On the selection of a program of economic policy with an application to the current situation in the United States

Abstract

The article considers the selection of appropriate economic policies, which obviously depends on some form of judgement regarding the likely magnitude of their impact, however crude this estimate may be. The author first reviews the distinction between targets and instruments, and argues that successful policy programs require preparatory quantitative work examining the effectiveness of instruments. An attempt is then made to elucidate some of the problems likely to be encountered in pursuing two very important “targets” in the post-war years: full employment without inflation and balance-of-payments equilibrium. Some graphical devices are then used to demonstrate how these targets can be attained through various conventional policy measures. Finally, the author considers the case of the United States and what combination of fiscal, monetary, exchange rate or wage policies may bring about equilibrium.

JEL: E60, E31, E24, F32