Comments on DeLong

J. Bradford DeLong (1996), “Keynesianism, Pennsylvania Avenue Style: Some Economic Consequences of the Employment Act of 1946,” Journal of Economic Perspectives, 1996, vol. 10, issue 3, pages 41-53 http://www.j-bradford-delong.net/pdf_files/Keynesianism_Pennsylvania.pdf
J. Bradford DeLong, "America's Only Peacetime Inflation: The 1970s," published in Reducing Inflation: Motivation and Strategy, Christina Romer and David Romer, eds., (Chicago: University of Chicago Press) 1997

Comments

[Niki Chen]

This is the first time I have ever heard of the 1946 Employment Act so I wasn't sure what it was or what it did. According to the article, laws are effective when they create institutions but do not have effects when they merely mention goals. As an example of a law with no effect, the Humphrey Hawkins Act was mentioned.

The 1946 Employment Act was a signal of the commitment of the federal government to macroeconomic management. The article mentions that it was a signal to allow fiscal automatic stabilizers to function. Apparently, these automatic stabilizers produce cyclical fiscal deficits but this shift in attitude is different from the viewpoint pre-World War II. The article focuses on the belief that automatic stabilizers are an important part of the post-World War II economy.

The author believes that the 1946 Employment Act was a signal that opinions and perceptions had changed about the responsibility of the federal government towards fiscal and monetary policy in the macroeconomy. He also believes that if the Employment Act had not set up it's particular institutions then there would be "fewer" and "less powerful" economists in the government.

I am hoping the professor will explain the importance of this Act a bit more in lecture, preferably by drawing some graphs and charts. I understand the basic gist of it, though perhaps not all the details.

[Chandresh Patel]

Delong’s paper analyzes the creation and effect of the Employment Act of 1946. Coupled with the Humphrey-Hawkins Act, both issues charge the government to take a larger macroeconomic role in order to help the United States economy. It asked for a number of policies, such as lowering of inflation and lower unemployment. However, each role in the Act was too much for the government to handle. For instance, it is very difficult to obtain low unemployment and low inflation during the same time period. However, Delong does mention that the Acts were meant to pass on a message from the people to take a greater stance on economic issues in the country. Although many bills are passed in the government, few are effectively follow-up on and enforced, and thus it is important to just get a simple message across to the government and to the people. Therefore, the Act was necessary to pass, although it did not have a large effect on governmental policy.

[Evan Caso]

The 1946 Employment Act represented the government's commitment to stabilizing the macroeconomy. The act has had obvious positive effects. Economists now have much more influence, which is obviously desirable when formulating economic policy. Although automatic stabilizers can play an important role in correcting recessions, there is still a clear inflationary bias in fiscal policy. I think it is more desirable to use monetary policy to fine tune the economy, because it works faster and takes much less time to implement. Also, members of the Federal Reserve are technocrats who are probably much more competent than politicians who routinely engage in wasteful spending. Overall, the Employment Act set up a system of institutions that have had a largely positive effect on stabilizing the macroeconomy. However, with the excessive growth of the national debt and annual budget deficits in recent years, fiscal priorities have to be re-evaluated by Congress. Unfortunately, irresponsible and non forward looking fiscal policy has put the entire system in danger of collapse. Constraints should be placed on discretionary spending, and the entitlement system needs to be revamped. Perhaps a new act of Congress is needed to limit the size of the deficit and service the growing national debt.

[Chris Schoeneborn]

It is evident that the Great Depression brought about a great deal of governmental and economic reform, as seen by the numerous laws and acts passed in the following decades. According to DeLong, 1946 Employment Act should be seen as a "signal" that previous presidential administrations had failed to achieve "acceptable macroeconomic performance." DeLong is likely talking about the Hoover Administration, in office during the Great Depression. The Full Employment Act solidified a more concrete system to evaluate the current economic state of the nation. It established the Joint Economic Committee, comprised of both House and Senate representatives, a Council of Economic Advisers, and called on the president to forecast the level of economic activity and promote maximum employment, production, and purchasing power. With automatic stabilizers put in function to adjust to cyclical variability and achieve a balance-of-payments equilibrium, reponse times to external shocks and internal business fluctuations were greatly reduced. The Fed and other governing economic institutions were somewhat relieved of the pressure to act immediately in reponse to a fluctuation in GDP. The reason automatic stabilizers were so necessary is that government spending increased dramatically, which has a great effect on deficits during times of recession. If economic reports show that further monetary policy is needed to prevent a decline in activity, the Fed has the power to pursue expansionary action. Furthermore, the Employment Act added additional performance evaluation, in order to prevent any decrease in economic activity as large as during the Great Depression.

[Lauren Tombari]

Delong says that laws can “serve as markers of changes in opinions, perceptions, and aims” (2). What struck me most while reading about the 1946 Employment Act was how much public opinion had changed, in such a relatively short time. Government officials and economists went from very limited government involvement in the economy’s performance, believing that recessions were part of the normal “breathing” of the economy, to direct government involvement with the goal of “maximum employment, production, and purchasing power” (1). It seems as though government actions in the Great Depression and later World War II had already established maximum employment and production as policy goals, so this law wasn’t very revolutionary in itself. It just made the government responsible for something it cannot possibly control, given that its directed macroeconomic stabilization policies take about a year and a half to come into effect. Even so, “an administration that failed to achieve acceptable macroeconomic performance was a failed administration” (22). So, in times of economic downturn, instead of being viewed as helpful like in the Great Depression, the government is considered a failure. Also, the Council of Economic Advisors that was created sounds like it is ineffective because no one really listens to them. It is really the automatic stabilizers and the Federal Reserve that work to reduce business cycle variability. So, I don’t think that the Employment Act has had that much effect on the economy, beyond reinforcing public opinion that the government should be involved.

[Chuong Quach]

The Employment Act of 1946, the CEA, and most other government institutions/policies seem to be, for the most part, ineffective on a macroeconomic scale. In most cases, government intervention could be seen as counterproductive. Most government spending programs costs usually outweigh the social benefit programs that it tries to implore. Another important point is that due to the government's inability to "predict" the economy's future, fiscal policies can take months to years in order for them to take affect. Conversely, automatic stabilizers immediately take into effect. Monetary policies also have adverse affects. When the Federal Reserve tries to keep unemployment from rising "too much" above its natural rate, inflation usually arises in the future. On the other hand, automatic stabilizers naturally allow the economy to go back to equilibrium without the recourse of a high inflation. It seems as though the CEA has a more effective role as microeconomic advisors. As Bard Delong points out, the CEA spends most of their time “injecting a sense of public interest” which gives the president an idea of what the consequences would be for certain policies.

[Tiffany Tam]

The Employment Act of 1946 tried to stabilize the U.S. economy by creating institutions. The article made it sound like it was more of a proposition and didn't really take action. It did make the people more aware of the economic situation which did have its perks. The act tried to emphasize the importance of lower inflation and unemployment but because both are easier said than done the act failed at achieving its goal. The act serves as a "signal" that failed but nonetheless served as a signal. The act was bound to happen according to the article because "Fiscal and monetary policy would still have been shaped with both eyes on macroeconomic performance".

[Breana Pennington]

The 1946 Employment Act was an important signal in the change in attitudes and goals of the government, especially after having been through the Great Depression and WWII. The Act was successful in creating a policy and norm of having economists directly involved in government, regardless of how effective Congress’s Joint Economic Committee, Council of Economic Advisors, or required estimates and forecasts were. The Humphrey-Hawkins Act of 1978 was also important for its requirement of the Federal Reserve Chairman to testify before congress about the state of the economy twice a year, although the other measures the act called for were just goals that were not enforced through institutions. One very important point mentioned by Delong was how recessions are not expected, develop quickly and are thus unlikely to be accurately forecasted in time to make economic adjustments. Thus there is a great need for “automatic stabilizers” even post-WWII, although such fast-acting prescriptions for economic downturns have not been put into place. There still seems to exist a tension between economists and politicians, with politicians more worried about power, influence, and favors. Hopefully there will be more acts passed in the future which not only set the goal of influencing macroeconomic policy, but also establish tools and institutions that will enforce the acts and quickly stabilize our economy once it is in need.

[Breann Gala]

While DeLong says the Employment Act of 1946, and its descendant Humphrey Hawkins Act, should be understood as being a signal that the administration has failed to achieve successful economic performance, the Employment Act is also very interesting in that it sheds light on role of state. The state has moved from being minimal during the prewar period, to being greatly enlarged during the Great Depression, and now to this act which promotes market led growth and establishes a heavy link between the state and private enterprises. While it is interesting to note that without the Employment Act of 1946 fiscal and monetary policy would have still been shaped based on macroeconomic grounds, the Employment Act still seems influential in that it embodied and solidified a generations worth of society's experiences with the Great Depression, New Deal, and their concerns for the future.

[Richard Park]

Delong’s article discusses the Employment Act of 1946, which basically stated that it was the Federal government’s responsibility to promote maximum employment, production, and purchasing power. The act also committed the Federal government to maintain a low unemployment rate, reduce inflation, and attempt to reduce federal spending. Delong argues that at the time of the act’s inception, it went against the flow of public opinion and sentiment, and it was partly passed for short term political advantages. Further, he argues that the Employment Act did nothing to create institution and signaled no shift in the hearts and minds of the American people. His basic argument is that the act had no effects whatsoever. The creation of the Council of Economic Advisors was only begun by accident, which only signals that the act was a failed administration. However, Delong also argues the act would have been enacted eventually if not in 1946 because of the sentiment and opinion of the time.

[Sean Salas]

Delong’s article highlights the macroeconomic impact of the Employment Act of 1946 in signaling the commitment of the government in managing the United States economy. Furthermore, the article highlights the Act’s influence in increasing the implementation fiscal and monetary policies, controlled by government agencies, in stabilizing the economy. Considering the positive and negative aspects of these policies, Delong argues the “automatic stabilizers” are more prominent factors in stabilizing the US economy post-WWII. Nevertheless, Delong concludes we would be in a much darker present without the enactment of an act equivalent to the revolutionary stature of the Employment Act of 1946. The Employment Act reminds us that we have a lot to learn from the Great Depression, and it is imperative that we use this experience to take precautions in preventing a similar event. I think it is fair to argue that at least part of our answer relies in the involvement of the government.

[Wei Li]

Essentially, regardless of whether any of these acts had any true effect on the macroeconomy of the United States, they stated a fundamental change in the operation of the Federal Reserve and the role of the United States Governments in directing the macroeconomy. As a statement of intent, the Employment act assured the public that the U.S. would be in charge of maintaining certain levels of unemployment and maintaining economic growth. Unfortunately for the act, it had no actual effect and was more of a placebo effect for the economic stability of the United States. Because there are no lingering changes and no real institutions established because of the act, there are no long term gains from its creation. Thus as a whole, this set of acts was a major failure.

[Tiffany G T Tam]

Professor De Long’s article “Keynesianism, Pennsylvania Avenue Style: Some Economic Consequences of the Employment Act of 1946” does a good job at analyzing the effect of the Employment Act of 1946. I had no clue what this act entailed, but the introduction did a good job of providing an overview of what this act consisted of. This article was intriguing because it included all these acts and laws that I have never heard of such as the Humphrey-Hawkins Act. Although I have never heard of the Employment Act of 1946, it seems to have been a big deal because it required that everyone be employed with the help of federal government. This shows the commitment of the government to increase production and growth for the economy. This also shows the commitment the government has to its people. Overall, I think this article provides readers a better sense of the macroeconomic point of view of government actions.

[Chris Guarini]

Automatic stabilizers in the economy were supposed to stabilize the economy through the government. In peacetime, post-WWII, the government taxes and spends a much higher percentage of the national product than during the depression and pre-depression era. “Automatic stabilizers are an important element of the post-WWII economy” because the economy in a laissez-faire set-up needs to be able to automatically stabilize itself to reduce recessionary periods. When the government runs a deficit, this is very dangerous to the economy and effects presidential elections as well because voters are shortsighted. This is because when spending is raised, taxes must be raised to fund the extra government spending and voters feel the pain of the higher taxes and the benefit of the programs that government spent on. However, when spending if financed through borrowing, the voters do not feel the immediate effects of higher future taxes that will occur to finance the programs that are going on now. This can affect the way voters vote in future elections because if one president spends a lot and finances the spending through borrowing, the next president will undoubtedly need to raise taxes to fund the previous president’s spending and will be seen as the bad guy.

[Erin Trimble]

In his article on the economic consequences of the Employment Act of 1946, DeLong comes to the conclusion that laws that serve to establish goals rather than build institutions are, for the most part, ineffective. The Humphey-Hawkins Act was one such law. Though the intent was to make lasting changes in the federal government’s role in the American economy, the end result was nothing more than requiring the Federal Reserve chairman to testify before Congress twice a year. The institutional impact of the 1946 Employment Act is debatable, and it is certainly not quite what its original authors intended. However, the act does serve as a convenient marker of the shift in sentiments that led to its passage—the changes in the attitudes toward a laissez-faire economy, toward government responsibility for the economy and toward the likely effectiveness of government macroeconomic intervention. The Employment Act’s direct consequences are uncertain, but its importance as a signal of the changes in the hearts and minds of the people is apparent.

[Tanya Malik]

This article does a good job of analyzing the Employment Act of 1946. A interesting point that Delong brings up in the paper is that public policies that are supposed to carry out goals and that do not establish actual economic institutions are usually not very effective and do not have lasting effect on the economy. According to Delong, the act was passed for short term political goals, and I think that because of this fact, the act was not effective. The only reason it was passed was because of the common sentiments of the public at the time; the desire for increased government regulation in the macro economy to keep it in check. In my opinion, the goals that are attempted by the act are unrealistic because they seem to be very "in a perfect world" type goals, and we all know that the United States government is anything but.

[Richard Schimbor]

One of the more interesting points made in this article is the time lag between economic conditions and legislative action and its effect on fiscal policy. Because economists can only work with data that has already been compiled, attempting to combat recessions with fiscal policy is inherently difficult because the information available is outdated. On top of this, once it is determined that fiscal action is necessary, there is substantial wrangling even in a single member district democracy about the appropriate action to take. This results in Congress legislating action to resolve a problem that may have already worked itslef out, and the actions taken by the legislature may actually hinder the forward steps the economy has taken on its own. The Act discussed in this article was originally titled the Full Employment Act of 1946, which shows the belief righyt after World War II that the government was responsible to ensure full employment. However, this objective is not easily attainable because of the time lag issue and a variety of other reasons discussed in the article.

[Matthew Cohen]

In his discussion of the Humphrey-Hawkins Act, Delong observes that laws that are passed which do not create governmental entities are largely pointless. It is nice to have a record of the goals and the mindset of the country at the time, but all it did was create more work for the already-busy treasury department. Without a dedicated department to accomplish the goals of a law, it seems more like a way to get re-elected rather than a way to actually improve the economy. The Employment Act of 1946 followed a similar trend where it was a great idea, but it lacked the follow-though of laws with governing bodies behind them. However, it did mark an the changing belief structures of the American economy at that time.

[Angela Vullo]

The 1946 Employment Act aka "the Full employment Act" is a representation of how the United States implemented many of the same ideals that were held by John Maynard Keynes. Keynes believed that the market forces would not take care of society and that it was the responsibility of the government to intervien in the market to provide full employment to avoid or stop cyclical downward growth patterns such as the Great Depression or a major recession. I too believe that Keynes' theories on the importance of full employment are a neccessary component to a full functioning successful economy such as the United States.

[Dragana Ognenovska]

While reading this paper what struck me and I completely agree with is when Delong mentions that the federal government has enough knowledge about the economy to only allow for “fiscal automatic stabilizers to function” during cyclical budget deficits. What has been learned through the Employment Act of 1946 is that the “US Congress and budget aren’t good at discretionary fiscal policy.” It is interesting how up to the Great Depression there was laissez-faire economic policies and after the GD government began to intervened to a greater extend through means such as the Employment Act of 1946. Keynes argued that the laissez-faire economic policies fostered the GD so I guess intervention with the Employment Act would have come about at a different yearf if not 1946.

[Ian Ebert]

Delong’s paper discusses two acts, the Employment Act of 1946 and the Humphrey-Hawkins Act of 1978 both of which according to Delong were not directly followed up on which resulted in acts that were only mere messages to congress, rather than being acted on. The Employment Act of 1946 tried to stabilize the macroeconomy through the fiscal side of things, while the Humphrey-Hawkins Act mixed both fiscal and monetary policy. The Employment Act states that it is government’s job to keep unemployment as low as possible, and keep inflation down. I would argue that if everyone had a job, everyone would have money to spend, which would result in a demand-pull inflation, as there is not enough goods to meet the demands. The way of reducing inflation is for the fed to take money out of the economy, which results in the economy slowing down, and some people will eventually lose their jobs. I feel like reducing unemployment and inflation at the same time are virtually impossible, even though that is what the Employment Act of 1946 calls for. Personally, I feel like macroeconmics is important because it can quickly turn things around by adjusting interest rates; however, at the same time I feel there is no long run effect of macroeconmics on the economy.

[Ed Lam]

As noticed by previous posts, the Employment Act of 1946 was not so much known for its independent, direct effects on regulating macroeconomic, but more so for creating a signal that acknowledges the past failure of government to achieve acceptable macroeconomic performance. By signaling change, the 1946 Employment Act established institutions and emphasized the shift in sentiments leading to the commitment of the federal government to manage macroeconomics. The Great Depression created the demand and pressure to establish this act to structure a strengthened institution. By enabling the expansion of economists and their power in government, the 1946 Employment Act sets precedent to prevent the occurrence of the next Great Depression.

[Jessica Li]

In his analysis, Delong pointed to the emergence of the federal government's role in the macroeconomy. The Employment Act of 1946 had officially declared the responsibility of stabilizing and maintaining the economy, to be a priority of the governing agencies. Though the established institutions and their effectiveness in carrying out and implementing economic policies can be argued, nevertheless, the Act was of great significance in marking the official role of the federal government in the years following World War II. Additionally, American economic history had taught a harsh lesson through the Great Depression, and the need and effects of government involvement in stimulating and stabilizing the economy in times of economic crises and sustaining it during peacetimes, were made apparent well into the post World War II era. Therefore, as the performance of the macroeconomy became an important priority in the minds of the public, and oftentimes associated with assessing the performance of the presidential administration, the government's role to act as automatic stabilizer cannot be disputed.

[Alexis Geno]

Delong’s analysis of the Unemployment act of 1946 gives a detail background of how the act effected the rest of the country. It seems from Delong’s analysis is that this act did not product long lasting results except for the bi-annual testimony of the Federal Reserve chair. But all the things that were part of the act do seem logical at the time right after a great depression. One would want some sort of insurance from the government that a tragedy such as the great depression will not occur and that the government will do as much as it can to prevent it from happening. The problem was that the components of the act sometimes contradicted each other in terms that having one makes it harder to get another thing to occur. But I agree with Delong when he said that the creation of an unemployment act was inevitable to provide people with some comfort that the government is taking care of the problem. But at the same time, it fulfilled the politicians’ need of showing that they are actively doing something to for the betterment of all.

[Alice Lin:19078943]

Delong analyzed that the purpose of the Employment Act of 1946 was to give the government the responsibility to lower the unemployment rate, and raise production and purchasing power. Although this is going against laissez-faire economics, there was a need for government macroeconomic intervention to keep the market on check. However, the Employment Act did not create institutions and its goals were ineffective. He argues that automatic stabilizers are suppose to help stabilize the economy after WWII in order reduce recessionary periods. However, it is better to finance through taxes than borrowing so the voters feel the immediate effect of the policy.