For those who oppose the growth of government, some of its more hidden kinds of activities are particularly worrisome. They are also a special challenge to those who simply wish to measure the size of government, let alone try to do something about it. Two of those extra-budgetary areas of operation, federal credit programs and federal tax expenditures, are discussed here.
The long-run and short-run dynamics of the supply of national output are a key to macro-economic behavior. These dynamics form the basis of the natural rate analysis of Milton Friedman and others. And the kev to the dynamics of the total supply is that of the labor supply. It would be an exaggeration to claim that capital supply and the behavior of firms is irrelevant to macroeconomics. But output can be viewed as the product of a cyclical employment variable with a more or less uniformly increasing productivity. Thus it is clear that the properties of the total supply are highly dependent upon those of the labor supply. The purpose of this paper is to explore the dynamics of the labor supply, with particular emphasis on the effect of expectations models. In the process a regression that Robert Lucas and Leonard Rapping used to explain the labor supply is replicated with more recent data. Although further analysis is done, one of the purposes of this study was to verify that their earlier 1930-65 results also hold for a more recent period (1950-70), and with improved data series.
Airline noise is an externality in the traditional sense of being a byproduct of normal economic activity. It affects the population around airports in single-event bundles and cumulatively. The transient nature of noise itself is unlike most other externalities. As with the others, however, general improvements in technology and increases in population have made the situation more difficult to tolerate. The combination of these things has led to a critical situation for the affected population since it involves its physical and mental health. From among the various methods of dealing with externalities, we choose the effluent charge scheme. It generally allows each firm to incorporate the environmental standard into its marginal operating choices. If each firm makes efficient decisions, then the cost to society of achieving an environmental standard will be a minimum. In this paper, there are two modifications of the traditional charge scheme. One is that because of the well-known difficulties in specifying and estimating social costs, we use the (estimated) direct noise abatement costs of achieving the environmental standard. The second is that airlines cannot be necessarily thought of as cost minimizers. The charges used for the control of airline noise are generated as shadow prices in a simple linear programming model. Solution to the problem involves choosing a mix of noise-abating options that achieves proposed environmental standards at least cost. Additional bounds on the problem are limitations on service reductions and rate-of-return (ROR) oni investment regulation. The data sources used for the program were generally fragmentary and incomplete for our purposes. After calculating a noise charge for a hypothetical airport, we discuss the implementation and ramifications of the charge plan in the regulated airline industry. Included is a discussion of the link between noise abatement and fuel consumption.
Most studies on the derived demand for factor inputs at the aggregate, nationwide level, and on the behavior of distributive shares in national income, form an analytical framework at the aggregate level which is parallel with the one at the industry level, by defining an aggregate production function for the economy as a whole. Unfortunately, the conditions for intersectoral aggregation are extremely restrictive and such an aggregate production function will be consistent with the sectoral technologies if and only if factor intensities are identical across sectors.' For most practical purposes, these conditions must be considered inappropriate.
In a recent article in this Review (1983), Henry Chappell and John Addison provide new evidence on the thesis that links an industry's price behavior over the business cycle to its structural features, most notably, some measure(s) of the monopoly power possessed by firms in that industry. The approach taken by Chappell and Addison (C-A) is both sensible and novel. Essentially, they regress aggregate inflation measures for different groups of manufacturing industries on a distributed lag in monetary growth. The industry groups are distinguished by their degree of concentration-low, medium, or high-and the validity of the administered-pricing thesis is then tested by comparing the time pattern of response in each group to monetary impulses. Chappell-Addison conclude that this test reveals no clear response differences between the sectors of varying concentration, and hence reject the hypothesis of concentrationrelated administered prices. The purpose of this comment is to show that the C-A conclusions are overly strong. Their focus on the mean lag as the sole basis of interindustry comparisons obscures important differences in the pricing performance of the lowand high-concentrated sectors. More fundamentally, the C-A test is risspecified in that it fails to differentiate between the expected and unexpected components of money growth as suggested by Robert Barro (1977). When the analysis allows for these modifications, the C-A data reveal considerable support for the administered-pricing hypothesis. 1. The Chappell-Addison Model