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A stochastic framework for coordination of macroeconomic policies is introduced in this paper. It is suggested that: (i) measures of policy accountability should allow for the climate of uncertainty that surrounds policy decisions, and (ii) most models of aggregate economic activity impose arbitrary specifications of uncertainty that do not appear to be empirically justifiable. Ambiguities in interpreting the Humphrey-Hawkins reports of policy authorities are sketched in section II; a proposal for maximizing the ex ante prospects of policy objectives is illustrated in section III; finally, nonstationary allocations of uncertainty are discussed in sections IV and V. This paper provides a brief survey of ongoing work by members of the Federal Reserve Board staff on the role of uncertainty in policy forecasts. It suggests that policy discussion could be improved by more explicit consideration of the allocation of uncertainty. [ABSTRACT FROM AUTHOR]

The article presents the study on the economic growth and development in the U.S. Many economists and international organizations argue that investment in education is a policy priority. Recently, some studies have provided more reliable findings on specific policies and programs. This article examines this recent work in detail. The article, therefore offers three objectives which is to review the literature on the relationship between school and teacher characteristics, and the acquisition of cognitive skills, to examine the relationship between schooling and labor productivity, and to investigate the relationship between cognitive skills and socioeconomic outcomes other than labor productivity. A final section summarizes the findings and provides recommendations for future research.

In recent years the American states have begun to adopt new types of economic development policies, variously called "demand side" policies, industrial policy, or interventionist policy. In this paper the authors discuss the emergence of these policies and the political and economic changes in states which led to their consideration. Two explanations for their adoption are developed--the business capture hypothesis and the meso-corporatist hypothesis. These differing interpretations are tested with data on state interest groups, government capacity, and economic stress. Data on policy adoptions by 1986 show that the meso-corporatist model provides a better account of industrial policy than does the business capture hypothesis. [ABSTRACT FROM AUTHOR]

This article discusses the stability properties of optimal economic policies in the U.S. Stochastic elements have a stabilizing influence, rather intriguing in view of the fact that in purely descriptive dynamic models such disturbances tend to be destabilizing. Basically the reason for this is that the existence of stochastic elements exerts an inhibiting influence on the policy maker, causing him to adjust his instruments more cautiously than he otherwise would, thereby dampening the adjustment and making it stable. At the same time it means that typically there is correspondingly less response in the target so that as in this example it may no longer be optimal to drive it to its desired equilibrium each period. In this sense the stochastic disturbances exert a destabilizing effect, although of course the target still remains stochastically stable. Thus a kind of tradeoff between the two kinds of stability is seen to occur, although overall the entire system is stochastically stable.

In a recent research paper by Bruno Frey and Friedrich Schneider (to be called FS for later reference) presented some interesting results on the political-economic interactions in the U.S. for the period 1953-1975. According to these results, the state of the economy (represented by unemployment, inflation and the growth of private consumption) exercises a significant influence on presidential popularity on the one hand and, on the other, there is substantial evidence that the president manipulates economic policies (government nondefense expenditures, transfer payments, and civilian jobs created in the public sector) to get himself reelected. However, the purpose of this article is first to point out some shortcomings of their model, and then to test their model against our own with the same set of data. The model of the reaction function, as formulated by FS, has some shortcomings, it was made largely a function of political variables and it was developed in terms of individual instruments of fiscal policy only.

This article explains how industrial growth is related to expanding metropolitan areas and sets forth specific recommendations for assuring balanced growth of the two. Two specific questions which are which are fundamental to an understanding of the problem are discussed. First, what is the relationship between the expansion of manufacturing and population growth in metropolitan areas? Second, how can the available resources of an area be most effectively managed as population expands? These questions are considered as they apply to several developing metropolitan areas in California.

The U.S. economy faces sizeable headwinds to keeping GDP growth even at 2% over the next decade. Demographics imply that labor force growth will be much slower than historical norms. The enormous twentieth century increase in average educational attainment is unlikely to be repeated. And the best guess for productivity growth is that it will continue to be modest-perhaps along the lines seen in the 1970s to early 1990s, or since 2004. There are no easy cures for low growth. We can hope for another wave of broadbased IT-linked innovation. But while there is enormous uncertainty, even worthwhile policy steps are unlikely to move the dial very much on their own. [ABSTRACT FROM AUTHOR]

Increased turnover among legislators can make them short-sighted, affecting fiscal policy and economic growth. We exploit the exogenous variation in legislative turnover induced by term limit laws and by redistricting in the 50 U.S. states, finding that increased turnover increases capital spending by state governments, which may be designed to constrain future governments. The changes may cause long-run distortions in the economy, reducing long-term economic growth. ( JEL H72, H73, H76) [ABSTRACT FROM AUTHOR]

After the U.S. Supreme Court upheld in the Kelo decision the use of eminent domain for private-to-private transfer of property for economic development, public outrage was followed by attempts to restrict such use of eminent domain. Opponents of restrictions predicted dire consequences for state and local economies. This study considers whether restricting the use of eminent domain for economic development results in negative economic effects. The authors examine economic indicators before and after legislative or judicial restrictions on eminent domain across all states and between states based on the type of legislative/judicial change. Results indicate that there appear to be no negative economic consequences resulting from limiting the use of eminent domain when examining economic indicators before and after legislative/judicial change. Adopting either moderate or major eminent domain restrictions appears to create no economic ill effects when analyzing differences in trends based on the type of legislation passed or scope of judicial decision. [ABSTRACT FROM AUTHOR]

The article aims to present a conceptual framework for the analysis of ecosystem services (ES) supply in the U.S. It will also discuss some of the data and modeling issues that arise in predicting farmers' participation in ES contracts and the supply of ES resulting from them. To frame the discussion, the researchers outline a model of the supply of ES that illustrates the ways that spatial and system complexity can affect it. This model is used to discuss the data and modeling issues that arise in empirical implementation.

This article reports on the economic growth and national development in the U.S. Policy makers in Washington, D.C. believed that they had finally found the formula for sustained economic growth and national development known as "the Washington Consensus." The formula held that economic growth was best achieved by a comprehensive program of reduced taxes, balanced budgets, floating exchange rates, decontrolled interest rates, open foreign investment, liberalized trade relations, privatization, and deregulation.

In this article, the authors present arguments for a more interdisciplinary approach to community economic development. Building an alternative paradigm that includes six elements-resources, markets, institutions, society, decision making, and space-they rethink the framework that links economic theory to the practice of community economic development. Major attention is paid to the integration of economic and noneconomic factors in the practice of community economic development. In the end, the goal of this new paradigm is to more directly link the practice of community economic development to its solid interdisciplinary theoretical foundation. [ABSTRACT FROM AUTHOR]

Public policies are often made without much recourse to economic reasoning. Economists are often unaware of what is happening in the world of public affairs As a result, both the quality of public decision-making and the role that economists play in it are less than optimal. This new feature on current policy issues will offer short articles on topics that are on the current agendas of policy makers and provide nonspecialists with a better understanding of the role of economic analysis in illuminating current debates. Suggestions for future columns and comments on past ones should be sent to Isabel V. Sawhill, c/o Journal of Economic Perspectives, The Urban Institute. 2100 M Street N.W., Washington. D.C. 20037. [ABSTRACT FROM AUTHOR]

This article addresses several issues pertaining to the theory of choice under uncertainty and the challenges it faces in the U.S. as of June 1987. Fifteen years ago, in 1972, the theory of choice under uncertainty could be considered one of the success stories of economic analysis: it rested on solid axiomatic foundations, it had seen important breakthroughs in the analytics of risk, risk aversion and their applications to economic issues, and it stood ready to provide the theoretical underpinnings for the newly emerging 'information revolution' in economics. Presently, choice under certainty is a field in flux: the standard theory is being challenged on several grounds from both within and outside economics.

Although students of American political economy argue that the United States has no industrial policy, this view misses entirely the recent emergence of industrial policies at the state level. An examination of twenty states that have written strategic economic development plans shows that in varying degrees state industrial policies resemble the national industrial policies of France and Japan both in terms of the structure of the underlying economic plans and in their programmatic emphasis. On the basis of the evidence here it is reasonable to conclude that the American taste and capacity for planned intervention and state participation in the market economy is far greater than might be supposed from an exclusive focus on national economic policy making. [ABSTRACT FROM AUTHOR]

It is widely recognized that one of the important factors promoting economic growth in the U.S. during the first half of the nineteenth century was an increased degree of regional specialization according to the comparative advantage of each region. The existence of an extensive system of canals prior to railroad construction has caused a revived interest in the role of canals in economic growth. This article is concerned with the issues which are raised in attempting to assess the contribution of the canals to the economic development of the U.S. The article concludes that the role of canals in contributing towards the economic growth of the U.S. is far from obvious. A substantial number of the canals constructed before the war were clearly not profitable. The gains from regional specialization in the U.S. during this period were substantial. But the evidence indicates that the market could have been widened to allow much of this specialization at a cost well below $190 million. Far too much attention has been paid to the regional benefits rather than the increased efficiency of the economy as a whole.

The discussion in this article presents three aspects of economic effects of capital gains taxation that are of major policy importance. This article addresses the impact of capital gains taxation on economic growth, the impact of capital gains taxation on stabilization of the economy at full employment, and the impact of the tax on efficient use of our economic resources. In discussing the effects of capital gains taxation, the article refers to the differential behavior of the economy under two tax systems — a tax system yielding revenues equal to those collected under the present system but without the preferential features for asset transactions and a tax system such as is actually in effect. The comparison does not refer to the difference between the present tax structure and the same structure with preferential capital gains tax provisions deleted because a closing of all capital gains loopholes would generate different amounts of revenue. The desirability of alternative levels of revenue and their economic effects are issues that need not be discussed in this article.

The article reflects on the timeliness of the topic of ecosystem services (ES) in the arena of agricultural policy in the U.S. According to the author, policies and programs founded in ES science and economics can provide genuine alternatives to decades of commodity-based federal farm policy. The evolution of agricultural policy as it transforms to incorporate ES measures and transactions is uncertain. It will be marked by analytic challenges and policy retreats to old ways. ES assessments will enable budget allocation, planning and priority setting on the part of public agencies.