508 PONTIFICIAE ACADEMIAE SCIENTIARVM SCRIPTA VARIA - 28
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3. SOME PRELIMINARY CONCLUSIONS CONCERNING THE CONSE-QUENCES
 OF THE « OLD » VS THE « NEW » FiscAL PoLicy

On the basis of the — as yet incomplete — model above it
is possible to illustrate the differences between the « old » and
the « new » ideas of fiscal policy and to bring out some of their
striking characteristics.
We shall regard private investment, kp, as the independent
and freely variable element of the model and study the consequences
 of variations in this part of total activity.
Let us define « old-fashioned » fiscal policy as a policy
where m is kept constantly equal to zero. (It may perhaps
also be reasonable to assume that this policy would be coupled
with a state of affairs where 3, indicating the public part of
investment activity, is rather small.) From (2.2) and (2.4)
we then derive the now rather « threadbare » textbook relation

(3.1)

T —

Y

(m=0o)

provided, of course, that x=xp+x0+kp+ko<aK. This
« classical » relation of a neutral fiscal policy shows one property
 that would make good common sense to most people,
viz. that when the economy is in a state of stagnation or slow
progress (i.e. kp small), then people do not feel that they can
spend much on consumption either. The senseless aspect of
the situation is, of course, that both xp and kp may be far below
the level that available capacity permits.
The « new » type of fiscal policy, on the other hand, can
be illustrated by requiring that xp+ xo + ke + ka=aK. which

81 Haavelmo - pag. 6