A Final RemarkAuthor(s): James TobinSource: The Review of Economics and Statistics, Vol. 41, No. 3 (Aug., 1959), p. 319Published by: The MIT PressStable URL: http://www.jstor.org/stable/1927462 .

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NOTES AND BOOK REVIEWS 319

are strong, but just how strong and how effective we need to measure.

Not only the factors that help determine con- sumer demand, but also consumers' perceptions of the extent to which marketed goods and services will satisfy their wants, are important questions relevant to purchase predictions. This again is a little explored frontier for systematic research.

Exciting opportunities have presented themselves in such events as the development of a market for small cars.

Until we have gathered more data of the kinds indicated and then studied the predictive value of relevant attitudinal material in combination with that of other variables, no verdict on their predic- tive value but a Scotch one would seem acceptable.

A FINAL REMARK James Tobin

Naturally the conclusions of my statistical analy- sis can refer only to the questions on intentions and attitudes included in the survey data I used. If my awareness of this elementary fact is insufficient- ly clear in the full context of the sentence on page io cited by Professor Katona and quoted by Mrs. Fisher, I am glad to acknowledge it again here. Surely both of them will agree that testing must be done when opportunities permit. The fact that many consumer attitudes were not ascertained in the I952 and I953 surveys does not mean that we should refrain from testing the predictive value

of those few questions that were included. I do not conclude from these tests that experimentation in search of attitudinal questions of predictive value should be abandoned - quite the contrary. More power to Mrs. Fisher (whose theoretical remarks seem very sensible to me) and to George Katona in their efforts to find the strategic attitudes. But let them be modest in claims of success in this quest until they are in a position, not just to explain away negative results, but to cite favorable results of rigorous statistical tests.

USE OF THE EXCISE TAX AS A COUNTERCYCLICAL MEASURE Mordechai E. Kreinin

Most countercyclical measures discussed in eco- nomic textbooks are directed toward one of two circumstances: an increase in unemployment or a rise in prices. They are not designed to deal with conditions involving a rising price level coupled with large-scale unemployment. However, with the growth of administered pricing in the manufactur- ing sector, the economy may be expected to under- go slumps during which prices continue to rise, or at least remain stable. Under such conditions, the traditional measures may be subject to severe limita- tions. A cut in income tax rates (or an increase in government expenditures), for example, may have the desirable expansionary effect, but in the process might precipitate inflationary pressures. On the other hand, if the tax cut is enacted for a limited period of time, its income-generating effect may be limited, since the marginal propensity to consume out of windfall income is likely to be relatively small.

Anti-recession measures must now be formulated within a framework in which declining prices do not absorb part of the impact of the decline in ef- fective demand. Some observers contend that under such circumstances unemployment should be toler- ated, since- it would force business and labor to re-

frain from raising prices and wages. Others suggest that the solution lies in some form of price and wage control. Between the two extremes are those who have faith in Presidential appeals to labor and industry to curb their appetite for wages and profits.

This note advocates the adoption of another measure which falls between the "two extremes," namely, selective changes in excise tax rates. This measure would strengthen considerably the arsenal of existing stabilization policies. The proposal' would apply primarily to industries which are sub- ject to large, short-run fluctuations in production and employment, but in which prices exhibit a high degree of rigidity. Since many of these industries pay excise taxes,2 variations in tax rates can be used to bring about a greater degree of price flexibility. Such industries, when badly hit during a period of economic slump, would be entitled to excise tax relief, provided that they lower their prices by a proportion greater than the percentage point re-

The proposal is similar to the one advanced by Senator Paul H. Douglas on May 6, 1958. It is, however, broader in scope than, and was developed independently of, the Douglas plan.

2 Home appliances, automobiles and their parts and acces- sories, tires, radios and television sets, and the like.

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