New Paradigm Papers of the Month of March

After Neoliberalism: Economic Theory and Policy in the Polycrisis

Michael Jacobs

Mainstream economic theory and policy have faced significant challenges in addressing, and in some instances exacerbating, the array of economic crises witnessed since 2008: the global financial crash, austerity measures, stagnating productivity, wage stagnation, growing inequality, inflation, and climate and environmental degradation. According to this paper, the core of this inadequacy lies the principle of ‘ontological individualism’ inherent in neoclassical economic theory, which asserts that individual households and firms act as sovereign entities. The author advocates for a shift towards ‘ontological institutionism’, contending that economic behavior is primarily shaped by institutional structures and rules. Unlike neoclassical economics, this perspective is common in other social sciences and significantly alters economic analysis and policy recommendations. Emphasizing an explicit ethical framework for defining policy objectives, the article proposes an ‘institutionally pluralist’ approach, advocating for diverse institutional arrangements across five distinct spheres of economic activity. It argues that economic policy should be viewed as a process of institutional design rather than merely striving for market efficiency, and offers illustrative policy suggestions across various domains, ranging from addressing climate change to promoting business investment.

FULL PAPER.

Social Mobility in Germany

Majed Dodin, Sebastian Findeisen, Lukas Henkel, Dominik Sachs & Paul Schüle

Germany is known as one of the OECD countries with the lowest levels of social mobility. A new paper by Majed Dodin et al. finds new evidence that parental income is a key decisive factor for children’s educational attainment. The authors characterize intergenerational mobility in Germany using census data on educational attainment and parental income for 526,000 children. Motivated by Germany’s tracking system in secondary education, the authors’ measure of opportunity is the A-Level degree, a requirement for access to university. A 10 percentile increase in parental income rank is associated with a 5.2 percentage point increase in the A-Level share. This gradient remained unchanged for the birth cohorts 1980-1996, despite a large-scale expansion of upper secondary education. The proportion of children who graduate from high school rises sharply with the income rank of their parents, and this relationship is linear. 25% of children at the very bottom of the income distribution graduate from high school. At the very top it is 80%. On average, a child with educated parents at the bottom of the income distribution is just as likely to graduate from high school as a child at the top of the income distribution without educated parents.

FULL PAPER.

Wellbeing, Expectations And Unemployment In Europe

David G. Blanchflower, Alex Bryson

The authors find that expectations are more responsive to economic growth than traditional measures of wellbeing. They analyze Eurobarometer micro data from 1973 to 2023, focusing on changes in life satisfaction and expectations regarding individuals’ financial and job situations, as well as their outlook on the economic and employment landscape of their country for the upcoming year. These expectations start to decline several months before economic downturns, especially during major events like the Great Recession and the Covid pandemic. They observe a positive correlation between annual GDP growth and expectations variables, whereas GDP growth shows no significant correlation with life satisfaction. Furthermore, both the unemployment rate and the Consumer Price Index (CPI) have negative effects on both expectations and life satisfaction.

FULL PAPER.

Economic Shocks and the Development of Immigration Attitudes

Dillon Laaker

In this paper, Dillon Laaker argues that growing up in a recession causes a lasting increase in anti-immigration attitudes. He delineates two mechanisms that emphasize the negative consequences of recessions for young workers and the anti-immigration narrative that often emerges during economic turmoil. Young adults are particularly vulnerable to these external shocks because they have minimal political experience and are developing their core political attitudes. Support is provided for this argument with evidence from the European Social Survey. An economic shock during young adulthood causes a significant increase in anti-immigration attitudes, a relationship not found for other ages. The author finds tentative evidence that growing up in a recession can lead to a greater tendency to fall prey to xenophobic narratives. Results highlight how economic crises affect the socialization of young adults and underscore their lasting political consequences.

FULL PAPER.

Analyzing Climate Change Policy Narratives with the Character-Role Narrative Framework

Kai Gehring, Matteo Grigoletto

Understanding the behavioral dynamics of collective decision-making poses a significant challenge for economics, with narratives serving as a pivotal group-based mechanism shaping human choices. This study introduces the Character-Role Narrative Framework as a systematic tool for analyzing narratives and applies it to investigate US climate change policy discourse on Twitter from 2010 to 2021. Drawing from the concept of the drama triangle, which suggests that narratives typically revolve around characters assuming one of three essential roles – hero, villain, and victim – the authors demonstrate how this intuitive framework can be seamlessly incorporated into an empirical pipeline and scaled up for analysis of large text datasets using supervised machine learning techniques. In their examination of US climate change policy narratives, they observe pronounced shifts in the prevalence of simple and complex character-role narratives over time. They find that narratives featuring simplistic portrayals of human characters, particularly emphasizing villains, tend to exhibit higher levels of virality. Taking the example of Donald Trump as a populist leader, the authors illustrate that populism correlates with a greater prevalence of these straightforward, human-centric, and villain-focused narratives.

FULL PAPER.