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In this paper we reconsider the link between tight money policies and inflation in the spirit of Sargent and Wallace's (1981) influential paper, 'Some unpleasant monetarist arithmetic.' A standard neoclassical model with capital, bonds, and return‐dominated currency is used. The potential for tight‐money policies to be inflationary (unpleasant arithmetic) exists, even when the real interest rate is below the growth rate of the economy. Additionally, the likely observability of unpleasant arithmetic in real world economies is shown to depend crucially on the type of monetary policy rule that is used. JEL Classification: E52, E63 Un autre coup d'œil sur la relation entre politiques monétaires restrictives et inflation. Ce mémoire ré‐examine la relation entre politiques monétaires restrictives et inflation dans l'esprit du travail de Sargent et Wallace (1981) 'Some Unpleasant Monetarist Arithmetic'. Les auteurs utilisent un modèle néo‐classique standard avec capital, débentures et une monnaie dont les rendements sont dominés par ceux d'autres réservoirs de valeur. La possibilité que les politiques monétaires restrictives soient inflationnistes existe même quand le taux d'intérêt réel est plus petit que le taux de croissance de l'économie De plus on montre que l'obtention de ces résultats déplaisants dans les économies concrètes dépend fondamentalement du type de règle monétaire qu'on utilise.

Governments, motivated by a desire to improve upon long-run laissez faire, routinely undertake enduring, productive expenditures, say, in public education, that generate positive externalities across cohorts but require investments be made up front. If everyone after the policy is initiated is at least as happy as before and there are some outstanding resources, the Hicks-Kaldor efficiency rule suggests that the present value of these resources could, hypothetically, be distributed to future generations creating the potential for generational Pareto improvement. The literature recognizes the challenge in constructing a policy that is actually Pareto-improving since the policy itself may generate general-equilibrium gains and losses spread across generations. The paper takes on this task. In a dynamically-efficient economy with an intergenerational human capital externality, it constructs an equilibrium path with public education financed by non-explosive debt and taxes that truly improves upon laissez faire, yet no generation is harmed along the transition, not even the current ones.

AbstractIn this paper we assume away standard distributional and static‐efficiency arguments for public health and instead seek a dynamic efficiency rationale. We study a lifecycle model wherein young agents make health investments to reduce mortality risk. We identify a welfare rationale for public health under dynamic efficiency and exogenous mortality even when private and public investments are perfect substitutes. If health investment reduces mortality risk but individuals do not internalize its effect on the life‐annuity interest rate, the "Philipson‐Becker effect" emerges; when the young are net borrowers, this works together with dynamic efficiency to support a role for public health.

The welfare state is not merely a stand-in for missing markets; it can do a whole lot more. When generations overlap and the young must borrow to make educational investments, a dynamically-efficient welfare state, by taxing the middle-aged and offering a compensatory old-age pension, can generate higher long-run human capital and welfare compared to laissez faire. Along the transition, no generation is hurt and some are better off. If an intergenerational human capital externality is present, unfunded pensions can be gradually phased out entirely. Public pension reform can be rationalized on efficiency grounds without relying on political-economy concerns or aging.