Review

The author examines whether the 1981 federal tax rate reductions have reduced the federal tax burden. Comparing federal tax burdens in 1980 and 1984, he concludes that federal tax burdens were greater in 1984 for most American families.

The author estimates both short- and long-term real interest rates and shows that they have been higher during the 1980s than in the previous two decades. Most of this upward movement in real rates occurred during late 1980 and early 1981.

The author reviews the meaning of the phrase “monetizing the debt.” He points out that today, as in the past, monetizing the debt means money growth—induced by rapid growth of the federal debt—in excess of that needed to achieve some monetary policy objective.

The author reviews developments bearing on the “monetary versus fiscal policy” debate over the past 20 years. He quickly reviews the well-known items and arguments and focuses his attention on items that (i) have been neglected, (ii) are fairly recent, or (iii) are somewhat original. 

The author reviews the fiscalist-monetarist debate of the late sixties and early seventies and evaluates the empirical work bearing on the central questions addressed at the time. He then discusses the range of issues raised by the neoclassical cum rational expectations approach and examines a number of problems recently associated with transitory and permanent deficits. 

Commentary on "Fiscal Policy in Macro Theory: A Survey and Evaluation" by Karl Brunner.

In his discussion of Karl Bruner’s paper, “Fiscal Policy in Macro Theory: A Survey and Evaluation,” Alan S. Blinder’s disagrees most emphatically with Bruner’s attempt to resurrect and legitimize the old reduced form approach, but he agrees with most of what he says about the government budget constraint and the non-Ricardian equivalence theorem. 

The author discusses that the primary implication of public-choice theory is that institutional-constitutional change or reform is required to achieve ultimate success in macroeconomic policy. He notes that there is relatively little to be gained by advancing arguments for “better informed” and “more public-spirited” agents, to be instructed by increasingly sophisticated “economic consultants” who are abreast of the frontiers of the “new science.” 

Rather than provide a detailed review of an old debate, the author presents a case and outlines a framework for a new debate about policy. He argues that a good framework for debate is the rational expectations approach to policy evaluation that emerged from the policy ineffectiveness debate of the 1970s, but which has been used far too rarely to study other activist policy issues.