The connection between price inflation and real economic activity has been a focus of macroeconomic research—and debate—for much of the past century. Although this connection is crucial to our understanding of what monetary policy can and cannot accomplish, opinions about its basic properties have swung widely over the years.
Today, virtually everyone studying monetary policy acknowledges that, contrary to what many modern macroeconomic models suggest, central bank actions often affect both inflation and measures of real economic activity, such as output, unemployment, and incomes. But the nature and magnitude of these effects are not yet understood.
In this volume, Robert M. Solow and John B. Taylor present their views on the dilemmas facing U.S. monetary policymakers. The discussants are Benjamin M. Friedman, James K. Galbraith, N. Gregory Mankiw, and William Poole. The aim of this lively exchange of views is to make both an intellectual contribution to macroeconmics and a practical contribution to the solution of a public policy question of central importance.
In the early 1980s, rational expectations and new classical economics dominated macroeconomic theory. This essay evolved from the authors' profound disagreement with that trend. It demonstrates not only how the new classical view got macroeconomics wrong, but also how to go about doing macroeconomics the right way.
Hahn and Solow argue that what was originally offered as a normative model based on perfect foresight and universal perfect competition has been almost casually transformed into a model for interpreting real macroeconomic behavior. After explaining microeconomic foundations, the authors introduce a better macro model, one that can say useful things about the fluctuation of employment, the correlation between wages and employment, and the role for corrective monetary policy.
What went wrong and how can America become second to none in industrial productivity? This long awaited study by a team of top notch MIT scientists and economists - the MIT Commission on Industrial Productivity - takes a hard look at the recurring weaknesses of American industry that are threatening the country's standard of living and its position in the world economy. Made in America identifies what is best and worth replicating in American industrial practice and sets out five national priorities for regaining the productive edge.Unlike other studies that prescribe macroeconomic cures, Made in America focuses on the reorganization and effective integration of human resources and new technologies within the firm as a principal driving force for long term growth in productivity.Made in America examines the relationship between human resources and technological change in detail and singles out the most significant productivity weaknesses from the myriad causes that are typically cited. These include shortÂtime horizons and a preoccupation with the bottom line, outdated strategies that focus excessively on the domestic market, lack of cooperation within and among U.S. firms, neglect of human resources, technological failures in translating discoveries to products, and a mismatch between governmental actions and the needs of industry.Looking ahead Made in America asserts that industrial performance would improve substantially simply by building on what is best in U.S. industry. It describes representative systems of production that can serve as models of best industrial practice for niche producers, price competitive specialized producers, and flexible mass producers.Among the goals singled out as national priorities are the creation of a new economic citizenship that involves wellÂeducated workers as active partners in the reproduction process, a new strategic focus on production, finding a better balance between cooperation and individualism, learning to live in an increasingly international economy, and making proper provision for the future both in terms of capital and human resources.The findings and goals of Made in America are based on such measures of productivity performance as product quality, innovativeness, time to market, and service in eight manufacturing sectors - semiconductors, computers, and office equipment; automobiles; steel; consumer electronics, chemicals and pharmaceuticals; textiles; machine tools; and commercial aircraft. These measures revealed a large gap between the best and average U.S. practice.Michael L. Dertouzos. is Professor of Electrical Engineering and Computer Science and Director of MIT's Laboratory of Computer Science. Robert M. Solow is Institute Professor of Economics, and Richard K. Lester is Associate Professor of Nuclear Engineering,