Showing papers by "Robert M. Solow published in 2004"

An interview with franco modigliani

Abstract: These are the page proofs of the interview of Franco Modigliani by William A. Barnett and Robert Solow. The interview was published in the journal, Macroeconomic Dynamics, in 2000. Since William Barnett is one of the two interviewers, he now is permitted, by Cambridge University Press, to make the interview available as a 'working paper.' This interview contains some astonishing revelations about the life of Franco Modigliani, beginning with details of the circumstances regarding his move from Italy to France during the Second World War and his subsequent move to the United States.

Is Fiscal Policy Possible? Is It Desirable?

Abstract: Forty years ago, at about the time of the International Economic Association’s first World Congress, no one would have bothered to ask the questions that make up the title of this chapter. Jan Tinbergen had made us aware that a society needs as many independent policy instruments as it has independent policy goals it would like to achieve. In the macroeconomic policy field, there were obviously multiple goals, and therefore a need for several instruments. The separate and joint roles of fiscal and monetary policy were a common topic of discussion.

Introduction: The Tobin Approach to Monetary Economics

Abstract: My wife and I met Jim and Betty Tobin for the first time in Cambridge, probably in a year like 1947 or 1948, but that was not really the beginning of our friendship. Jim must have finished his Ph.D. thesis by then, and would soon decamp for Yale, neither the first nor the last in a series of humongous Harvard blunders. I was just beginning my graduate work, having come back from the war still an undergraduate. I am pretty sure I had not then read Tobin’s 1941 “Note on the Money Wage Problem.” That was, as I later realized, an interesting excursion into Keynesian economics, interesting even now, I mean. But Tobin had learned about Keynes purely by accident, when he was an undergraduate. Later undergraduates like me were protected against that virus. After I went on to teach at MIT, I knew about Tobin of course. I read his papers on consumer demand, because I was teaching econometrics and looking for good examples of it. He published “A Dynamic Aggregative Model” at just the time when I was working on economic growth, so I recognized a master hand. Jim has said that it was his favorite paper. And of course I read “Liquidity Preference as Behavior Toward Risk” in 1958. The Review of Economic Studies was the preferred journal in those days for eager young middlebrow theorists. Not only was it interesting, it came out only three times a year with a mere handful of articles per issue. If I sound nostalgic for that pace, it is because I am. Then John Kennedy was elected President in 1960. One night in December of that year, after 11 o’clock, my wife and I were already asleep (we had three little kids) when the telephone rang. When I picked it up I found myself talking to Walter Heller, Kermit Gordon, and Jim Tobin, who had already been named as the Chairman and Members of the new Council of Economic Advisers to take office in January. I remember my first question was: “What are you guys doing up this late?” (It should have been a warning about Walter’s work habits.) They wanted me to come to Washington and join the Council staff. I said I’d think about it, went back to bed, told my wife what it was all about, and commented “Why would I want

Flexibility and Endogenous Innovation

Abstract: The trail I want to follow leads from Stigler to Mansfield with few, if any, intermediate stops. That should sound like a pretty good genealogy.

Even a Worldly Philosopher Needs a Good Mechanic

Abstract: for having attracted so many bright and interested students to economics, much as Paul de Kruif s Microbe Hunters a lesser book recruited the young of my generation to the study of biology and medicine. Those same teachers are also aware that some of the same students felt let down by the texture of the discipline when they began to study it. Instead of debating big ideas about the nature of society, they found themselves drawing demand and supply curves and learning to set marginal this equal to marginal that. In the last chapter added to The Worldly Philosophers, Heilbroner tries to diagnose the source of his own, more sophisticated version of this kind of disappointment. He locates it in the unwillingness of modern economists to focus on the essential characteristics of capitalism as a system of social relations. There and elsewhere he speaks of a failure of "vision" on the part of economists, and their misguided attempt to construct a Science the capital S is essential in the image of physics or astronomy. I have never been satisfied with that way of looking at the context and method of economics. Bob Heilbroner and I used to talk about this in the days when we saw more of each other. I take this opportunity to make one more statement of my view of the end of the worldly philosophy. From the start, I have to dissent from Heilbroner's assertion that the disciplined study of economics (as we know it) is tied essentially

Progress in Economics since Tinbergen

Abstract: I belong to the dwindling generation of economists who learned directly and personally from Jan Tinbergen’s example and from his writings. So it is a matter of special regret that I could not be present at the celebration of his hundredth birthday. Given this opportunity to comment, I want to be clear about what I think we learned; it goes well beyond the reading of such didactic classics as his League of Nations study of the business cycle in the U.S. or his example of a self-contained oscillatory process in the shipbuilding cycle. It seems to me that Tinbergen – not alone, of course, but along with Ragnar Frisch, perhaps Michal Kalecki, and then later Paul Samuelson – was a major force in the transformation of economics from a discursive discipline into a model-building discipline. After Tinbergen, studying a problem meant, for many of us, trying to decide what its important features – its main causal connections – might be, and then building a model – a simplified but precise representation – to highlight those features and their economic implications. One realizes easily that there is a natural connection between the model-building approach to economics and the development of econometrics. This may explain why estimating the parameters of a model came to be the main activity of econometricians, as against the simple testing of hypotheses in the manner of R.A. Fisher’s Statistical Methods for Research Workers. It is one of history’s ironies that J.M. Keynes, who was so obtuse in his hostile review of the League of Nations book, should himself have inspired an enormous outpouring of theoretical and econometric models. Of course there has been progress in economics since Tinbergen, and most of it has taken the form of improved and extended model-building. The range of situations that can be and have been modelled has become wider: think of strategic behavior, contracts, incentive compatibility, poverty traps, financial markets, etc. New theoretical ideas have been embodied in functioning models: think of game theory, imperfect competition, bargaining, intertemporal optimization and sub-optimization , etc. I think Tinbergen would have welcomed the intrusion of ‘behavioral’ and experimental economics to broaden the repertoire. New sources and kinds of data have become available, along with the computational capacity to use them: think of the Penn World Tables, large microdata-sets, panels and longitudinal studies, etc. And sophisticated econometric methods have been developed to permit models and data to be brought together. I know that it is sometimes fashionable to deplore these developments, and to yearn for the days when a lady or a gentleman could simply discourse on economics in the manner of Adam Smith. This sort of nostalgia is probably natural; DE ECONOMIST 152, NO. 2, 2004

The Aftermath of Welfare Reform in the USA

Abstract: The 1996 welfare reform act is now in the normal course of revision and renewal, a process called ‘reauthorization’ in the American system. Its proper name is the ‘Personal Responsibility and Work Opportunity Reconciliation Act’ (PRWORA) but this sort of verbal inflation is typical of the US Congress. It cannot be said that either the Administration or the Congress is basing its decisions on any serious analysis of the working of the 1996 Act, and that is an interesting fact by itself. This brief note cannot fill that gap, but it will make some selected inferences, and at least point to the relevant academic literature.