The Great Recession and the financial crisis of 2007–09 prompted calls for fundamental reforms of economic theory. The role of theory in economics and in recent economic events is considered in light of two recent books: the sociologist Richard Swedberg's The Art of Social Theory and the economist André Orléan's The Empire of Value: A New Foundation for Economics.

This review essay reviews the volume edited by Owen Humpage, Current Federal Reserve Policy under the Lens of Economic History: Essays to Commemorate the Federal Reserve System’s Centennial, and provides a broader perspective on central-banking issues. The papers in the Humpage volume address various aspects of central banking history, money, and private banking, with a focus on putting recent Fed policies in perspective. The topics covered include the role of the central bank as lender of last resort, the effects of open-market operations versus central-bank lending, central-bank independence, the political economy of monetary unions, financial crises, the effects of unconventional monetary policies, commodity monies, and the Canadian financial system as a natural experiment.

Using US Department of Justice data on local political corruption, I find that firms in more corrupt areas hold less cash and have greater leverage than firms in less corrupt areas. The results are robust to including a range of controls and to using an instrumental variable approach, two alternative survey measures of corruption, and propensity score matching. Further, the association between corruption and leverage is largest among firms that operate primarily around their headquarters. Overall, the evidence is consistent with the hypothesis that firms manage liquidity downward and debt obligations upward to limit expropriation by corrupt local officials.

This article examines how corporate reliance on budgets is affected by major changes in the economic environment. We combine survey and archival data from the economic crisis that began in 2008. The results indicate that budgeting became more important for planning and resource allocation but less important for performance evaluation in companies affected more strongly by the 2008 economic crisis. Additional evidence from interviews and data gathered in a focus group further illustrate these results and show the changes organizations have introduced to respond to the economic crisis. Taken together, and contrary to more general conclusions from the literature such as an overall increase or decrease in the importance of budgeting, we find that companies emphasize certain budgeting functions over others during economic crises.

The comments of Firouz Gahvari and of Cecil Bohanon and T. Norman Van Cott provide useful extensions of our earlier analysis. Nonetheless, our central point remains intact: the traditional labor-leisure analysis is invalid because it ignores the effects of changes in government spending on individual welfare. Gahvari points out that, in the case of public goods, the linkage between changes in tax rates and labor supply is more complex than we implied. Individuals, unable in the large number case to transform leisure into public goods, will be affected differently when the government provides a public good rather than an transfer. In Gahvari's world, where government goods are irrelevant to all private decisions (complete separability in the utility functions and no ability to purchase public goods privately), the quantity of government goods can be safely ignored in the analysis of private decisions. The decision proceeds as it would if tax revenues were totally wasted, even though the citizens' total utility is assumed constant when tax revenues change, with changes in government goods exactly offsetting the utility impacts of the change in private goods. However, we think it is misleading to label the ambiguously signed element beyond the substitution as an effect. How can there be an income effect when total utility remains constant? As the quotes cited by Gahvari from our initial paper (p. 447) illustrate, this is not the envisioned by the traditional work-leisure analysis, which refers to a change in of (utility) and reflects the notion that a tax cut will encourage individuals to work less (consume more leisure) by giving them a higher standard of living through more after-tax pay.' Implicitly, this view ignores the negative impact on living standards associated with the reduction in the supply of government provided goods (or transfers). Gahvari recognizes that when government goods replace private goods such as public education, medical services, food stamps, or cash (and ignoring any cross elasticities), our original analysis stands and there is only the substitution effect. Bohanon and Van Cott make another refinement, pointing out some secondary effects of government's tax-transfer activity. While changes in tax rates and in government-provided goods will influence the individual's budget constraint, or ability to trade off among goods, a complete analysis must also account for the fact that any such shift will move the individual into a new region of his indifference surface. His willingness to trade off among the goods may well change. The individual's view of the substitutability or complementarity among government-provided goods, private goods, and leisure becomes relevant. If the government good is strongly enough complementary to leisure and/or substitutable for private goods, the standard substitution could indeed be overcome. Returning to our original paper, we reiterate its central point. The income effect component of traditional work-leisure analysis for an individual ignores the individual's utility derived (foregone) from increased (decreased) government spending accompanying changes in revenues. To treat that indi-

The economic effects of advertising have been a much studied and hotly debated topic for a number of years. By now, there is fairly general agreement that, inter alia, advertising is important as a barrierto-entry (see Joe Bain, William Comanor and Thomas A. Wilson, Leonard Weiss) and that advertising does succeed in shifting demand for individual products (see Neil Borden, Nicholas Kaldor, Robert Dorfman and Peter Steiner, Lester Telser (1962), Kristian Palda), but there is little agreement as to the effect of advertising on aggregate consumption. John Kenneth Galbraith would have us believe that much of consumers' spending is managed from Madison Avenue,' but such a view has still to find universal acceptance.2 What is surprising, however, is that no one who has been party to the rather spirited debate generated by the Tall Gentleman's thesis has seen fit to examine by econometric methods the proposition that advertising has an impact on the aggregate consumption function. To undertake this is the purpose of this paper. In a modest, yet not insignificant, way, we feel that we have made some progress. Based on an analysis of advertising expenditures in the aggregate, our results suggest that advertising does in fact tend to increase consumption at the expense of saving. But as to what the causal mechanism underlying this is, we unfortunately cannot say. It may be that advertising actually succeeds in altering tastes a la Galbraith, but then again it may be that advertising is simply serving to bring new goods and services to the attention of consumers. As already noted, our analysis concentrates on the effects of advertising in the aggregate, and is conducted in the framework of the state-adjustment model of Hendrik Houthakker and Lester Taylor, as applied to aggregate consumption. Following Houthakker and Taylor, two variants of the model have been employed; the first focuses on consumption, and the second on personal saving. Section I presents a brief description of the Houthakker-Taylor (H-T) model and discusses the ways that it can be extended to accommodate advertising. This section also provides a short description of the data and methods of estimation. Sections II and III are empirical, Section II being devoted to a presentation of results and Section III to their critical evaluation. The paper is then concluded with some final observations in Section IV.

The question of whether controls on the importation of foreign oil into the United States should take the form of tariffs or quotas has been a topic of recent public debate and investigation bv econonmists. Under static competitive conditions it is well known that equivalent tariffs and quotas can be constrtucted. Hence in this context, there is no choice to be mlade on economic efficiency grounds.' Hlowever, in a recent isstue of this Review, George Hay poinlts out that the actual market for oil in the United States differs fromii the required textbook conditions for equivalence. Under the U.S. oil import program which prevailed until recentl-, each refiner's quota for inmport of foreign oil is a positive function of his refinery input. Since import tickets are allocated free of charge, rather than auctioned, the form of the quota lowers the marginal cost of domestic refiners. Hay goes on to show that when combined with other static competitive assumptions, this quota mechanismi could generate greater consumer benefits in terms of lower prices than would an equivalent tariff (equivalent in the sense that the same percentage of imports is admitted).2 Hay expresses a preference for tariffs in a real world context and warns that his analysis of the price effects of the U.S. oil quota system holds only under very restrictive conditions. However, he does not address what is perhaps an even more important deviation of the domestic oil industry from the standard textbook model: crude oil production in the United States was limited in the major producing states by regulatory commissions that practiced market demand prorationing under the old oil quota program. Under this system, an-y price set by the industry is ratified by the commissions by limiting production to a level that will not result in the accumulation of undesired inventories.' We are not addressing the issue of the level of price in the oil industry in this paper. Rather, we wish to review the effects of tariffs and quotas on resource allocation, an issue which Hay omits from his analysis; and, for this purpose we make use of the simple model of a profit-maximizing monopolv as a characterization of the domestic oil industry. The assumption of profit maximiza-

This paper develops and estimates a dynamic stochastic general equilibrium (DSGE) model representing several key characteristics of Japan, namely, a large open economy, with large fiscal deficits and increasing amounts of debt held by domestic residents, through recurring sets of adverse shocks to productivity and positive shocks to government spending. We compare optimal simple rules for consumption tax rates, a Taylor rule with negative interest rates, and a quantitative easing rule, for reducing government debt held by the banking system, as well as optimizing welfare. In times of crisis, we show that the QE policy rule outperforms optimally-derived simple tax-rate rules or Taylor rules with negative interest rates for mitigating the costs of post-crisis adjustment and debt overhang.