let me about the role of ideas and political events That to a good extent not quite completely because carl marx and his influence is a Or something going in the opposite direction, but to a good extent Uh, if politicians accept canzian policies say for instance and that also holds of course for monetary policies That's exactly the same game in this respect If they accept such kind of policies, it's not because they are convinced about canzian analysis But they are convinced also about their Political action, which is useful for their purposes and then they adopt certain ideas because this is very handy and very useful And that's exactly also what happened with the supply side It simply happened that what the supply side has had to offer fit it very nicely In the political program jack camp wanted to pursue anyway In because he thought that this was of meant his political status and his political marketing and so on So in this context The whole aspect of budgetary policy I would argue is not really so much canzian at all a simply an expression of our political drift, which we experience And uh, which neither the canzians or the monetarist I think can be too happy about if we look at the future prospect of that pattern As a similarly it seems to me with monetary policy There is more drift than policy there and not really much canzian about it either It's a kind of a policy again in mr. Magoo's sense Where we simply react From day to day whatever the perception seems to guide them and the political interests seem to guide them We don't know what will happen in three months the policy makers haven't the faintest idea What they will do in three months and in this respect a basic idea of canes is just a problem of pervasive uncertainty And if we have institutions Which contribute to the basic uncertainty? Then it seems to me that just in the basic spirit of canes to lower this uncertainty We might just as well properly ask ourselves. What kind of institutional changes would contribute to lower this uncertainty Which particularly is coming also from the policymaking side itself Thank you very much professor brunner Feeling somewhat like a Television newsman i'm afraid once again the tyranny of the clock must impose itself and terminate this very fascinating discussion I want professor tobin to have an opportunity to make a response to these comments Which we will be sure to get to at The next panel discussion. We were able to arrange We also have some excellent questions from the floor and I intend to take those up as well But i'm afraid we must adjourn for the present Reconvening for professor ronald hayden preston's presentation at 130 Prelude to began at 120. Thank you very much