Forum Newsletter #39 – Wrap-up from the New Economy

Economists and the Rent Cap - John Maynard Keynes - Isabel Schnabel


Dear friends and colleagues,


It is part of the leitmotif of the past decades that economists say what is (purely) economically right. Whether that is politically feasible and good is not their thing, that is the task of politicians. This has always sounded a little, shall we say, unsatisfactory. Whether this self-image is still tenable is an open question – especially in cases like the recent furore on the overturning of Berlin’s rent cap. From a purely economic point of view, the rent cap may be counterproductive – and still from a purely economic point of view, the problem would be solved if many more houses were built (although even that is constrained by the limited availability of land).

But what good does that do, if this takes far too long and people are finding it increasingly difficult to understand because they have to pay the rent now? And if that causes so much resentment? Just ignore it? Because it is economically correct? Or should we look for solutions that may not be economically optimal, but that are acceptable? David Kläffling has compiled a list of possible solutions for the tenants´ market. Which is not to say that the rent cap is good or that globalisation is bad per se – only that it is not enough to explore only the economic aspects.

An economy like this only works in the long run if people participate – and it is no help for the best economy if, at some point, it becomes politically unstable. And what happens if we experience the same as Americans did when globalisation did not strike so positively across the board? In purely economic terms, one might have thought the China shock simply acted as a boost to competition;. but in fact, whole regions and cities went bankrupt in the Rust Belt during that time, and countless livelihoods were destroyed. Of people who, some time later, disproportionately voted for Trump and propelled the country into a politically critical time.

Here, too – as with the rent cap issue – the question arises as to whether the old paradigm, according to which economists only have to concern themselves with purely economic matters, should not belong to the bin. Whether we don’t need a new paradigm that assumes that we are dealing with a social whole, and that the economic is an integral part of it – and that it makes little sense to only want to understand the economic, as in the laboratory, when psychology, politics, sociology and history are involved too. As John Maynard Keynes, who died 75 years ago this week, understood it:

“The part played by orthodox economists, whose common sense has been insufficient to check their faulty logic, has been disastrous to the latest act.”

This much about that. In the next newsletter, there will be an update on our next big workshop at the end of May – for example, on the talk between Isabel Schnabel and Laurence Tubiana; or on a new session in which Philippe Martin, economic advisor to Emmanuel Macron, will present and discuss ideas for reforming European debt rules.


Best regards,

Thomas Fricke 

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