Knowledge that Transforms

The adequacy of national saving has taken on increasing importance in an era of large external imbalances among the major industrial countries. At least among economists, current account imbalances are seen as largely the outcome of domestic patterns of saving and investment rather than trade practices. Thus, the low level of saving in the United States, rather than a failure of Japan to open its economy, is the primary cause of the U.S. current account deficit. Most of the discussion of the decline of U.S. saving has focused upon the emergence of a large government budget deficit in the 1980s, and has largely ignored an equally large decline in an already low level of private saving. At the same time, much of what we think we know about private saving behavior and the potential effectiveness of various policies to influence it are dominated by experience only within our own country. But, many of the factors in which we are most interested have exhibited very limited historical variation within the United States, and of necessity the conclusions are ambiguous. The purpose of this note is to make use of an underutilized data source, that provides information on the saving and investment of the industrial countries within a common accounting framework, to examine the pattern of change over time, and the similarity of response to various economic disturbances in the 1970s and 1980s. The basic annual data are drawn from the System of National Accounts (SNA) submitted by the individual member countries to the OECD for the period, 1960-87. While the original analysis was undertaken for the seven largest nations plus a representative set of six smaller countries, but the summary reported here is limited to the United States, Japan, and an aggregate of nine European countries. The data are presented within a simple accounting framework that relates the current account surplus (CA) to the difference between domestic saving (S) and domestic investment (I). Domestic saving and investment can be further subdivided into their public and private components,

This paper examines recent theoretical and empirical analyses that may help us understand and eventually model the observed movements of foreign exchange rates and stock prices. Whether these prices are rational, efficient, and hence not excessively volatile is, of course, a joint hypothesis. The question in the title can never be answered in the abstract. We must always compare actual volatility to the volatility implied by a benchmark model.

It is generally recognized that possible gains from cooperation are not always realized because negotiating parties sometimes fail to reach agreement. Such negotiation failures are ex post inefficient and have long defied economist's attempts to explain them. In this paper we discuss breakdowns in collective bargaining when disputes are resolved by compulsory arbitration. We argue that the study of arbitration offers insights into the nature of negotiation failures which may be of general interest.(This abstract was borrowed from another version of this item.)

The phenomenal growth in our public deficits over the past twenty years is a matter of public and professional concern (see Symposium, 1989). While this concern may indeed be well founded (particularly given current deficit levels), public deficits are not always bad. Certainly in times of deep recessions, short-term deficit financing can stimulate aggregate demand, increase national income, and reduce unemployment in a Keynesian fashion (see Richard Startz, 1989). Second, long-term deficit financing may be needed to sustain a long-term path of optimal consumption (see Peter Diamond, 1965). Third, public deficits (including pay-as-yougo Social Security) can offer welfare gains for significant subsets of consumers who have been liquidity constrained (R. Glenn Hubbard and Kenneth Judd, 1986), who have been unable to purchase indexed private annuities (Alan Blinder, 1988), or who have been unable to sufficiently diversify their investment portfolios away from human capital (Robert Merton, 1983). Finally, Robert Barro (1979) has argued that public deficits may be an important policy instrument to insure intertemporal welfare maximization when public expenditures are stochastic and public taxes are economically inefficient; taxes can be smoothed to reduce the lifetime excess burden of public financing. The concern today is not that we have deficits, but rather that we may be overdoing a good thing. If this is the issue, then we need to ask: Why, and what can be done about it? This is my agenda here. I. The Political Economy of Recent Deficits

Agricultural policy has traditionally been concerned with the maintenance and stability of farm income, and the provision of a stable food supply at low relative prices. The Food Security Act of 1985 was the first farm legislation to directly tie farm income and environmental concerns through the Conservation Reserve Program, conservation compliance, sodbuster, and swampbuster provisions. The coordination of conservation and farm income policies contributed to commodity supply control by reducing the availability of arable land, and it promoted environmental quality by removing some highly erodible land and wetlands from crop production. A number of new environmental and food safety initiatives are also being enacted outside the agricultural policy process. The most significant piece of legislation is the Water Quality Act of 1987, designed to control