ABSTRACT
We need to know why policy issues have become dormant. Is it because we have convinced ourselves that policy intervention is unnecessary or inoperative? Or is it, to the contrary, that these policies are effective and we have persuaded everyone that all the essential ingredients of such policy advice are well known and understood? The answer is that both reasons are partially to blame for the absence of academic interest in stabilization policy. Macroeconomists of the noninterventionist school are certain that the macroeconomy adjusts speedily and smoothly to shocks and does not require policy changes, while Keynesians are more concerned about finding microeconomic justification for continuing disequilibrium in the labor market than in policies designed to alleviate the problem. The purpose of this study is to change the focus of the debate from its past emphasis on the need-or lack thereof —for policy intervention to a new concern about effective policy implementation. With the evidence that unemployment remains well above the natural rate for many years, the interventionists have probably won the argument that there is room for activist macropolicy, but they have not yet addressed the next question: Can such policies be made to work to improve national wellbeing? There are two reasons in addition to-or in place of-the traditional ones put forward by noninterventionists for reducing or eliminating countercyclical fiscal and monetary policies: (1) the welfare benefits of such policies are far from universal; and (2) the macropolicy apparatus is badly designed to achieve whatever goals are established by those in charge of policy decisions. Chapters 3 and 4 are devoted to the first of these topics, while Chapters 5 and 6 deal with the second topic. As preparatory material, Chapter 1 presents a review of the recent literature on the Pareto optimality of such traditional goals as “full employment” and “price stability” and Chapter 2 gives a historical perspective to U.S. macropolicy since the end of World War II in the light of these goals.
