Arthur Goldberger's comment is a tempest in a teacup. This is readily verified from the data presented in Table 1. This table reproduces from my original paper the coefficients for paired equations estimated with three different samples in which In S/N and ln SI Y were the dependent variables. As the data of Table 1 indicate, in 7 of the 12 cases, the coefficients are identical through the second decimal place. Furthermore, all the discrepancies are quantitatively very small. In 9 cases, the paired parameter estimates are within 1 percent of each other. In the remaining cases, the differences are of the magnitude of .0825, .0012, and .0011. These are well within the margins of accuracy within which anyone views data generated from the national income accounts of the less developed countries. In light of these considerations, it is difficult to understand the tone of Goldberger's comment. The reason for the slight discrepancies is straightforward. My observations for S/N and S/Y were computed separately from data supplied by the Statistical Office of the Agency for International Development. With the rounding introduced by the series for N and Y, it is not surprising that the series for S/N is not identically equal to the series which would be obtained by forming S/N from the product of Y/N and S/Y. Similar slight discrepancies have also been reported in other econometric work in which equations for S/N and S/Y have been estimated with separately computed data series.' In any case, nowhere in my paper did I even refer to the precise numerical parameter estimates obtained in my equations. The main conclusions of the paper were that the dependency variables were quantitatively an important determinant of international savings rates, and, further, that introduction of these variables greatly reduced the importance of percapita income, on which some previous discussions had focused. Neither of these conclusions is affected by Goldberger's comment.

In this note I raise two questions regarding Fama's results. The first is whether similar tests based on an information set somewhat broader than the past history of consumer price inflation will support Fama's findings. The second is whether given Fama's data and model his results fully support his hypotheses. The answer to both questions is no if one accepts the accuracy of the data. During Fama's sample period, the current monthly rate of change of consumer prices, Ct, is significantly related to the three previous monthly rates of change of

Asked to choose, most people state confidently that they would rather be killed in an automobile accident than to survive a quadraplegic. And so we are not surprised to learn that severely disabled people experience a period of devastating depression and disorientation in the wake of their accidents. What we do not expect, however, are the speed and extent to which many of these victims accommodate to their new circumstances. Within a year's time, many quadraplegics report the same mix of moods and emotions as able-bodied people do. There is also evidence that the blind, the retarded, and the malformed are no less happy than other people. Ads for the New York State Lottery show participants fantasizing about how their lives would change if they won. (I'd buy the company and fire my boss.) People who actually do win the lottery report the anticipated rush of euphoria in the weeks after their good fortune. Followup studies done after several years, however, indicate that these people are no happier-indeed, are in many ways less happy-than before. As a young man fresh out of college, I served as a Peace Corps volunteer in rural Nepal. My one-room house had no electricity, no heat, no indoor toilet, no running water. The local diet offered little variety and virtually no meat. And yet at no time during my two-year stay in Nepal did I experience a sense of material deprivation. On the contrary, my monthly stipend of $40 was much more than most others in my village had, and with it I experienced a feeling of prosperity that I have recaptured only in recent years. These observations illustrate the critical role of context as a determinant of human satisfaction. The neoclassical economic model of choice abstracts from context, saying that utility depends only on the level of consumption. Consumption levels obviously are important, and the neoclassical model performs reasonably well in many instances. And yet its narrow focus misses something important. To predict people's behavior, to draw inferences about their well-being, or to make intelligent policy decisions, we must not only know the relevant levels of consumption, but also have an appropriate frame of reference within which to evaluate them.

In my model of the evolution of honesty,1 I assumed the existence of a signal-a blush, perhaps-extreme values of which served to identify some individuals as being honest with certainty. Joseph Harrington notes that without this assumption, honest individuals have difficulty invading a population initially dominated by defectors. For readers who do not wish to work through the algebra in his comment, the argument is easily summarized in nontechnical terms. Suppose two honest mutants, A and B, arrive in an uncountably large population consisting entirely of dishonest persons. And suppose that the probability that an honest person exhibits an intense blush is, say, 0.999, while the corresponding probability for everyone else is only 0.001. When A sees an intense blush on the face of B, what will then be his estimate of the probability that B is honest? Assuming that A knows the laws of elementary probability and corrects for the base rate of honest persons in the population, it will be zero. When virtually everyone in the population is dishonest, even a person with an intense blush will be pegged as dishonest, provided that even the smallest fraction of dishonest persons also shows an intense blush. With

The comment by Edwin West addresses my 1984 benefit-cost analysis and, more specifically, its conclusion that the subsidy received by the Royal Shakespeare Company (RSC) is justified. West maintains that a broader inquiry may reverse that judgment, and he raises three main points for discussion: deadweight loss, pseudo demands, and benefit distribution. I shall consider these matters seriatim. First, however, it should be recalled that the original analysis took a narrow stance deliberately and that footnote 14 conveyed the message. Because of difficulty in determining how much patronage went to Aldwych and Stratford activities alone, RSC patronage obtained from all sources, public and private, was treated as if it applied only to those two centers. But, besides performing there, the RSC, over the financial years 1968-69 to 1977-78, worked The Warehouse, The Other Place, Theatregoround and other domestic tours, overseas proscenia, and television inter alia. Therefore assigning total patronage exclusively to the centers imparted a bias that favored the case against the subsidy. Nevertheless, the investigation did omit deadweight loss. Prompted by West's remarks on the subject, I resurrected the data to try to obtain a rough but reasonable estimate of Aldwych and Stratford patronage. In the exercise, patronage was distributed conceptually across all RSC activities on the premise that each activity shared the total in the same proportion that it shared total expenses.' No attempt was made to separate private gifts from public ones. Table 1, which presents the pertinent details, indicates that nominal patronage going exclusively to the centers averaged ?513,778, about 85 percent of the total. With the mean of the Retail Price Index amounting to .801, this figure becomes ?641,421 in real terms. Benefit, the increase in real consumers' surplus at the centers, still registers ?900,204 enabling the benefit-cost ratio to rise from 1.18 to 1.40.2 These calculations ignore an important side effect of the subsidy; namely, the additional tax collections coming from both increased ticket sales and increased labor income. As the earlier Table 3 indicated, a profit-maximizing Aldwych sells 16,528 tickets at a real price of ?3.78 including the value-added tax (VAT). A VAT rate of 8 percent, not inappropriate for the period in focus, therefore means a pretax real price of ?3.50 and a real VA T levy of ?0.28 per ticket for a total of ?4,628. Under actual (subsidized) conditions the Aldwych sells 234,045 tickets at a real tax-inclusive price of ?1.77 and pays a real VAT of ?30,426, an increase of ?25,798 over the profit maximizer. Similarly, actual Stratford generates ?9,153 more in real VAT than does a profit-maximizing Stratford bringing the combined VAT increase to ?34,951.3 Table 3 likewise showed that patronage expands employment by 461,448 man-hours at

The experience of first Japan and now Europe and the USA suggests that Hansen's concept of secular stagnation is highly relevant. Recovery has been anemic and follows a generation of financially unsustainable and often lackluster growth. Investment demand has declined while the supply of saving has increased, leaving the economy vulnerable to liquidity traps. Although some US indicators have improved, forward real rates have declined sharply, European prospects remain muddled, and the zero-bound will likely constrain again during the next recession. Infrastructure and private investment are the best ways to both minimize the risk of secular stagnation and raise demand.

This year marked the twenty-seventh volume of the Journal of Economic Perspectives. Throughout its history, the Journal has sought to contribute to the economics profession along multiple dimensions: introducing readers to state-of-the-art thinking on theoretical and empirical research topics; encouraging cross-fertilization of ideas among the fields of economics; providing analyses of public policy issues; providing readings for students; offering illustrations that are useful in lectures; sparking discussion among colleagues; suggesting directions for future research; and analyzing features of the economics profession itself