It is often argued that efficiency considerations require society to freely permit insider trading. In this article, an opposing efficiency argument is formalized. The model incorporates an investment stage followed by a trading stage. If "outsiders" expect "insiders" to take advantage of them in trading, outsiders will reduce their investment. The insiders' loss from this diminished investor confidence may more than offset their trading gains. Consequently, a prohibition on insider trading may effect a Pareto improvement. Insiders are made better off if they can precommit not to trade on their privileged information; government regulation accomplished exactly this.

The economic stimulus program of early 1977 featured a strong dose of what might be termed indirect countercyclical policy. Rather than altering federal expenditures and taxes directly, the stimulus program consisted mainly of three different grant programs for state and local governments: a) countercyclical revenue sharing (CRS); b) public service employment (PSE); c) local public works (LPW). In the parlance of the public finance literature, the first of these grants was an unconditional block grant, the second was a close-ended categorical grant with no local matching for the purpose of stimulating local government employment, and the third was a close-ended categorical grant with no local matching for the purpose of stimulating local government construction. Stimulating, or attempting to stimulate, aggregate spending through state and local governments in this way is fiscal federalism with a vengeance. The federal government is not abdicating its stabilization responsibilities and leaving it up to states and localities to do the job,' but it is placing its own stabilization policy at the mercy of the behavior of state and local governments. There are no restrictions at all on the use of the CRS grantsthey can be spent, used for tax reduction, or used to rebuild financial net worth (asset stocks less outstanding debt), with only the first two uses having any stimulative effect at all. There are restrictions on what can be done with the other two grants, but the well-known displacement phenomenon implies that with these grants it also may be possible for states and localities to frustrate the restrictions and use the grants as they would any other source of revenue sharing. What happens to all three grants then is an empirical issue, and the timing and magnitude of any stabilization impact depends on how the numbers come out. In this paper I briefly describe a model for estimating this stabilization impact and show what it suggests for the three grants. Only the PSE grant will be seen to have any positive short-run impact on aggregate spending at all, and that impact will prove to be both diluted and short-lived, indicating that the general idea of stimulating the economy through state and local governments is probably not a very good one. Plain old permanent federal income tax cuts retain their superiority as a fiscal stabilization device. But even though as stimulation devices the three grant programs leave much to be desired, as policies they may still be valuable, and the paper also suggests how one might do a more complete evaluation of each of the grant programs.

The New York City fiscal crisis as it was played out in the nation's newspapers this year had all the elements of a first class drama. There was first of all the tension-would the city make it through its periodic financial hurdles, would the Ford Administration blink, what would happen if the city defaulted? Then there were the accusations was it the fault of Wagner, Lindsay, Beame, Rockefeller, Ford, the unions, or economic and social forces beyond the city's control? Then the controversy-the issue seemed ideally suited to split deficit spenders from budget balancers, soft-headed liberals from hardheaded accountants, eastern establishment intellectuals from the silent majority. Finally, though it did not capture as much press coverage, the crisis also graphically illustrated several basic issues in the economics of federalism that are now creeping into public finance textbooks-the proper role of local and national governments in stabilizing the economy and redistributing income, whether the federal or the state government has an obligation to protect the financial integrity of local governments, whether public expenditures can be effectively controlled in the short run. This paper discusses the city's fiscal plight in the context of all of these issues. I. How Big are the Deficits?

In recent years, several astute observers of the federal have argued that the separation of executive and legislative branch powers makes the formulation and execution of a coherent set of federal policies -including economic policies-nearly impossible. James Sundquist has suggested that, while the separation of powers has always hampered presidents' efforts to translate their programs into action, recent trends-the disintegration of political parties, haphazard selection of presidential candidates, and congressional self-assertiveness, combined with fragmentation of congressional leadership -have brought us to a ... crisis of competence in government (p. 531). Barry Bosworth, citing many of the same weaknesses, alleges that ... the economic and political system we have created may make the task of leadership virtually impossible (p. 70). Going farther, Lloyd Cutler advocates constitutional reform reducing the separation of powers and allowing a president to form a able to lay out and implement its policy, unimpeded by the Congress (pp. 126-27). This paper sounds a more hopeful note. It argues that, since the passage of the Budget Reform Act of 1974, the Congress has made enormous strides in its ability to consider and act on major questions of budgetary and fiscal strategy. The new procedures have given a president who has a well-articulated economic program a forum for debate and decision that did not exist before. They have also given a Congress that finds the president's program wanting a mechanism for choosing an alternative. But the new procedures have brought their own problems. There simply is not enough time to make the major strategic decisions and to continue the Congress' traditional role of annual appropriations and minute examination of detailed spending and taxing legislation. If the Congress is not to collapse under the stress of decision overload, choices will have to be made in less detail or with less frequencyor both.

I want to use this once-in-a-lifetime opportunity for pontificating to the profession, to explore ways of improving the interaction between what economists do and the political process. Tension and conflict are, of course, inherent in political decisions, especially on economic policy. Nothing can make such decisions easy. Nevertheless, it is my contention that economic policymaking in Washington in the last decade has been more frustrating, muddled, and confusing than necessary. Some of the fault lies with economists and economics; some with politicians and the political process; some in the interactions. I want to offer some suggestions for modest improvements. Most economists probably share my premise that economics ultimately ought to be more than just challenging intellectual gymnastics. It ought to help us understand how the economy works and provide a basis for intelligent political choices among economic policies. Even those who devote their energies to resolving purely theoretical issues imagine that somehow in the end their efforts will prove socially useful. The dedicated, idealistic young economist who aspires to advise a government may well envision herself someday as the wise and impartial adviser to the philosopher queen. In this daydream, the adviser presents the best forecasts that can be made of the future course of the economy. She explains the macroeconomic policy options and what is likely to happen if each is undertaken. She elucidates why market solutions are efficient, when markets are likely to fail, and what can be done when this occurs. She identifies risks and uncertainties, which fortunately are not overwhelming. She represents the best professional judgment of her fellow economists, indicating the major respects in which most economists agree and scrupulously pointing out that in minor respects the views of some of her professional colleagues might differ from her own. She remains above the political fray, identifying any values or distributional biases that may creep into her judgments and eschewing identification with interest groups or ideological causes. The queen for her part listens carefully and intelligently, asks thoughtful questions, and weighs the options. She may consult other experts on noneconomic aspects of the decisions, but these can be assumed not to be very important. She then makes final decisions-even very hard ones-and sticks to them. The decisions are carried out, the economy prospers, and a grateful nation applauds the wisdom of the monarch and her economist and the usefulness of economics. But in the real world, both economics and politics are frustratingly unlike this picture. Both are pluralistic in the extreme and appear to be getting more so. Economists and political leaders not only miscQmmunicate, but each accuses the other of incompetence, obfuscation, self-serving motives, and antisocial behavior. Economists, of course, do not wait for others to attack them; they do it themselves. Walter Heller said in his presidential address that the chorus of self criticism has risen to a new crescendo (1975, p. 1), and the selfdeprecation has not abated in the intervening decade. If a golden age of economists' self-confidence ever occurred, it is long past. Events of recent years have kept reminding us that our national economy is diverse and complex, battered by unpredictable shocks, and increasingly interconnected with the even *The Brookings Institution, 1775 Massachusetts Avenue, N.W., Washington, D.C. 20036. The views set forth here are solely my own and do not necessarily represent the opinions of the trustees, officers, or other staff members of the Brookings Institution. I am grateful for the insights and assistance of many colleagues, especially Robert D. Reischauer, Charles L. Schultze, Mary S. Skinner, and Valerie M. Owens. *Presidential address delivered at the ninety-ninth meeting of the American Economic Association, December 29, 1986, New Orleans, Louisiana.

The results from a randomized experiment conducted at the American Economic Review on the effects of double-blind versus single-blind peer reviewing on acceptance rates and referee rating indicate that acceptance rates are lower and referees are more critical when the reviewer is unaware of the author's identity. These patterns are not significantly different between female and male authors. Authors at top-ranked universities and at colleges and low-ranked universities are largely unaffected by the different reviewing practices, but the authors at near-top-ranked universities and at nonacademic institutions have lower acceptance rates under double-blind reviewing.