James Tobin did his graduate work in economics at Harvard University and has been a professor of economics as Yale University since 1950. He won the Nobel Prize in Economics in 1981 for "his analysis of financial markets and their relations to expendi ture decisions, employment, production, and prices. He was president of the America Economic Association in 1970. He served as a member of President Kennedy's Council of Economic Advisors in 1961 and 1962. He was also advisor to 1972 presidential candid ate George McGovern. He is best known for his Keynesian stance in economics and his work on financial markets.
In 1972, James Tobin and Bill Nordhaus constructed a Measure of Economic Welfare (MEW) for the American economy, which made some very important adjustments to the conventional measurement of GNP. Among their changes, value was ascribed to leisure and hou sehold work and they ascribed some costs to urbanization. In the conventional GNP measurement, commuting to work is given a positve value, whereas the MEW rightfully measures it as a cost. They found that MEW, like GNP did grow over the period under stu dy, however, it grew more slowly.
Tobin also introduced the idea of "Tobin's q" as a measure to predict whether capital investment would increase or decrease. "Tobin's q" is simply the ratio between the market value of an asset and its replacement cost. He believed this ratio c ould be used to predict future capital investment, and thus, a good predictor of general economic conditions.
Tobin is also known for his portfolio-selection theory, which states that investors balance high-risk, high-return investments with lower-risk investments in order to achieve balance.
Works by James Tobin:
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