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This article presents commentaries and discussion on the article The Stock Market and the Economy, by Barry Bosworth, which appeared in the June 1975 issue of the periodical Brookings Papers on Economic Activity. Saul Hymans said that Bosworth's findings perplexes him. Bosworth may provide a clue to the paradox when he points out that the stock market is significant only if post-1965 data are included in the equation. As Bosworth points out and as indicated in his paper on durables and consumer sentiment or its effect on wealth. If it is operating as a sentiment measure, then it is not terribly surprising that the durables equation is not aided by the stock-market variable, because that equation contains the unemployment rate, the rate of inflation, residential building, income changes, and the like. According to Franco Modigliani, Bosworth has provided with a very useful review of present knowledge concerning the impact of the stock market on aggregate demand, at least in the U.S. First, a good deal of evidence both from time-series and cross-sectional studies now confirms an important effect of wealth on consumption. The central issue for Bosworth is the specific influence of the part of wealth that is embodied in corporate stocks. Bosworth remains skeptical about the effect of the stock market on consumption primarily because, despite his attempts, he was unable to find much evidence of an effect of capital gains on the purchase of consumer durables.

Presents comments and discussion on the article by William E. Gibson on the need to protect homebuilding from credit restriction. Comments from John Kareken who did not buy into Gibson's reasons for the need to protect homebuilding; Comments from Barry Bosworth who felt the argument was too blunt and lacked evaluation of what the costs for his plan would make throughout the economy; Discussion by the panel.

This article presents views of the author on taxes and investment recovery in the U.S. According to the author anytime you look at the two leading sectors in a category, there will be some special explanations. A look at the weakest category in business producers' durable investment could tell a different story. For example, investment in oil and gas drilling equipment has fallen sharply since 1979-80 for well-known reasons. In 1983, investment in mining industries was down by about 24 percent while the economy was recovering. Emphasizing the sharp fall in mining investment would leave one more impressed with the strength of business investment other than office equipment and autos. Even so, the tax cut hypothesis would fare no better, for the taxation of mining equipment was reduced in 1981 and 1982. The author agrees that the growth in investment has indeed been unusually great, a fact that is consistent with the tax cut hypothesis. In fact, the growth in GNP in the period 1982-84 was normal in the U.S. for the first two years of a recovery, whereas the growth in producer durable equipment was more than twice as great as usual. Actually, capacity utilization has recovered more slowly than usual, so investment-per- unit recovery may be even more impressive than the paper indicates.

This section criticizes a paper by Patric Hendershott published in this same issue of Brookings Papers on Economic Activity, which attributes both the prolonged boom and the recent severe drop in single-family housing in the U.S. to the behavior of real user costs of owner-occupied housing. The first commented that Hendershott's paper is useful because it provides a synthesis of several determinants of housing demand that previously have been examined by Patric Hendershott and others on a more individual basis. These include a sophisticated treatment of demographic variables. These factors are examined within a three-equation recursive model. The model begins by predicting the proportion of households that is homeowners. According to the first commentator, he found the first several sections on tenure choice very informative; but he has some concerns with parts of the paper relating to housing starts. Meanwhile, the second commentator stresses that there is no denying the author's primary general conclusion, that monetary policy caused the housing recession, overriding in the process a strong underlying demand for housing and a number of developments in mortgage and deposit markets favorable for housing finance. At this level, however, what is missing in the paper is the dramatic tale of the remarkable 1980 episode for U.S. monetary policy and its impact on housing.

This article comments on a study by Robert J. Flanagan which examined the fluctuation in the union-nonunion wage differential. The research probably offers the best explanation yet of the rather puzzling fluctuation in the union-nonunion wage differential. Hence, there are several major themes which are discussed in the research. First, there is evidence of interdependence among union wage settlements, but no such spillover effects are apparent in the nonunion sector. Second, the apparent lesser sensitivity to current market conditions of manufacturing union wage rates compared to nonunion wage rates is a result of multiyear contracting in the union sector. Third, the incorporation of a wage-wage view of the inflation process sharply reduces the estimated direct effect of prices on wages. Fourth, wage-price controls or guidelines may put a floor under wage increases in some sectors at the same time that they restrain wages in others. Fifth, all the structural models of union wages underpredict the increases of 1975. Finally, there are no fixed leader-follower wage patterns in union settlements.

This section presents comments on the article The 1972-75 Commodity Boom by Richard Cooper and Robert Lawrence. In this paper, Cooper and Lawrence have tried to trace the origins of the rise in prices of nonfood nonfuel commodities in fiscal 1972-1974. The competing hypotheses that they examine are: (1) an abnormally rapid growth in demand for consumption uses; (2) unusual shortfalls in supply; and (3) speculative activity. The study examined nonfood agricultural raw materials, but the empirical work focused upon nonferrous metals--a category in which copper accounts for two-thirds of the index that they use. They deflated this metals index by the index of world prices for traded manufactured commodities. Both the narrow range of the metals index and the choice of the deflator may affect some of their conditions. The latter portions of the paper concentrated upon speculation, which is believed to play a primary role in any interpretation of the 1973-1974 period. It is unfortunate that conclusions about the role of speculation must be inferred from the residuals rather than more direct evidence. Moreover, the authors can only guess about the driving force behind the speculation. Another critic agreed with Cooper, explaining that the introduction of exchange-rate risk will make currencies as a group less attractive. Thus, the decrease in dollar holdings will not be fully offset by an increase in holdings of other types of currency.

The article comments on a study on the notion that output mix is an important determinant of aggregate productivity growth. It is interesting that the dominant effect is the shift between industries with high and low levels of productivity rather than between industries with high and low rates of productivity growth. The procedure used for the cyclical correction seems unnecessarily crude in view of the existing empirical literature on labor demand functions. Several statistical biases arise through the use of the unemployment rate to adjust actual output, and thereby estimate normal output, in an equation explaining a basic determinant of the unemployment rate. If the primary interest is on the trend term, the problem of estimating the cyclical component of productivity may be of small moment. But a poor cyclical estimate may impede the attempt to identify the influence of other factors, such as capital stock and the demographic mix of the labor force, and it can seriously cloud analysis of the sharp falloff in productivity growth in 1969 and 1970. One important feature of the findings is that little or no permanent productivity gain is to be had from a higher utilization rate, and hence no significant productivity windfall is to be picked up in the current recovery.

I present a perspective on where the Indian economy stands right now. I acknowledge the contradictions that have arisen given the divergent growth path of urban, formal or (stock-market) listed India relative to rural, informal or unlisted India. I also focus on the country's immense opportunities in expanding the digital footprint of finance to last-mile borrowers. I present novel facts on the rising industrial concentration, drawing out its historical evolution, the channels that have caused it to rise recently, and its implications for product price markups and inflation. I recommend that to restore industrial balance, India increase overall competition by reducing import tariffs and reduce the pricing power of its largest conglomerates. I also propose that to restore macroeconomic balance, India reduce fiscal deficit and public sector borrowing requirements as well as rein in inflation, address gaps in skills and education, and restore female labor force participation. [ABSTRACT FROM AUTHOR]

Labor force participation and average hours of work both fell sharply at the beginning of the COVID-19 pandemic. Neither had fully recovered by the end of 2022. The drop in participation between December 2019 and December 2022 implies a loss of 3 million people from the labor force; the decline in average hours over the same period translates to the equivalent of 2.6 million fewer workers. Demographic and other trend factors that predated the pandemic explain most of the participation shortfall. Taken together, COVID-19-related health effects and the persistent (though shrinking) effects of the fear of contracting COVID-19 more than explain the rest. In contrast, pre-pandemic factors account for little of the shortfall in hours. COVID-19-related health effects account for perhaps 40 percent of that decline, but we are unable to explain the majority of the hours shortfall. We speculate that the lower level of hours in the post-pandemic period may reflect a shift in the desired balance between work and other aspects of workers' lives. [ABSTRACT FROM AUTHOR]

The $1.6 trillion that U.S. households borrowed in 2010 through government-backed direct loan and loan guarantee programs-most notably from Fannie Mae and Freddie Mac, the student loan programs, and the Federal Housing Administration, but also more than 100 smaller programs- provided credit subsidies and relaxed credit-rationing constraints that caused both borrowing and spending that year to be higher than they would otherwise have been. A simple theoretical model illustrates these channels. Estimates of the increases in borrowing, scaled by multipliers similar to those applied to traditional government spending and tax policies, suggest that the programs provided a fiscal stimulus of roughly $344 billion, similar to what was provided by the American Recovery and Reinvestment Act of 2009. Although there is considerable uncertainty about this point estimate, its size suggests the importance of taking the stimulus and automatic stabilizer effects of federal credit programs into account, particularly during economic downturns that are accompanied by severe financial market distress. However, though credit programs are shown to be a relatively low-cost source of fiscal stimulus, to assess their overall welfare implications, these benefits must be weighed against the significant costs of the programs during more normal times, including the likelihood that lax federal credit policies were an exacerbating cause of the 2007 financial crisis. [ABSTRACT FROM AUTHOR]

The price indexation of Social Security benefit payments has emerged in recent years as a flashpoint of debate in the United States. I characterize the direct effects that changes in that price index would have on retirees who differ in their initial wealth at retirement and in their mortality rates after retirement. I propose a simple but flexible theoretical framework that converts benefits reform first into changes to retirees' consumption paths and then into a net effect on social welfare. I calibrate that framework using recently produced data on Social Security beneficiaries by lifetime income decile and both existing and new survey evidence on the normative priorities Americans have regarding their Social Security benefits. The results suggest that the value retirees place on protection against longevity risk is an important caveat to the widespread enthusiasm for a switch to a slower-growing price index such as the chained CPI-U. [ABSTRACT FROM AUTHOR]

Over the past quarter century, labor's share of income in the United States has trended downwards, reaching its lowest level in the postwar period after the Great Recession. Detailed examination of the magnitude, determinants and implications of this decline delivers five conclusions. First, around one third of the decline in the published labor share is an artifact of a progressive understatement of the labor income of the self-employed underlying the headline measure. Second, movements in labor's share are not a feature solely of recent U.S. history: The relative stability of the aggregate labor share prior to the 1980s in fact veiled substantial, though offsetting, movements in labor shares within industries. By contrast, the recent decline has been dominated by trade and manufacturing sectors. Third, U.S. data provide limited support for neoclassical explanations based on the substitution of capital for (unskilled) labor to exploit technical change embodied in new capital goods. Fourth, institutional explanations based on the decline in unionization also receive weak support. Finally, we provide evidence that highlights the offshoring of the labor-intensive component of the U.S. supply chain as a leading potential explanation of the decline in the U.S. labor share over the past 25 years. [ABSTRACT FROM AUTHOR]

This article presents comments and discussion on a paper titled "Explaining a Productive Decade" that was presented at the Brookings Panel on Economic Activity on March 29 and 30, 2007. The author remarks on the creative way in which the growth accounting framework is able to take into account intangible capital and the industry-level regression analysis that highlights the role of competition. Information technology was thought to account for the rapid productivity growth of 1997 and 2007, but even after IT investment retreated after the year 2000, labor productivity accelerated. Reaction to the macroeconomic factors and business cycle reasoning is given.

The article presents comments and discussion related to a paper presented at the Brookings Institute titled "The Sources and Sustainability of China's Economic Growth," by Gary H. Jefferson, Albert G. Z. Hu, and Jian Su. Among his criticisms of the article, Barry P. Bosworth feels that international comparisons in productivity must be handled with care, as levels of value added per worker across regions may differ. Gustav Ranis applauds the aims, scope, and energy of the study, but professes disappointment in its execution, particularly with the definition of technological catch-up expressed in terms of labor productivity differentials. Detailed criticism by both responders is offered, as is other discussion from William Nordhaus, David Backus, and Wendy Dobson.

The article presents an in-depth analysis of a paper which was written by Stephanie Aaronson et al., which examined the recovery of the United States from a 2001 recession. The analysis was written by Gary Burtless. Burtless provides an overview of the activities which helped prompt the recovery from the recession and the changes in the rates of employment which came from it. Burtless uses his knowledge of economics and economic activity to determine whether Aaronson's paper provides accurate and reliable data and economic discussion.

This article comments on a study which reviews macroeconomic policymaking in Japan to determine whether the stagnant Japanese economy has responded to policy stimulus as conventional models would predict. Japanese policymakers face an exceptionally difficult and unenviable situation. Fiscal policy can continue to be expansionary, but there is little room for an additional fiscal impulse. Monetary policy can be made more expansionary, but the country is in a liquidity trap, and not much expansion can be expected from monetary policy unless the yen depreciates significantly--and that will create problems for other countries. The banks need to be restructured, as does the corporate sector, but that would be contractionary in the short run. No wonder that under these circumstances the Japanese authorities have been slow to grasp the nettle. But until they do, the economy's slow growth and prolonged recession are likely to continue. The authors debunk the notion of expansionary fiscal contraction that apparently served as the rationale for Japan's tax increase in 1997. The mechanism by which fiscal contraction somehow increases demand growth is the removal of the fear of unstable debt dynamics that leads to lower interest rates and more consumption.