AEAweb: JEP: Contents: Spring 1999

Journal of Economic Perspectives
Vol. 13, No. 2, Spring 1999

Contents

Distinguished Lecture on Economics in Government: Reflections on Managing Global Integration
Lawrence H. Summers      3-18

Introduction to the Symposium on Business Cycles
J. Bradford De Long      19-22

Changes in Business Cycles: Evidence and Explanations
Christina D. Romer      23-44

Business Cycles in International Historical Perspective
Susanto Basu and Alan M. Taylor      45-68

Theory and History behind Business Cycles: Are the 1990s the Onset of a Golden Age?
Victor Zarnowitz      69-90

The Law and Economics of the Economic Expert Witness
Richard A. Posner      91-99

The Economist in Tort Litigation
Robert Thornton and John Ward      101-112

Going for the Gold: Economists as Expert Witnesses
Michael J. Mandel      113-120

The Structure of Foreign Trade
Elhanan Helpman      121-144

Healthy Bodies and Thick Wallets: The Dual Relation between Health and Economic Status
James P. Smith      145-166

Three Sides of Harberger Triangles
James R. Hines, Jr.      167-188

Hedge Funds and the Collapse of Long-Term Capital Management
Franklin R. Edward      189-210

Classroom Games: Strategic Interaction on the Internet
Marko Grobelnik, Charles A. Holt and Vesna Prasnikar      211-220

Retrospectives: American Economists in the Progressive Era on the Minimum Wage
Robert E. Prasch      221-230

Features:
Recommendations for Further Reading      231-237
Correspondence      239-246
Notes      247-250

No abstract available.

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This paper shows that the volatility of annual real macroeconomic indicators for the United States and the average severity of recessions have declined only slightly between the pre-World War I and post-World War II eras. Recessions have, however, become somewhat less frequent and more uniform. It argues that the advent of macroeconomic policy after World War II can account for both the observed continuity and change. Countercyclical monetary policy and automatic stabilizers have prolonged postwar expansions and prevented severe depressions. At the same time, policy-induced booms and recessions have led to continued volatility of the postwar economy.

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This paper examines business cycles theoretically and empirically, with a quantitative study based on data for a cross section of countries. Theoretical concerns indicate that the properties of business cycle models depend not only on important structural aspects of the model, such as money neutrality, labor market structure, and price adjustment, but also on the closure of the model in international markets. Econometric considerations suggest that panel data can provide more information about the country-specific versus universal features of cycles. The authors review business cycle properties in a sample of over a dozen counties in light of these issues.

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The theory presented in this paper ties together profits, investment, credit, stock prices, inflation, and interest rates. The author discusses new estimates of profit and investment functions with important roles for growth and demand and productivity, price and cost levels, risk perception, credit volume, and credit difficulties. The relationships among these endogenous variables are viewed as constituting an enduring core of business cycles, the exogenous shocks and policy effects as more transitory and peripheral.

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In recent decades, the involvement of economists as consultants and expert witnesses in civil tort actions has grown rapidly. In this article, the authors discuss the reasons for this phenomenon and the extent to conflicts of interest to arise in the practice of what is frequently called 'forensic economics.' They argue that, although conflict-of-interest pressures exist, the limited evidence does not indicate that unethical practices are rampant within the profession. Moreover, market correctives, judicial screening, codes of ethical behavior, and the dissemination of knowledge concerning proper forensic practice help to serve as (arguably imperfect) safeguards against unethical practice.

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The use of economists as expert witnesses and consultants has grown dramatically in recent years, driven by such factors as the explosion of mergers and acquisitions. On the plus side, the expert witness boom will likely lead to better regulatory and legal decisions, while infusing real-world examples into classroom teaching. Yet the growing importance of consulting income could divert time and energy away from academic research and teaching, while impeding intellectual debate. A new standard of behavior for academic economists who serve as expert witnesses and consultants may be needed, including full disclosure of clients.

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During the last two decades, new research has greatly advanced the understanding of the structure of world trade. While research in the 1960s and 1970s provided mostly theoretical insights, major empirical innovations concerning the study of factor content of net trade flows appeared in the 1980s. Important improvements in this line of research were added in the 1990s. The author also discusses the literature that emphasizes economies of scale and product differentiation. This work was done mostly in the 1980s and 1990s, yielding important theoretical and empirical findings. An emphasis on the interplay between theoretical and empirical research characterizes the entire presentation.

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This paper sketches theoretical reasons why health may alter household savings and provides evidence on the empirical impact of health shocks on household wealth. The impacts on saving are quantitatively large and only partly explained by increased out-of-pocket medical expenses. Other contributing factors include reduced earnings and a revision in life expectancy. The author also delves into reasons why economic status, access to medical care, and deleterious personal behaviors have been rejected as insufficient explanations. New theories emphasize long-term impacts of early childhood or even intrauterine factors, cumulative effects of prolonged exposures to stress, or reactions of macrosocietal factors like rising levels of income inequality.

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Harberger triangles are used to calculate the efficiency costs of taxes, government regulations, monopolistic practices, and various other market distortions. This paper considers the historical development of Harberger triangles, the associated theoretical controversies, and the contribution of Harberger triangles to subsequent empirical work and theories of market imperfections. Prior to the publication of Arnold Harberger's papers, economists very rarely estimated deadweight losses. The empirical deadweight loss literature expanded greatly since the 1960s, making such estimation now quite common. Meanwhile, critical evaluation of deadweight loss estimates led to new theories of rent-seeking and other inefficiencies of economies with multiple distortions.

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The Fed-engineered rescue of Long-Term Capital Management (LTCM) in September 1998 set off alarms throughout financial markets about the activities of hedge funds and the stability of financial markets in general. With only $4.8 billion in equity, LTCM managed to leverage itself to the hilt by borrowing more than $125 billion from banks and securities firms and entering into derivatives contracts totaling more than $1 trillion (notional). When LTCM's speculations went sour in the summer of 1998, the impending liquidation of LTCM's portfolio threatened to destabilize financial markets throughout the world. Public policy response to LTCM should focus on risks of systemic fragility and ways in which bank regulation can be improved.

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Economics is often taught at a level of abstraction that can hinder some students from gaining basic intuition. However, lecture and textbook presentations can be complemented with classroom exercises in which students make decisions and interact. The approach can increase interest in, and decrease skepticism about, economic theory. This feature offers short descriptions of classroom exercises for a variety of economics courses, with something of an emphasis on the more popular undergraduate courses.

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Beginning in 1912, a number of states passed minimum wage legislation that applied exclusively to women and minors. These tentative experiments in economic legislation ended in 1923 when the Supreme Court overturned the District of Columbia's minimum wage law. Remarkably, at this time virtually all professional American economists supported some variety of minimum wage legislation; however, they did not all give the same reasons. This paper briefly examines the context in which this minimum wage legislation was passed and then surveys several of the arguments that American economists gave in support of minimum wage laws.

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Features:
Recommendations for Further Reading (AEA members only)
Correspondence (AEA members only)
Notes  

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