Under the hypothesis of a myopic electorate, vote-loss-minimizing behavior by the party in power subject to a dynamic inflation-unemployment relation is shown to generate a stable electoral policy cycle. The pattern of unemployment and inflation in the United States during the four presidential election periods from 1957 through 1972 is then examined for evidence of whether or not the administration believes the electorate is myopic. The conclusion is that the myopic hypothesis does a superior job of explaining aggregate demand policy, as reflected by the unemployment rate, during the second and third election periods, while the hypothesis that the administration believes the electorate is rational does a better job in the first and fourth periods.

[Under the hypothesis of a myopic electorate, vote-loss-minimizing behavior by the party in power subject to a dynamic inflation-unemployment relation is shown to generate a stable electoral policy cycle. The pattern of unemployment and inflation in the United States during the four presidential election periods from 1957 through 1972 is then examined for evidence of whether or not the administration believes the electorate is myopic. The conclusion is that the myopic hypothesis does a superior job of explaining aggregate demand policy, as reflected by the unemployment rate, during the second and third election periods, while the hypothesis that the administration believes the electorate is rational does a better job in the first and fourth periods.]

Even if there is an agreed-upon, fixed social objective function and policymakers know the timing and magnitude of the effects of their actions, discretionary policy, namely, the selection of that decision which is best, given the current situation and a correct evaluation of the end-of-period position, does not result in the social objective function being maximized. The reason for this apparent paradox is that economic planning is not a game against nature but, rather, a game against rational economic agents. We conclude that there is no way control theory can be made applicable to economic planning when expectations are rational.

Even if there is an agreed-upon, fixed social objective function and policymakers know the timing and magnitude of the effects of their actions, discretionary policy, namely, the selection of that decision which is best, given the current situation and a correct evaluation of the end-of-period position, does not result in the social objective function being maximized. The reason for this apparent paradox is that economic planning is not a game against nature but, rather, a game against rational economic agents. We conclude that there is no way control theory can be made applicable to economic planning when expectations are rational.

Data on individual labor earnings are reported from two experimental economies where the primary factors responsible for income differences were differences in tastes for market income versus leisure and differences in abilities working manual job tasks. Measured income dispersion under these conditions was strikingly similar to that in the United states and other market economies, indicating that these two factors alone are sufficient to generate such income differences. Further, in tests of the functional form of the distributions of income, the hypothesis of lognormality fit better than the hypothesis of normality, just as it does in national data.

Data on individual labor earnings are reported from two experimental economies where the primary factors responsible for income differences were differences in tastes for market income versus leisure and differences in abilities working manual job tasks. Measured income dispersion under these conditions was strikingly similar to that in the United states and other market economies, indicating that these two factors alone are sufficient to generate such income differences. Further, in tests of the functional form of the distributions of income, the hypothesis of lognormality fit better than the hypothesis of normality, just as it does in national data.