Arnold Kling

Recalling James Tobin

Arnold Kling, Great Questions of Economics
Previous Entry Next Entry

Paul Krugman's NY Times column today is an obituary to James Tobin, the Nobel laureate who died yesterday. To me, Tobin's most outstanding contribution was his theory linking business investment to the stock market, through the ratio that he called "q": the market value of capital divided by its replacement cost.

Krugman, ever the pessimist, writes

Yesterday I spoke with William Brainard, another Yale professor who worked with Mr. Tobin, who remarked on his colleague's "faith in the power of ideas." That's a faith that grows ever harder to maintain, as bad ideas with powerful political backing dominate our discourse.

I would not argue that our political discourse at present is decent or wise. However, in some respects, it seems more informed by economics than it was 30 or 40 years ago. I think that the problems of certain types of regulations, such as price controls, are better understood than they used to be. On the whole, I think that more policies are evaluated in terms of the incentives they create than was the case in the 1960's and 1970's.

Discussion Question. The U.S. economy has spent less time in recession in the past 20 years than it did in the previous 20. Does this reflect more wisdom about economic policy? If so, where is the wisdom in Japan?

Return to top