Knowledge that Transforms

Ominous trends in America's international position and overall economic performance have generated increasing public dissatisfaction with the nation's laissez-faire approach to trade. Recent academic research has meanwhile cast new doubt on the theoretical case for free trade, especially where high-technology industries are concerned. As a consequence of these parallel developments, much of both academic and public debate over appropriate trade policy now centers on the practical implications of the modeling approach known as the new trade theory. Some look to the new theory for a better understanding of trade policy's potential role in improving overall economic performance; others seek theoretical justification of policies from which they themselves expect to benefit.

Comparative economics is not the same as international economics. In fact, the word evokes the phrase systems, until recently a dull chapter dutifully included at the end of almost every Principles book. The collapse of communism has left a single system, the mixed economy of capitalism-cum-government in all of the infinite variety of possible combinations. Since the world has converged on this single system, one can snatch the adjective from its old mate systems and attach it to a whole new concept of how economics can and should be taught, that is, comparative economics.

This paper examines economywide and sector-specific responses of real wages to nominal shocks using micro panel data from the National Longitudinal Survey of Young Men. The observed response patterns provide no support for nominal-contracting theories of unemployment, which predict that nominal surprises should be negatively correlated with real wages. In fact, both inflation and money-growth surprises are found to be essentially uncorrelated with real wages. Either a real-business-cycle model or a model with rigidities in commodity prices could be consistent with these results.

The standard-of-living question was initially framed by the long-running debate over the effects of the industrial revolution on the living conditions of ordinary people. Karl Marx and Friedrich Engels posed the question most dramatically arguing that industrialization reduced both the absolute and relative standard of living for workers. This formulation of the question made both the average income and the distribution of income matter in treatments of the standard-of-living question. In principle, a rise in average per capita income could be accompanied by an increase in inequality so that the living standards of workers and their families did not necessarily improve with growth in per capita income. The debate over the trend in the standard of living, especially that of workers, was fierce and ongoing. By the 1920's, the weight of evidence had

This paper examines the weapons-accumulation decisions of two adversarial countries in the context of a deterrence/conflict initiation game embedded in an overlapping-generations model. The demographic structure permits analysis of both within- and between-country intergenerational externalities caused by past weapons-accumulation decisions, as well as of intragenerational externalities from the adversary's current weap ons accumulation. Zero accumulation is a possible equilibrium with both noncooperative and cooperative behavior. Countries may also accumula te weapons to the point where conflict initiation never occurs. Pareto-improving policies are generally available but international cooperation need not be Pareto-improving.

In contrast to the twentieth century, over the nineteenth century economic fluctuations became increasingly severe. This paper uses a structural vector autoregression estimated on ante- and postbellum data to distinguish the influences of changes in the nature or magnitude of the disturbances from those of changes in the response of the system to shocks (i.e., changes in structure) in contributing to this increased economic instability. The increased cyclical severity in the postbellum period is found to have been the result of greater sensitivity to monetary disturbances, rather than of larger or more volatile shocks.

There is an old joke about economics which says that the questions stay the same, only the answers change. Though there is some truth in that idea, I would argue that over the past 50 years, there have been marked changes both in the questions and in the answers, but that many of these changes are still only imperfectly reflected in undergraduate textbooks.

There appear to be two main conclusions of Fred C. Graham's paper. First, he argues that the empirical evidence in Aschauer (1985) supporting the permanent-income hypothesis and a significant degree of substitutability between private consumption and government spending is specific to the sample period and to the nature of [Aschauer's] 'unrestricted' alternative (Graham, 1993 p. 666). Second, after disaggregating government spending into various components he finds limited support for the hypothesis that federal nondefense spending-as opposed to total federal, state, and local spending-substitutes for private consumption. The focus of my 1985 paper was on deriving a test of the Ricardian equivalence theorem within an Euler-equation framework. Graham seems to have missed this point. Indeed, there is no evidence in his paper to support the Keynesian view that tax cuts stimulate private consumption and aggregate demand. Admittedly, Graham finds that changes in disposable income lead to changes in private consumption; but this is not enough to support the standard Keynesian analysis. Specifically, it is necessary to determine whether tax changes per se induce changes in consumption spending. Consider a model similar to Graham's equation (4), namely,

I was asked to report on the effect of economics on the development of antitrust analysis of exclusionary vertical relationships, particularly on the current acceptance of post-Chicago theories of exclusionary market power such as raising rivals' costs (RRC). In order to better understand the role of economics in vertical-restraints law, however, I first analyze acceptance of the free-riding efficiency theory. This provides a second data set. In addition, since antitrust involves balancing market-power harms with efficiency benefits, a more complete picture is achieved. I have reached three basic tentative conclusions. First, developments in economics clearly have an effect on developments in the law. This has been true for both the free-rider and exclusionary-market-power theories. However, the process by which antitrust adopts new economic concepts seems to be subject to a long lag. Second, the process appears to be subject to considerable randomness. It appears to depend on the (partly) random draw of judges, lawyers, and economic consultants. Third, when economic theories are accepted, courts often restrict their engagement with the theories. Assertion sometimes is substituted for economic evidence, and legal conclusions sometimes are overly broad.