On Benishay's Evaluation of Policy: Comment

Abstract

I regard H. Benishay's article [1] and his emphasis on distributed lags and disaggregation as a major contribution to the f1eld of macroeconomic policy. In this f1eld the bulk of the discussion has been limited to the relative merits of monetary and fiscal policy in stabilizing economic output without taking account explicitly of the statistical properties and distributed lag nature of the variables involved. The underlying assumption of writers in this area has generally been that, regardless of the existence or absence of lags, short-term policy could stabilize output.1 Now, Benishay has shown that even with lags there exists a stabilizing policy. But, at the same time, Benishay has pointed out the complexities of the process and in so doing opened up a Pandora's box of questions, to some of which I address myself in this note. It becomes clear, however, that further work in this field must consider Mr. Benishay's two-edged results. (a) Under certain assumptions there is a range of sizes of policy where policy is stabilizing. (b) It is not an easy task to discover this range, and uncertainties abound. In this note I address myself to point b. My aim is to suggest that b should be emphasized and to sound a warning that even if a is true, i.e., a stabilizing policy exists, it may not matter, since the stabilizing policy may not be amenable to implementation. Milton Friedman's original point was that, although policy may be stabilizing under certain underlying conditions, we do not know enough about these underlying conditions to take advantage of policy's ability to stabilize. I feel that Benishay's work should be put in a proper perspective so that this point is reinforced and properly stressed. I wish to emphasize the great diff1culty of implementing a stabilization policy under conditions of uncertainty. Via the presentation of points 14 below I will attempt to show how Benishay's results can be reexpressed or reinterperted to highlight the difficulties of implementation. (1) The range of stabilizing policy that Benishay found is so small that any change in the exogenous variables of the system could well make the policy destabilizing.2