Fischer Black is kwn for his brilliance as well as his sometimes controversial opinions. Highly respected for his scholarly writings in finance, he w moves into different territory with this incisive, unconventional assessment of general equilibrium theory and what that theory reveals about business cycles, growth, and labor ecomics.The general equilibrium approach, Black asserts, can be used to explain most of the ecomy's behavior. It can explain business cycles and growth without using sticky prices, irrationality, ecomies of scale, or imperfect competition. It can explain the volatility of consumption, output, sales, investment, and inventories with axiomatic utility and constant-returns-to-scale production. It can explain temporary layoffs, job changes with and without intervening unemployment, and the behavior of vacancies. It can explain lower wages in part-time jobs, wages that increase rapidly with time on the job, and the forces that cause migration from poor to rich countries.Although the general equilibrium approach can't be tested in conventional ways, it can be used to generate examples that explain stylized facts -- generalized observations from the real world -- that have preoccupied macroecomists for the last decade. Black contrasts his interpretation of these facts with conventional interpretations. Finally, he reviews a substantial body of literature on these topics.
CHERYL KATZ is a performing arts consultant. She recently produced atour of an international dance project involving companies from the UnitedStates, Ireland, and Japan.