vickrey A trans-Keynesian manifesto

plus a pcrcentage of nct、〃orth cqual to thc rate of inflation. Thisbroadcns the base,Illaking it possiblc to have lower rnarginal rates forthe samc rcvenuc,with a smaHcr impaillllcnt ofincentivcs.It also tcndsto make thc tax more progressivc.(Dne can considcr thc net 、vorthclcment in such an incomc tax as a desirable substitute for the inheri―tance,cstatc,and gifttaxes,atleastin excess ofsome nolnina1lo、v ratc.These succcssion taxcs arc inherently so capricious in their illlpact thatthcy have given rise to an cntirc industly of“estatc planncrs,"and sovuinerable to avoidance as taxcs levicd on infrcqucnt occasions that canbc avoidcd by a temporav shifting of、vealth to forms outsidc thcjurisdiction.Third,steady inflation gives more scope for the lowc五ng of real ratcsof interest,stirnulating gro、vth and rcducing income inequality in thelong run. There may be some adverse irnpacts in the short run onlo、v―incomc individuals,butthis is likely to be rnuch smaHcr than、vhatis perceived by those、vho focus on the increase in consumer priccs、vithout a1lo、ving for gro■7th ofnorllinalincomc.Thosc with rnortgagesor who owe other debts,in particular,、vill tend to gain rather than tolosc.Foulth,inflation incrcascs thc scigniorage proflts from the outstandingissue of currency,a burden i11ling mainly on thosc engagcd in blackmarket and illicit activitiesThe rnain advantage ofa zero rate ofinflation as a nollllis its salicnce,in that it is casier to obtain agreement among agents involved that thisis in factthe nollllto be pursucd,than to obtain agrcementthat the ratcshould be l pcrcent ratherthcn 2 percent This saliencc may also makciteasierto obtain agreementon the stepsto be taken to corrcct deviationsfronl the noI111.On the other hand,if the real intercst rate is low――say,2 perccnt――azcro inflation nollll、VOuld scvcrcly lilnit thc ability of a monetaryauthority to provide a stimulus in thc event of a downturn.ヽ″igorousaction against a threatencd overheating lllight also be inhibitcd by a fcarthatit will bc impossiblcto stern a downturn ifthe braking action shOuldovcrshootthc rnark Thus,、vith a 4 5 perccntinflation nornl,thcre inaybe a better chancc of keeping inflation bct、veen,say,4 percent and 5pcrccnt than of kccping it bct、vccn l pcrccnt and 2 pcrccnt.Oncc thcsaliencc of the zerO innation nornl is brcached, a moderatcly highinnation ratc may providc a lo、vcr degrcc of uncertain句/abOut futurepriccs than a low inflation rate.F″〃Z″ηノ9ッ“ι′′α′グ′″た′S′αb′ノノヶ ノθ5/ 乃?/ヽS_κε γrN/ES/4/VA/41VノFgsrO  Jθ7Proposition 14:Unemploymentis not needed to controlinflationEvcn if inflation should thrcatcn to gct out Of hand as a rcsult of avi3orous full―cmploymcnt policy,thcrc arc、vays of kceping it undercontrolthat do notinvolvetolerating uncmployment.One ofthcse wOuldbe a systcm of tradcablc rights or warrants to valuc addcd,wherebyanyonc who ends an accounting periOd、vithout holding warrants suffl_cicntto cover his valuc addcdwould bc suttccttO a suitablcpcnaltytax.Vヽ/arrants would bc issucd to輌111ls for successivc pcriods on the basisofprevious valuc addcd with attustmCnt for changes in inputs Ofprimefactors such as invested capital and labor.Abba Lcmer,shortly before his dcath,had been suggesting thc use Ofa market in rights to raise prices as an inflation control. This wasanalogous to proposals thcn circulating for rnarkets in rights to crnit airponution,the raising ofa price being considercd to havc an extcmalityintellllsofitSContributiontoinflationanalogoustothatofairpoHution.In telllls of praCticality,this was a nonstarter,given thc difflculty ofchecking on a vast varieぃ/of corlmodity and scrvicc prices.When theaddcd difflculty of providing for thc pass―through of increases in theprices ofsupplies and components、vas considered,thc analogy to grossreceipts taxes ied naturaHy to recasting the proposal in terms of valucadded,which rnakeS the proposal practical.A/1any countries have exten―sive expcriencc、vith value―addcd taxcs,and social sccurity and incometax records provide thc information for thc basic aHocation of thewarrant issue.Unlike valuc―addcd taxcs,failure to include infollllal sectors is not ascrious problcm.Purchascs by formal―sector f1111lS frOrll infollllal SeC―tors can be treatcd as pscudo―priinc inputs Prices of infollllal―sectoroutputs、villstilltendtokecppacc、vith those ofthe bllllal sectors.Fil lllse可Oying strong markets fortheir products will bc able to rcalizc highcrvaluc―addcd proits only by purchasing、varrants from■111ls having aless fortunate experience,efたcting a kind ofproflt sharing among f1111lsand reducing risk to investors.Ultimatcly,some follll ofthird mttor maCrOcconomic control instru―ment is nccessary,in addition to monctary action through interest ratesand flscal action through income generation, if full control is to becxercised ovcrthrcc mttor maCrOcconomic vaHabたsi the rate ofinia―tion,the levcl ofcmploymcnt,and thc division ofthe product bet、vccnculrcntconsumptionandprovisiOnforthcfuture.、vhile with a sufflcicnt

dihcdral,onc can ny a planc in good wcathcrand rnakc gcntlctums、″ithruddcr and clcvator,it was the VVright brothcrs'invention ofwing、varp,later realized as ailerons,that aHows ianding in a cross―windヽVithoutdisastcr.Ifvaluc―addcd warrants won't do thetrick,itis up to econonliststo devise something that、vill.Proposition 15:Treasuries sholld refrain from monopolisticexploitation oftheir donlinant position in the short―term marketsTo enhance cfflcient aHocation ofcapitalinvestincnt,treasuries shouldborro、v in short markets rathcr than long up to the point of Fnakingcompoundcd expected sholt―ternl rates equal to long―tellll ratcs.Thcrisks reflected in fnancial liquidity prcたrence invol,ing unexpectedchanges in interest ratcs(as diSunct from Hsks ofthe borrower's failureto make timely payments)arc cSSentially zero―sum risks in which thegains fronl unanticipatcd interest‐ratc changes to those on one sidc ofthe Fnarket are balanccd by lossesto those on the other sidc.There is nopresumptionthatthesocialretumsintellllsofprOduct市ity to short―tcllllinvestlnent,such as in invcntory that can be flnanced on the basis ofshort―tellll interest rates,areanygreaterthanfrolninvestmentstypicallyflnanced by long―tellllobligations.BHngingthe long and shortratesintoline would tend to shifl invcstment from short―tellll to long‐tellll typcsofinvestrnent until the rnarginal productivities arc equalized.In effect,thc lnarket dcmand for liquidity is one that can be satiatcd at little or nocost by the Treasury,so thatliquidity should bc supplied free ofcharge,or nearly so.In cffcct,trcasuries wOuld enhance econonlic cfflciency bybchaving as cOmpetitive pricc―takers ratherthan as partialrnonopsonist.Proposition 16:Large government debtcan have astabilizing effectln the cvcnt of a downturn,、vhen inarket values Of private assets fan,thc market value of Outstanding govemment Obligations v√ill tend tOrcmain constant in moncy terms,or cven,in the casc of longer_termobligations, tO increasc if intercst ratcs fall. The result is that thepropOrtionate faH in the total nct market valuc ofassets、vill be lcss thanit wOuld have bccn in thc absence of govemment dcbt,Initigating thcdownturn,Sirnilarly,the prescncc ofalargc long‐telll1 80VCrrmcnt debtwill cnhancc the effectivcness Ofa reduction in intercst rates induced bymonctav policy.The cxistencc oflargc govemment dcbts may bc oncF7z〃E″ψノ9ッ“′れ′αηグP′ノε`S″αb′′′″ ノθ7/ ηlヽS―κεγ/VεS/4 1Nrル“/VノFLSrθ  ∫ィリ9reason、vc have not had a recurrcnce of a dcpression ofthc scverity ofthc 1930sThcre would cvcn bc somcthing to bc said ibr giving somc prioriw tolonger―tellll scCurities,such as by going to zcro―coupon bonds instcadof annual intcrcst bonds,for thc sakc of the higher stabilizing cffcct,though ifbondholdcrs failto``mark to rnarkct"either in actual accountsor in ovcraH appraisals,some ofthe stabilizing cffect rnay bc lost.OnccOuld cvcn arguc forlengthening the rnaturity ofthe zcro―coupon bondsbcyond the point ofmatching rnaturiticsto the prefcrences ofthc rnarketfor speciflc maturitics,for thc sakc ofan additional stabilizing effcct.On the othcr hand,a large public debt cxacerbatcsthe cffect ofinflationin producing unemploymentin thatinflation not only absorbs purchas―ing power that would other、visc inducc addcd output,but rcduccs thereal valuc ofoutstanding debt and thus induccs reductions in spendingto recoup some ofthcloss ofnet worthヽVithprivate debt,、vhich appearson both sides of private balance shcets,this effcct occurs to a rllinorcxtent,if at aH.Proposition 17:A larger government debt can increase the realheritage left to future generationsThe conventional、visdon■that national debts are a burdcn on futuregencrations is a fatal fallacy that is allnost the cxact oppositc of realiけundcr conditions of undcrutilization of resourccs A largcr supply ofgovcrnment bonds induces a higher levcl of spendings,and hcnce ofsales and of production lncreascd salcs induces increased inve,tinentto provide the capacity to mect thc increased demand.This means anincreased hcritagc ofrcal capital plant and cquipment,to say nothing ofthecnhanccmentofhumancapitalinduccdbyfulleremployment.undercurrent U.S,conditions,cach billion doHars ofincrcascd public dcbt canbc expected to result,over a rncdium long run,in an increasc of aboutt、〃o billion doHars in private invcstinent.The main disadvantage prescntcd by a largc govcrnment debt is theneed to obtain revenues to flnancc the dcbt seⅣice.But,as long as theeconomy is gro、ving steadily,implying a need forthe amount of gov―crnmcnt dcbtto groM/at a comparablc ratc,so that rnuch ofthe interest、vill be covcrcd by the nccdcd increase in thc debt,、vhile the rernaindcrwould be covered by increascd rcvcnucs from a higher GDP andreductiorlsin unemployment and、vclfare bencflt paymcnts.Even in theevent ofa cessation ofeconornic gro、vth,as frorn a declinc in bilth rates,

∂ F“〃巳mpノけれ´″`αれグP″た′Srαb″ノク5ノθ プOυR,ヽアι OF′OSr κfγⅣεsIA〃ECO″07t//CSexhaustion of natural rcsources,and failure of tcchnology to advanccproductivity,the problcm is IIlerely thc rcflection in flnancial terms ofthe indamcntal problem of providing for the incrcasing wants ofrctiring cohorts out ofthc product ofthe working cohorts.Thc corc substance ofaH ofthis is thatit is ncccssary to stop thinkingof inflation and goverlllnent dcflcits as thc prilnc cvils lnstcad,it isncccssary to rccognizc that govemment dcflcits arc a rough rncasure ofthe net contribution of govemmcnts'disposable income,that govem―mcnt bonds provide a nccdcd placcmcntforlargcrindividual savings toprovidc for rctirement,and that it is not the level of inflation but itsuncertainty that hampers productivity.Thus,larger deflcits,a largcrsvpply of goverrlment bonds,and possibly some increase in inflationratcs are necessary and prOpcr rneans to nlitigate unёmployment as thcf7ar grcater evil in telllls ofhuman、velfare.ヽVhile itrnay have bcen goodadvice to John Alden to bc thri■y and balancc his budget or evcnaccumulatc a surplus,itis foolish to apply this by analogy to a nationalgovcrnmcnt planning forthe twenty―flrst century.

ーー


A trans-lKeynesian lnanifesto(thOughts about an asset―basedmacroeconomics)Thc tern■ ``Post Keyncsian" rnight appear to some to iinply thatKcyncs is being icft bchind(as in`ンοSttar''),sO I am taking thelibcrty of introducing an alternativc terln that l hopc has rnorc of aconnotation ofbuilding on or going bcyond Keynes(as in“trans―Al―pinc'').Rccentchangcsin demographics and tcchnology havc crcatcda fundamcntaHy ncw cnvironmcnt in which a rccvaluation of theKcyncsian approach in tcrins ofthc aggregate demand for and supplyof assets has bccome appropriate for the purpose of cxtcnding thcanalysis to a longer―run pcrspcctivc,though not to that stin longcrrun in、vhich wc are all dead.To clcarthc、vay for progress,ho、vevcr,it is ncccssav tO Start by adlllitting that there are conditions in、″hichKcyncsian dcmand creation by incrcasing govcrnincnt dcbt、vouldnot be effcctive一一so that onc can be sure to create conditionsin、vhichit、vill bc.Proposition l:GeorgisIIl validates Ricardian equivalencein a(3eorgist colllinunity,、vhcrc the only means of financing thcdebt scrvicc is by a tax on land value,a public dcbt bccomcs ineffcct a collectivc mortgagc on the land.A dccrcasc in taxes andan incrcase in dcbt leaves cach taxpaycr、vith rnore cash or bondsbut、vith propcrty dirninished in net markct value by a likc amount,so that his nct 、vorth iS unchanged Ricardian cquivalcnce iscomplcte, and thc stilnulativc cffcct is lirllited to a relativclylllinor liquidity effccti therc lnay also bc a saving ofinterest if thepublic dcbt bcars a lo、vcr interest rate than privatc obligations.And if public dcbtis incurred to financc outlays on infrastructurcor othcr fcatures that cnhance land rentals,thcrc will bc a substan―tial stilnulative effcctノο″′″α/″ρο`′κ“y″“、た′″どて0″`′′,′たS/Sunnnlcr 1997.Vo1 19,No 4  4951C~ 1997 M E SharPc,Inc0160-3477 / 1997 S950+000




Proposition 2:Debt served by property taxes inhibitsinvestl■entヽヽ/hcre thc main tax base consists in large part Of reproducible Ordcpletable capital)as with local propcrty taxcs,dcflcit rlnancc、〃ill havea scvcrc inhibiting effcct on capital fbrmation or prcscⅣation.Thescactivities、vould thcn attract an added share in thc burden of sen/icingthc dcbt.At lo、v debt levcls,thc hope may persist that other investorswill come along to take up some ofthis burden,but at somc point thisbubble ofhopc lnay vanish rather suddcnly,M/ith catastrophic results.This cffcct rnay bc rnitigatcd to some extent ifthe debt is incurred toflnance infrastructure that enhances property values ln most cases,ho、vcver,cvcn ifinvestmcntin improvements continues unabatcd,ifthcdebtis flnanced by taxcs onimprovemcnts,the invcstlncnt v/in fan shortof what would take full econornic advantagc ofthc increased produc―tivity gencrated by the public investinent.Proposition 3:National derlcits still stilnulateAtthe l」.S.fcdcral level,、vith heavy reliance on taxes based on eamings(Or On COnsumption),deflCit flnancing shifts tax burdcns from presentearning effort and consumption tO burdcns on future earnings andconsumption, without capitalization in reduced assct values. Thus,current consumption and income production arc encouraged,especiaHysincc,for rnany,the future burden,ifany,、vill be beyond their horizon.Thc rcsult is a strong stimulativc effcct.Proposition 4:Fallacious beliefs can betemporarily self―iustitting・Neverthelcss,ifa sufflciently strongly held beliefprcvails in Ricardianequivalencc or its close relative thc`tcro、vding out"theory,thiS Inay fora tilnc hold back investrncnt sufflciently to out、veigh thc stilnulus toconsumption,and thus bccomc,for a tirne,a seliful「lHing prophccy.Agents are people,not robots imbucd、vith an``irrational passion fordispassiOnatc rationality''in thc single―Ininded pursuit of net proflts.And cvcn forthosc
notscizcd、〃ith the``cro、vding―out"faHacy,it、vouldbe irational not to takc account of the irrational rcactions of othersEventuaHy,however,this must succulnb to the rcalities of
incrcaseddisposable incomc and market dellland






Having postcd thesc cavcats,WC Can nOW turn to the corC OfKcyncsiananalysis as it applies to the cOntemporary SituatiOn.PropositiOn 5:Fun employment requlreslarge government deflcitSFor the industrialized wOrld as a whole,and fOr mOSt Ofits constituentcountries indiVidually,it has becom凝撚i棚medical costS Of Care for the elderlぅthat call for increasingly individuali縄脚器雷脚讐離鑑朧器:戦f柵節黒駐I篤:留誡:職胤btth岬けilttsed:翼盤rclaive to GDP.On the Other hand,the ability Ofthat have a realizable market vall躍1:[謝:為ilIIttllFl:∬∬f[1層鰐ll°ll軍:鍔FtttI乳‖譜壌面。ご∽メd o Ou"■.Lp遍潔笠ぎT翼織T繁留職燎肝Ittll計篇Ⅷlratio of net investlnent in terms of lnarket value of capital tO grOSS薔∬≫藤i軍善選薯i轟1:凝鵬塾1漱.LtttFl&:[1借』litξThe result has been a large anldcmand fOr and thC private suppl嶽棚澤鰍鰍篤Ⅷ蠍


desire to hold,the curtailing ofcxpenditures by individualsin an attemptto bring thcir nct、vorth up to a desired levcl wiH rcduce sales,produc_tion,cmploymcnt,and GDP untilthe corresponding dcmand for assctshas becn rcduccd to thc available supply.Econolnists have for far to0long operated in sublime disregard fbrthc lnacroeconolnic implicationsof thcsc fundamcntal changcs in the tcchnological and demographiccnvironmentin which cconolnics opcrate.Proposition 6:n/1onetary policy cannot close the gapThe gap bet、Ⅳecn the private demand and the private supply of assctshas bccomc fartoo largc to be closed by any interest―rate or crcdit―sup―ply adaptation.Onthe one hand,the demand for asset acculnulation andthe corresponding supply ofsavings havc become relativcly inscnsitivcto interest ratcs and may even have developed an inverse rclationshipas lowcrcd intcrcst ratcs increasc the amount of assets required toprovidc a given level ofold―age security.On thc other hand,high risk,rapid obsolescence,Inaintcnancc,andother user costs have dirninishcd the long―run rcsponsivencss tointcrest rates ofinvcstlnent in productive assets.The implicit assump―tion ofthe neoclassical paradigm thatthe potential for profit―scekingcapital investlnent would expand without lirnit as real intercst ratesfcll,so that there、〃ould al、vays be an interest rate thatヽ″oul(l closethe gap, fails in the face of the reality of uncertainty
concerningconditions that wiH obtain in the remote future As interest rates faH,indced,Inore and morc remotc future conditions,predictable withgreater and grcater uncertainty, become increasingly irnportant incurrent investinent decisions.Even iand,thc quintessencc ofdurabil―ity,is sutteCt tO thc宙cissitudcs of crosion and climatic change,tosay nothing of shorter―run unccrtainties such as changes in tax rates,zoning,externalities frorll neighboring uses,and regulatory takings.Onc cannot afford a palatial cstate merely becausc a 100 percentmortgage at zcro intcrest is availableTherc is also a tendcncy ofeconometric studics,usuaHy bascd on tirncscries,to ovcrcstirnatc the long―run cffect of reduced intcrest rates inincreasing privatc invcstinent and asset supply./ヽrcduction in interestrates may stirnulate a spurt in housing construction,for cxample,butoncc the stOck has becn built up to the
ne、vicvel ofdcmand,constructionis likely to ttlll back near its old level.



PrOpOSitiOn 7:AlternatiVe lneanS Of C10Sing thiS gapare inadequateFor a、〃hilC atCrヽVOrld Warll,inlnoStindustrializedCOuntries,the gap驚驚軍肝議∬串T亀淵is 、vas stili mOdCSt, and in large鱗樵I善轟II二tr:為Psi∬里∫∵t鷲′a beggar―lny―ncighbor poliCy notlrough rnasSiVC eXport surpluscS tO剖難欄il覆檬arcヽⅣilling tO bCar.At bCSt,private investorS CVentually will expcCt tOiT糧討電ぷ:鳳:慧鶏冒:Эlem in the lending COuntnesand Othёr assct prices iS a tcmpOraburstヽVith catastrophic COnSequcnC(鷺留1liざ』詭:l亀懲Ⅲ=,(器闊認|よ]鶏:よlTTill:扁風∬器轟1[l鼈撃権電‖よLttl」LI驚::i:lililllittittlilili1lii:IIII[:|I器1朧厳T胤11淵:『習IF湖鍛宙鴫「“reよ鼠甘11器譜組∫悧l』■露∬l器思∬富揉l∫L


various forms such as pcnsiOn plans, rcduccd taxation of capitalgains,and shifting to consumption taxes.For inost individuals,anattcmptto savc more means actual reduction in consumption spend―ing This incrcascs thc bank account of the saver but decrcascs thebank account of vcndors by a likc amount.There is no creation of“loanable funds," and nothing happens that either encourages orfacilitates the creation of ncv/capital to correspond to the attemptedsavings.If anything,funds in the hands of vendors,such as typicallycntrcprencurs ofonc kind ofanother,would bc rnore likely to providcthe basis for active capitalinvestinentthan the new funds in the handsofthc saver.The inCreased saving ofthe individualsaveris offset by the decreasedincome and saving of vendors.In thc case of serviceS,such as barbershops,the effcct is iIIImediate:where tangible goods are involved heremay be a temporary investrnentin increased inventory,butthis is soonconvertcd to reduced incomes of producers as orders are cut back tobring inventory back to nollllal lcvcls.In cither case,reduced incomecventually results in reduccd consumption purchases,C)DP,and aggre―gatc saving.Incentives may indeed resultin some individuals increas―ing their saving,but only at the expense of rcducing the savings ofothers by cvcn more.Proposition 9:Full eコnploymentin open
econonlies requires■oating exchange ratesFor smaH open econollnies,combining free trade with flxed or narrowlyconstrained exchange rates would lnake it impossible for any one ofthemto pursuc a fuH―employmentpolicy independently.Werc Dcnmarkor Spain to attempt fuH―employment policy through deflcit flnance inthe context ofa lEuropean union,much ofthe stimulus provided wouldicak away through the use of the resulting purchasing powcr to buyforeign goodsratherthandomestic,implying the acquisitionofdomesticcapital assets by foreigncrs,a correspOnding reduction in thc supply ofassets available to residents,pressure onthe cxchange rate,and eventualcoHapse ofthe program.The answcr is to retain freely floating exchange rates so that,whendomestic purchasing poweris increased,the dcmand ibr foreign goodswill drivc the pHcc offoreign cxchange and foreign goods up,discour―aging imports and encouraging exports in such a way as to keep theeconomic stirnulus at homc.Other countries cannot legitimately com―F″′E″ρノ9ッ″ι″′αれグP′ブε′S′αわJ/7″ガ アRズ/V'メ(ε γⅣεS//Ⅳ MA´√ノ/「ESrο  5θノplain that this is an
unfair trade practicei Thcy、Ⅳould bc frce to adopt asirnilar fuH_employment policy ofthcir o、vn.To be sure,for countrieslarge enough oridiosyncratic enough in termsof rcsourccs or tastes to be a signiflcant factor in the internationalmarkets,this、vould entail somc deterioration in their te111ls Of tradcTherc is also some danger of generating speculative gyrations in theforeign―exchange rnarkets atthe tilne ofinauguration ofthe nc、v policyBut as long as the monetav authoritics eschc、v the tcmptation tointerfere in``stabilizing''the rnarkct,and thus givc additional opporlu―nities for spcculation on the basis ofrumors ofsuch inteⅣcntions,thesecosts would be oflittle FnOmentcompared、vith the rnanifbld advantagcsofreal fun emp10ymcnt.Morc serious is thc possibility that fun emp10ymcnt、vould attract avolume ofilnlnigration that、vould be difflcultto handle.In rnany cascsit can bc hoped that fanlily and social ties, linguistic and culturaldiffercnces,and costs of rnaking thc transition、vould kccp rnigrationat acceptable levels,but if not,some restraints on iIImigration mayhave to be irnposcd.The Maastricht strictures, if foHo、vcd, would condemn mcmbercountrics to continued high icvcls of uncmployment. Even if theconstraint on deflcits were abandoncd and a monctary union as awhole were to attcmpta fuH―employmcnt policy through an increasedsupply of government securitics, in thc absence of a largc centralflscal authority,it is difflcult to imaginc ho、v the problem ofa1locat―ing the necessary aggregate deflcit among the various countries couldbe handled.The proper sequence is flrstto securc an acceptably lowlevel of unemploymcnt and only then to proceed to monetav union.Othcrv/ise, one is imposing severe hardship on those affcctcd byunemployment for the sake of a relatively IIlinor beneflt to interna―tional travclers and tradersThe statcs and localitics in a federal systcln arc,ofcourse,the cxtrcmecxample ofsmaH opcn ccOnomies.Ⅳlacroeconolnic policy rnust accord―ingly bc carried out almost entirely at the national level.In the UnitedStatcs,the inacroecononlic impotencc oflocal govemments is intensi―fled by thcir general reliance on propcrty taxes as a chief source ofrevenuc.The rnain measurc thcy could take to enhance local prospcrity、vould bc to shin fron.a propcゥtax tO a land or sitc―valuc tax,butthatis somewhat outsidc the Kcyncsian rubric.But,in any case,it is stiHnecessary tC include state and local dcbt in balancing thc demand forand supply of assets.



θ2 ノOυR～アιO′・POSアκE1/VES″″/_rCO″Oν/CSProposition 10:“Privatization''or other I■oves toward fu‖actuarial funding ofold¨age pension provisions of social securitysystems can be disastrousHow socialsccurity systems arc fundcd strongly affects macroeconorlliccquilibrium.“Social sccurity、vcalth,''the cxccsS,fOr curcnt partici―pants,ofthc present valuc of cxpccted futurc bcnents ovcr thc prescntvalue of expected future taxes,is an important part of thc assets thatindividuals rely on to providc for their rctirement_ ヽVhile thc actualamount of this、vealth as pcrceived by the individuals concerncd(asdistinct from that rcsulting from actuarial estimatcs)is highly cotteC―ttlral,it is a very largc quantity.In the Unitcd States,itis ofthe samcgencral order ofrnagnitude asthc forrnal fundcd debt ltis vastly greaterthan the relatively small social security tl‐ust fund,an essentially arbi―trarv and econolllicaHy rathcr rncaninglcss flgure.In a colllplete accounting,this social sccuHty wealth、〃ould appear onone sidc of the national balancc sheet as part of individual wealth;onthc other sidc,a like amount would appear aS unfunded liability.Ac―cordingly,barring maOr changcs in social sccuriりprOgrams,it is notfar frorn thc mark,in going frOm historical data to a scenario for thcfuturc,simply to omitthis sOcial secuHty wealth from both sides oftheassct balancc. However,given thc political clout that balancing thcOff19ial budgct has acquircd as a goal ofpolicy,considcration lnay wcllbe given to changesin socialsccurity programs,cspeciaHy forpcnsiOns,that cOuld signiflcantly lcduce unemployment.Asasomc、vhat fancifulcxtremc,one、vayto rnove substantiaHytowardfun cmp10yment、〃ithout cOntinucd formal deflcits Or enlargcment Ofthe cxplicit govemmcnt dcbt wOuld bc tO abolish the socialsecuriけtnistfund,now often counted as part of the follllal goveminent debt,andcnlarge thc arllount of social security、vealth,as a sOrt of clandcstincdebt.One possibility、vould be to enact generous pcnsionstO be paid onthc basis Of age to aH residents,possibly graduated according to theirhisto7 0f pcrsonal income taxes,to bc paid for out Of futurc gcncralfund revenucs.To bc sure,Inany nlight nOt cOnsidcr this prolnisc of futurc bcncflts,payablc out of futurc gencral tax rcvenucs,as strongly binding as theprcscnt social sccurity arrangcmcnts,``paid ibr''、vith``dcdicatcd''pay―roH taxes. Indeed, even thcse are being considered for down、vardrcvision, for cxamplc,by raising thc age at、vhich payments begin,rcducing the amounts excmpted fl・om incometax,Or changing the rulcs乃〃Bmp′9ッ72oθ″′α″グP′たι,αbノノノク ノθノ/ 乃?/7VS―κFyⅣES″Ⅳ1//f′VノFESr0  5θJfor in cffcct icvying in a
special surtax on callllings during retircment.But if sufflcicnt confldcncc could bc engcndcrcd thatthcse payments、vould in thc event be rnadc,and at a suficicntly generous lcvel,Otherassct accumulation for rctircmcnt rllight be rcduccd to thc point whercit could bc met by privatc capital formation, and nュll cmp10ymcnt  'achieved with an``offlcia‖y balanccd''budgct Thc factthat part OfOnc'sincome taxes arc going to``buy''retircmcnt benerlts on an individualbasis could scAIC aS a sourcc of confldence in thc payments beingultirnately madc and aHow thc incomc tax to havc lcss of a distOrtinginfluence on current activity.Ncvertheless,the succcss of such a prO_granl would still depend on thc acccptance of thc exclusion Of theincrcased in social security、vealth fron■thc offlcial deflcit and,in thcflnancial community,not being panickcd by cxaggerated pr●ectiOns Ofhigh tax ratcs.Managing a smooth transition、〃ould also require carefulattentlon.Proposition ll:Downsizing governmentis a separate issueUnemploymcnt―reducing flscal policy does not requirc an increasc inthe overaH size ofgoverlnlent operations.To be sure,anarchy―libertar―ians have combined the rnystiquc ofthe balanced budget、〃ith appcalsto a popular aversion to taxcs to promote an indiscrilninate do、vnsizingofgovernmcnt.But fullemploymentcan bc rcachcd cithcr by high taxcsand cvcn largcr government,or by lo、v govcrnment and even smaHertaxes.At the extreme,one could have the full―employment economyassured by a government、vhosc main activity would be collectingincome taxes anddistributing the procecds in old―agc pcnsions,ata levclthat would pe111lit individuals to flH their remaining nccds for,ssetsfrom thc privatc―sector supply「Fhis、vould obviate thc nced for a follllalindcd debt: Its functiona1 9quivalcnt would bc the social secuHty、vealth ilnplicitin thc undcrtaking to pay futurc pensions.This lnight givc the appcarancc of a giant Ponzi schemc, though、vithout a Ponzi to dissipatc or abscond、vith thc funds and preservedfronl coHapsc by the assurance of a continuous intake of nc、v contrib¨uting participants.Thc
participants、vould, on average,be getting arctum on thcir income tax contributions roughly cqual to the rate ofgrowth ofthc cconomy.In intcrgcnerational tclllls,One Can think ofthisas a rcpayment to the rctired cOhOrts/by working cohorts 3 ofthcccntributions previously lnadc by the cohorts/,、vhen they、〃cre cam―ing,to thc rearing and educatiOn of cOhOrts B.As compared with the



∫θイ プOυRソV/ιOだP“アκE`NES″Ⅳ εεO/N7θltr/(｀sprcscnt situation,thcrc、vould also be a distribution to the various cohortsofthc addcd product from full cmployment_In rnany、vays,Ininilnizing uncmployment、vould facilitatc do、vnsizingofgovcrnmcnt lt、vould reduce the volumc ofuncrllployment compen―sation and wclfare payments,climinatc orrcduce thc nccd forrninimumwage and othcr labor regulations,abatc opposition to the closing ofsupcrfluous rnilitary cstablishments,and lllight evcn signiflcantly re―ducc the cost ofthe penal systcm.Proposition 1 2:The NAIRU is not an exogenously given datumThc widcly held notion thattherc is a rninilnal“non―acceicrating―infla―tion rate of uncmployment,"or NAIRl」,currently put by thc(3ongrcs―sional Budget Offlcc at 6.O pcrccnt,belo、v、vhich uncmploymentcannotbe pushed without dangcr ofigniting an unacccptabic accclcration ofinflation,lacks historical or analytical basis(The altcrnative foHllula―tion,NAIRU,would syntactially imply a“natural''ratc of unemploy―ment emerging frorn a condition ofinflation at a stcady rate,but thiS iSnot thc way the notion is more frequcntly being used.)In the UnitcdStates,the unemployment rate in 1926 is estirnated to have been aboutl.8 percent,v/ith no noticcable iniation,and no cxplanation is offeredas to、vhy this cannot bc achicved today Ncarly aH countries havce可Oyed ratcs of unemployment of under 2 pcrccnt at onc lme oranothcr,、vithout scrious inflation;in Gellllany in thc 1960s,unemploy―ment was reportedly aslow as 0 6 percentThe acceptance ofsuch anNAIRU as a norrll,with the irnplication thatifuncmploymcntfaHs belo、v thislcvel action inust bc takcn to slow thcgro、vth ofGDP lestthe econom)′becomc``overheated,''tums efforts tohclp wclねre clients and others indsjobs into a crucl game ofmusたalchairs,with work―force advocates threatening to conflscate the crutchesofthe less agile、vhile NAIRU acolytes religiously kccp the supply ofchairs inadequate and assurc an unabated streanl ofclients.Thcre rllight be somc thcorctical argumcnt for the cxistcncc of an“NAIRRU,"or rα′θグrθルCrJθ′OfunemメOyment,such that an attcmptto reduce uncmp10yment rnore rapidly than this,through thc pumpingofpurchasing powerinto the cconomy,would outrun the ability ofthcproduction systclll to expand production to match There scems to bcnothing to prevent bringing unemployment do、vn graduany to bclow 2percent,、vith not only a substantialincrcasc in CII)P grou/th but signif_icant improvement in such arcas as poverty,criine,broken ttlinilics,F″〃E"′ノ9ノ″`れ′αれグPガOθ s′αιブルタ ′θ3/TR//VS―κEγⅣ』ゞ′ИⅣんろイⅣノFESπ0 5θ5homelessness,sch001 dropouts,and drug addiction,provided only thatit is done slovノly enough.Even this NAIRRU is not a constant but can bc cxpectcd to varyaccording to thc amount and distribution of cxcess production plantcapacity, espcciaHy in the capital-300dS industriesぅ and the lcvc1 0feducation and training in the pool ofunemploymentlabor,as well astheprevailing mood of optirnisrn or pessimism lt can be cxpccted to gctsmaller as fun cmploymentis approached and thc task ofmatchingjobrequiremcnts and qualiflcations becomes rnore difflcult.In any case,as fbll cllllploymcnt is approached and the``rcserve armyofthe unemployed''is rcduced,elirninating its dcpressing cffcct on thewagcs ofthe unskilled,thcre is likely to be a corrcsponding incrcasc inthc prices of products ofunskilled labor,raising the mcasured produc―tivity and thc status of thesc、Ⅳorkers and resulting in a smaH one―timestcp―up in the overaH price levcl.Butthis is a far cry frOn■setting offaninflationav spiral.Even so,the advantagcs ofa(asterreduction in unemployment wouldbe wen worth enduring a littlc more inflation.An economy with 101需庶盤11:淵罵』蹴富忠網l翼雲潔輩よ:ユment.Notonly would thereal GDPbe some 15 percentlarger(aCCOrdingto Okun's ratio of2.5),butthere would be important budgetary bencfltsin terrns of lower costs of unemployment insurance,wel{are,and the驚‖::yI獲JlCttiⅧ魂∫11麗糞胤liS::11鷲滞為邸[:驚慇晨Tぶ:監沐壼電:∬ぎ問1:ITttT肥∬ri胤胤curc far worsc than the discaseProposition 13:Ⅳloderate steady innation has advantagesslower political process has tirne to come into action.Second,innation coupled with strict accrucd norninalincome account―ing turns thc incomc tax base intO a base consisting of real netincome