James Tobin Quotes (1918-2002)

“Keynesian economics was, in the context of those times, essentially conservative. The message was that capitalism was not doomed; its major failing, chronic large-scale unemployment, could be remedied fairly easily, by intelligent use of the fiscal and monetary instruments governments already had at their disposal. This message was not welcome news to Marxists committed to the view that the system was no longer structurally capable of prosperity and progress.”

“You could say that [new classical revolution] is as much a revolution against old monetarism as it is against Keynesianism. The disagreement between monetarists and Keynesians was about the value of some parameters. It is not as fundamental a split as we experience now.”

“For me, growing up in the 1930s, the two motivations powerfully reinforced each other. The miserable failures of capitalist economies in the Great Depression were root causes of worldwide social and political disasters. The crisis triggered a fertile period of scientific ferment and revolution in economic theory.”

“I was at a meeting where Buchanan was speaking just a couple of weeks after his prize was announced. It was a meeting on Keynes on the golden anniversary of the General Theory –there are endless anniversaries these days. Speaking before Buchanan, I predicted that he would blame Reagan's deficits on Keynes. And sure enough, he did.”

“That was building up during the '50s, in the so-called neoclassical synthesis, better called the neoclassical-neo-Keynesian synthesis, I think. The main thing was that classical economics didn't explain the Great Depesssion and didn't give you any hope of solving it. Keynesian economics did.”

“I think the basic issue there is the question of whether there are any dead weight losses or market filures of a macroeconomic nature in a market economy. Neo-Keynesians think there are and that the government can do something about them. They think that demand management policy can assist the economy to stay close to its equilibrium track.”

“I was never under any illusion about the theoretical possibility that the Phillips curve is vertical. In fact, I could cite passages that precede Friedman and Phelps, which say that it could well be. But all the empirical findings before 1966 suggested that the feedback term from price inflation to wages was considerably less than one so I accepted a nonvertical Phillips curve. I was probably overoptimistic about the degree to which you could expand employment in the '60s. In fact, I have acknowledged that in print. We at the council had stated 4 percent as what would now be called the natural rate of unemployment, I suppose, with a nonaccelerating rate of inflation. We did get the 4 percent before the Vietnam War, and we didn't have any accelerating rate of inflation. Maybe that was because we had an incomes policy. It was a rather weak one; it was sometimes called "open-mouth" policy. It was an informal guide-post policy, but in retrospect it looks like it made more difference than people credited it for. At any rate, the acceleration of inflations came when Johnson disobeyed his economic advisers. We went down to 3 percent unemployment which was probably well below the natural rate. So, I could admit to having been too optimistic.”

“The central message is still that, as Keynes argued, fiscal policy is the answer to liquidity traps, financial or political. The arguments against fiscal policy in Japan, so far as I understand them are intellectually fallacious; they would receive failing grades in an undergraduate macro exam.”

“He didn't really discuss my interpretations and criticisms of new classical economics. Instead he took the opportunity of the review to say that Keynesian economics was discredited by the stagflation of the '70s, as he and Sargent had already argued in their polemical piece "After Keynesian Economics" at the Nantucket conference in 1978. The idea seems to be that we were very wrong about the 1970s and therefore had no standing to criticize the new classical macroeconomics. Of course, I do not agree with that interpretation of the events of the last 15 years. In that review article Lucas didn't explain anything new. He just restated his point of view.”

“A forthcoming book by Harry Markowitz, Techniques of Portfolio Selection, will treat the general problem of finding dominant sets and computing the corresponding opportunity locus, for sets of securities all of which involve risk. Markowitz's main interest is prescription of rules of rational behaviour for investors; the main concern of this paper is the implications for economic theory, mainly comparative statics, that can be derived from assuming that investors do in fact follow such rules.”

“GDP! The right concept of economy-wide output, accurately measured. The U.S. and the world rely on it to tell where we are in the business cycle and to estimate long-run growth. It is the centerpiece of an elaborate and indispensable system of social accounting, the national income and product accounts. This is surely the signal innovative achievement of the Commerce Department in the 20th century. I was fortunate to become an economist in the 1930's when Kuznets, Nathan, Gilbert, and Jaszi were creating this most important set of economic time series. In economic theory, macroeconomics was just beginning at the same time. Complementary, these two innovations deserve much credit for the improved performance of the economy in the second half of the century.”

“Friedman came to Yale once and gave a talk called "Yale versus Chicago in Monetary Theory" before a house of 500 people. [...] It was quite interesting. I didn't get much involved at all in public, but we had a small private session afterwards. The thing I remember most about the occasion was that there was a very earnest, well-meaning graduate student who stood up at the big meeting and asked Friedman politely: "In your mode, money is the basic concept, and yet, you haven't ever told us exactly what money is conceptually. Could you help us understand it now?" Friedman cut the guy down in the withering way he can do by telling him that he didn't understand scientific methods. He said Newton didn't have to tell what gravity was; he only had to tell what it does. The same applied to money. That illustrates Friedman's methodology of positive economics which I think has done great damage. [...] You see that in Lucas, too. Their idea is the as-if methodology in which it is not a question whether the assumptions are realistic, but whether the results derived from the assumptions are consonant with the facts of observation. My reaction is that we are not so good at testing hypotheses so that we can give up any information we have at whatever stage of the argument. The realism of assumptions does matter. Any evidence you have on that, either casual or empirical, is relevant.”

“Back in 1982, a brief but brusque exchange … took place between James Tobin … and Robert Nozick … Tobin exclaimed at Nozick: ‘There is nothing more dangerous than a philosopher who’s learned a little bit of economics.’ To which Nozick immediately responded: ‘Unless it’s an economist who hasn’t learned any philosophy.’”

“The other economic camp made for quite a different story. James Tobin (an east-coast Ivy League policy advisor) had already won the Nobel Prize when I spoke with him. A true gentleman, he spoke softly about his life and his Keynesian approach to economics. With due respect, I worried after a time that the interview sounded so automatic, so “done” before, that it would add little to the book. Then I brought up Lucas’s criticism. Tobin began to speak much louder and faster (on transcribing the tape I actually had to adjust the volume). He remained reasonable and gentlemanly but his voice betrayed his indignation toward Lucas and his camp, about how they were misleading sensible Keynesian economic thought.”

“Tobin asked me to come and talk at Yale in 1977, and I was there for a couple of days. He was really nice in a personal way. He made it clear that he respected my work as a professional, so I didn't feel my professional standing was at risk. When I got there he gave me a nice introduction. It wasn't a question of whether I was a competent economist or not; there was nothing personal involved. These guys, however, had lots of disagreements and criticisms. I'd been thinking along these lines for many years, so I thought I did a pretty good job of taking care of the questions, but I don't know how it looked from the other side. It left me with a feeling of being way ahead of the game. It was an exciting feeling.”

“I want to tell you a story about Tobin. There was a conference at the Minnesota Fed in honor of Walter Heller, and all the old people, the heroes of my youth in economics, were there. It was a really nice occasion. Gardner Ackley was giving a talk; it was very negative about the direction of modern macro. saying that there was too much mathematics and that too many assumptions were unrealistic. He also was very critical of rational expectations and of all sorts of modern theorizing. It occurred after two days of really negative things being said about rational expectations. Nobody on our side said anything, in deference to Heller, I suppose. Then Tobin stood up and said that listening to Ackley's talk reminded him of going to the AEA meetings, after the war in 1946, at which the most-prominent old members of the profession were criticizing the young Keynesians for being unrealistic and too mathematical. Tobin said "We've had our chance, we haven't solved all the problems. There are a lot of problems left, there are unsatisfactory things about our models, and it's time to give these guys a chance." It was very gracious.”

“Tobin was a person who really impressed me, because he had a passion for social justice and for public policy (...) for Tobin it was always something that was about making the lives of people better.”

“When James Tobin, a Nobel Prize winner in economics, was on the US Council of Economic Advisors some years ago, I asked him if he used complicated macroeconometric models in his work for the Council. He responded that he didn’t because he and others could not understand the workings and output of such models and thus did not have much confidence in them. When I asked what he actually did use to analyse problems, he remarked that he used a simple multiplier–accelerator model on the back of an envelope and even though he didn’t have too much confidence in it, he said at least he understood what he was doing.”