BPEA | 1974 No. 1

Reflections on U.S. Macroeconomic Policy

1974, No. 1

IN LIGHT OF EVENTS of the past several years, I find that the only advice
I can give about monetary and fiscal policy is to stabilize the rate of growth
of money in the neighborhood of 5 to 6 percent and to balance the high
employment federal budget for the foreseeable future. Underlying this position
is a very simple observation: although macroeconomics has developed
apace in the postwar period, its application to policy has brought no steady
improvement in the performance of the U.S. economy. While the postwar
period as a whole looks much better than the years between the wars, the
lack of clear improvement from 1946 to 1974 is disturbing. The case for
continuing an activist stabilization policy requires a conviction that such
a policy has a brighter future than is suggested by the record.
In reviewing possible explanations for the postwar experience, I am
unable to convince myself that an activist policy will be superior to a
“steady-as-she-goes” policy. Most of this report is devoted to a discussion
of possible explanations of the postwar stabilization record. At the end,
these arguments are applied to the situation now facing policy makers. In
particular, I attempt to explain why my policy views are so different from
those of James Tobin.