Discussion of the Evans Paper, "An Econometric Model Incorporating the Supply-Side Effects of Economic Policy"
While the political discussion in the United States has suddenly focused on the so-called “supply-side effects,” this is not a new discovery in the literature of economics. No one has denied the theoretical possibility that labor supply may depend on the real wage rate and that personal savings may depend on the real after-tax rate of interest. The question has always been about the empirical order of magnitudes of these responses. In the case of savings, there are two further questions: whether or not an increase in savings will necessarily lead to correspondingly larger investment in capital goods, and how much the additional investment will contribute to potential and actual output. Michael K. Evans appears to claim in his summary that he has resolved all these empirical questions and that his new model is now capable of predicting major effects of macro and micro policies aimed at supplies of productive factors. A detailed appraisal of his claims is difficult because they are embedded into a large model, and the model in question is not laid out for easy understanding. I therefore propose to look at one critical group of equations in Evans’ model as a representative of the model.