Looking Back at Crises and Changing Ideas in 2023 and Looking Ahead to 2024

There are crises that accelerate change and the spread of new ideas. And there are crises that tend to trigger the reflex to rely on the tried and tested. This is also the case when it comes to the economy. What has happened in the past two years – and especially since the outbreak of war in Ukraine – initially seemed to follow the second logic. Inflation has given new impetus to advocates of old austerity, as has the recent budget crisis in Germany. Nevertheless, 2023 also seems to be a year in which crises have also helped to break down old thinking. And this is unlikely to apply to any dispute as much as the one triggered by Isabella Weber’s call for price controls in times of multiple crises – to curb inflation.

Initially, there was mainly protest against the attempt to cast doubt on the basic and complete trust in markets. In the meantime, the ideas developed by Weber have been taken quite seriously internationally. In a video interview with us at the end of the year, Isabella Weber once again explained the deeper analysis behind this – well worth watching. And always explosive:

“We see historically, from the French Revolution to the Arab Spring, what happens when the prices of essential goods such as basic foodstuffs rise in such a way that people feel they can no longer afford the bare necessities. This then quickly develops into fuel for political upheaval. Then, part of the social contract breaks.”

You will soon be able to read more on this topic in a study by Isabella Weber and Tom Krebs on when and how to use price controls.

Xavier Ragot, Jérôme Creel and colleagues from the Paris-based OFCE have described the extent to which the 2022 inflation surge has promoted new ideas in a paper that they presented at our May workshop and which will be published by us shortly: it used to be the case that inflation could only be combated by central banks; since 2022, it has become clear that governments can also play their part – whether through price brakes or concerted action. This is another paradigm shift that the crisis has accelerated.

What applies to the price issue also applies to the rethinking of the German export model following the intensification of geopolitical tensions. Since it has become clear how geopolitically naive the Germans have long counted on peaceful globalization, there has been a great deal of research into how the country can reduce such dependencies – de-risking is the new formula. Shahin Vallée and colleagues presented what this could look like at our May workshop – the finished study will follow shortly.

Finally, the end-of-year dispute over Germany’s public finances and the debt brake following the ruling of the Federal Constitutional Court could also serve as an example of pathological learning. While there were initially calls for strict cuts and savings, the uproar has now led to discussions in Germany about how the debt brake could be reformed – so that it does not hinder important investments, for example, to save the climate, due to the debt panic. A paradigm shift – and progress for Germany, where the old orthodoxy has lasted much longer than anywhere else. The big question for the new year is what a new debt brake could look like.

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One of the highlights of the Forum New Economy, however, was an innovation that is not directly related to the major global crises – but contributes to a better understanding of another dangerous imbalance: the wealth simulator, which we presented at the beginning of November. The model allows anyone to calculate what a wealth tax or a start up capital for younger people would actually change in the distribution of wealth in the country. The main message: if you really want to make a difference, you should focus more on giving the many a starting capital than on the sole effect of wealth taxes – even if the latter still seems to make sense.

For an overview of the project click here. And to see the new branch website ReBalance – here.

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In the new year, the search for better answers and a new paradigm will continue. And it could be a pretty decisive one, at the end of which the answer to the question will be whether Joe Biden, with what he is trying to establish as Bidenomics, has found a way to better tackle the problems of the time and at the same time dissuade people from voting for crude populists out of desperation. We will be coming back to this again and again in 2024. More on this shortly.

Until then, make a note: At the end of January, Bundesbank President Joachim Nagel and IfW head Moritz Schularick will be joining us to discuss when and how central banks should intervene in financial crises. January 30 from 4.30pm in Berlin-Mitte. Pre-register here.

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