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. Copyright 1993 by American Economic Association.

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. Copyright 1993 by American Economic Association.