Showing papers by "Robert M. Solow published in 1986"

On the Intergenerational Allocation of Natural Resources

Abstract: It is known (Hartwick and others) that, under standard assumptions, a society that invests in reproducible capital the competitive rents on its current extraction of exhaustible resources, will enjoy a consumption stream constant in time. It is shown here that this result can be interpreted as saying that an appropriately defined stock of capital -including the initial endowment of resources - is being maintained intact, and that consumption can be interpreted as the interest on that patrimony. This seems like a useful rule of thumb for policy.

Unemployment: Getting the Questions Right

Abstract: In my opinion, the form and conception of this conference exemplifies the right instinct for modern macroeconomics. There is a fact, a big unmistakable unsubtle fact: essentially everywhere in the modern industrial capitalist world, unemployment rates are much higher than they used to be two or three decades ago. Why is that? If macroeconomics is good for anything, it ought to be able to understand and explain that fact. We should be able to produce a fairly convincing analytical account of the occurrence and persistence of unusually high unemployment rates. You might think that to be a mere commonplace. To what other sort of end would anyone organize a conference? My experience, however, is that most high-powered academic conferences are stimulated by purely technical developments, or-less often-by ideological or political promotion, rather than by the need to deal with an outstanding fact. I do not blame anyone for this state of affairs. We may not be blessed with many significant observations too big to be quibbled over. And technical innovations do need to be thrashed out by experts. Anyway, it is good to be faced by a brute fact that needs explanation. It is what macroeconomics ought to be about. I compliment the organizers also on a second aspect of the agenda: the country-by-country organization of the papers. We can all hope to learn something from cross-country comparisons. One of the few good ways we have to test analytical ideas is to see whether they can make sense of international differences in outcomes by appealing to international differences in institutional structure and historical environment. The right place to start is within each country separately, studied by someone who knows the peculiarities of its history and its data. You might think that this too ought to be obvious. But in fact the usual approach is just the opposite. More often than not we fail to take institutional differences seriously. One model is supposed to apply everywhere and always. Each country is just a point on a cross-section regression, or one among several essentially identical regressions, leaving only grumblers to worry about what is exogenous and what is endogenous, and whether simple parametrizations do justice to real differences in the way the economic mechanism functions in one place or another. I have no way of knowing whether this organized effort will get anywhere in explaining high unemployment, but it seems to be set up to give itself the best chance. For better or worse, probably for the better, theoretical and empirical work are closely intertwined in macroeconomics. Scratch a macro-theorist and you find a casual econometrician. Scratch a macro-econometrician and you find a casual theorist. Usually you do not have to scratch very hard. Thus, the discussion of the issues central to the conference has already hardened into certain characteristic forms. There are questions already lying on the table that the individual country papers will be trying to answer. I suspect that some

What Is a Nice Girl Like You Doing in a Place Like This? Macroeconomics after Fifty Years

Abstract: It has been my honor to serve as President of the Eastern Economic Association during the past year. Now is certainly the best opportunity I will ever have to offer my thanks and yours to those who keep the Association running and getting better, they include, first of all, the Executive Director, Bill Lott, without whom weeds would be growing here right now. I also want to pay tribute to Mahmood Zaidi, who put this excellent program together, to Ingrid Rima who edits and nurses the Journal, to Ray Canterbery, the next President of the Association, and to Bill Leonard, my predecessor, who were always willing to bring their experience and wisdom to bear when I needed help and advice. My last duty I don't know whether to think of it as a reward or a punishment is to utter a Presidential Address. I can remember reading, when I was very young, a multivolume work that was then thought of as a Great Book, but would now be described as pseudo-anthropology: James Gordon Frazer's The Golden Bough. As I remember it through the haze, Frazer purported to show, through study of myths from all periods and places, that there was a universal myth, perhaps once a description of concrete reality, according to which early societies elected or chose a young man to be a sort of symbolic King For A Year. During his year of kingship he lived in the lap of luxury, sugar-plums all day long. At the end of the year, however, he was ritually slaughtered in the belief that only by such a sacrifice could the continuing fertility of the Earth be ensured. Some pseudo-anthropologists believe that the Presidential Address is a survival of that quaint custom. It was foreordained that our 1986 convention would take as its theme the 50th anniversary of the publication of The General Theory of Employment, Interest and Money. Like it or not, it has certainly been the most influential work of economics of the 20th century, and Keynes the most important economist. You have heard a lot about The General Theory and about Keynesian economics during the past couple of days, perhaps more than you wanted to know. That leaves me with a dilemma. I have the strong feeling that I should conform to the general theme: it is, after all, both historically important and completely contemporary. But I do not want to repeat myself or others, and that leads in the opposite direction.

An economist's view of the income maintenance experiments

Abstract: I am cast on this panel as offering an economist’s view of the policy lessons to be drawn from the income maintenance experiments. That will be true enough if you take the word "an" seriously. I am indubitably a card-carrying economist. But I have the feeling that -on these particular matters at least -my views are not always those of the typical economist. Part of the difference, but only part, arises because I am primarily a macroeconomist, so I look at the questions now at hand as a partial outsider. Any time you are about to utter heresy it is a good idea to quote some highly respectable authority. So let me remind you of something John Stuart Mill wrote in the Preface to the Principles of Political Economy. "Except on matters of mere detail, there are perhaps no practical questions, even among those which approach nearest to the character of purely economical questions, which admit of being decided on economical premises alone." Actually, I intend to go even further than Mill: there are very few analytical questions about mass human behavior which admit of being decided on economical premises alone. And those few are not the ones we are dealing with at this conference. The formal purpose of social experiments is to provide knowledge about mass human behavior that will be useful in the design of policies. So the lessons for policy depend on what we read the experiments as saying about behavior. In commenting on that issue, I am drawing also on my experience with other social experiments, in particular those dealing with supported work and with various work-welfare schemes, designed, conducted and analyzed by the Manpower Demonstration Research Corporation.

Insiders and Outsiders in Wage Determination

Abstract: A firm starts with a group of insiders or seasoned workers. There is also a large pool of outsiders who are initially less productive, but are transformed into insiders after one period of employment. The firm gains from having a large pool of insiders, some of whom may be laid off in bad years. Insiders gain from keeping their numbers small. If the insiders set their wage unilaterally, they will choose a path that—in this extreme case—prevents employment of outsiders even if future employment prospects are good. If the wage path is set by bilateral bargaining, the extra advantage to the firm permits employment of some outsiders in some situations.