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The latest news, debates, proposals and developments on new economic thinking at a glance.
Yesterday, the European Commission has presented its answer to the US Inflation Reduction Act: the Green Deal Industrial Plan to enhance the competitiveness of Europe’s net-zero industry and support the fast transition to climate neutrality. The Plan aims to provide a more supportive environment for the scaling up of the EU’s manufacturing capacity for the net-zero technologies and products required to meet Europe’s ambitious climate targets.
Problematic is the long-term funding, as a “sovereignty fund” has been so far categorically rejected by Germany. As a bridge in the short term, unused credits from the Corona aid fund should be tapped and used differently.
Whereas up until now, the focus had been on the deployment of clean technologies, now the supply side is at the heart of the proposal: broad support to mass production. An informative thread by Claudio Baccianti on the plans of the European Commission:
The US’ Inflation Reduction Act (IRA) has put the finger on some sore spots in Europe. Suddenly weaknesses of the EU Green Deal became apparent, compounded by the energy crisis. Here a thread about why we are back discussing the need of more EU funding.
— Claudio Baccianti (@c_baccianti) February 1, 2023
How much industrial policy is necessary? In a recent Handelsblatt interview (Paywall) Jens Südekum and Lars Feld argue about the right way to go.
“Diese Gewinne gehören der Gesellschaft” – Artikel
Meike Schreiber & Markus Zydra, Süddeutsche Zeitung, 27.01.23
Die Zentralbank zahlt Banken Zinsen, wenn diese ihr Geld dort lagern. Warum eigentlich? Die Milliarden würden den Menschen zustehen, sagt ein Ökonom.
How Not to Fight Inflation – Article
Joseph Stiglitz, Project Syndicate, 26.01.23
A careful look at US economic conditions supports the view that inflation was driven mainly by supply-side disruptions and shifts in the pattern of demand. Given this, further interest-rate hikes will have little to no effect – and will cause far-reaching problems of their own.
New fans for new EU debts – Article
Björn Finke, Süddeutsche Zeitung, 23.01.23
The European Union wants to react to the massive green subsidy programme of the USA and distribute more subsidy money. Where this should come from, however, is controversial. But Council President Michel already has an idea.
Martin Wolf: in defence of democratic capitalism – Essay
Martin Wolf, Financial Times, 20.01.23
The marriage of liberal economics and democracy has brought immense benefits to the world, but faces its toughest test in decades. What needs to be done?
Joseph Stiglitz: tax high earners at 70% to tackle widening inequality – Article
Rupert Neate, The Guardian, 22.01.23
Joseph Stiglitz, the Nobel prize-winning Keynesian economist, has called for the super-rich to be subjected to taxes as high as 70% to help tackle widening inequality.
A New International Economic Order (NIEO) Against Financialisation – Blogpost
Ann Pettifor, Progressive International, 19.01.23
Ann Pettifor argues that the global inequalities produced by capitalism’s financial and trade systems have their root in domestic policy that favours capital over labour.
If there is such a thing as guiding principles that direct politics and people in a country, then for a few decades it was the idea that problems can best be solved through free markets, more globalisation and deregulation. This was still the case at the time of Agenda 2010, when privatisation and deregulation were the order of the day. Today, hardly a day goes by without a call for the state: to rescue banks or energy companies, to issue energy lump sums, to set up special funds for the German armed forces – or to pass gas price brakes. A new fashion, as supporters of the market doctrine have since been muttering? A fleeting zeitgeist against economic reason?
It may have something of a fashion phenomenon. What has been happening for a few years now is probably much more than that – it is driven by a much deeper-seated attempt to develop a new guiding principle that replaces the market as the ultimate remedy. Not because it is the spirit of the times. But because the dogma has reached its limits.
Whether such a new socio-economic paradigm is emerging – and at what stage it is – was the subject of an extensive study that has just been published. According to this study, such guiding principles are important for guiding politics in practice – and for creating a basic trust in politics. And it is precisely this basic trust that has dwindled with the failure of the market-liberal dictum, as several evaluations have shown since then – at the latest since the financial crisis of 2008, which acted as a revelation for the supposedly so efficient financial markets and banks.
Read the whole article here (in German).
In a recent column, Mark Schieritz wonders to what extent the land tax on real estate could serve as a model for a possible reform of the wealth tax. As a result of the reform initiated by the Constitutional Court, standard land values on which the tax is based must be recalculated and adjusted. Which is nothing other than a valuation of assets. However, this is precisely a popular counter-argument in discussions about the feasibility of a wealth tax.
Since the real estate assets of private households are about three times as high as assets in bank accounts and share deposits, they are an important component of wealth, while at the same time the evasion effects are likely to be smaller. Why not expand the property tax into a kind of wealth tax?
The political stipulation is that the reform of the tax must not lead to additional revenues for the state. That is why it has been constructed in such a way that the amounts to be paid should not change very much in the end. But that could be changed. With a few tweaks, it could be expanded in such a way that the wealthy would participate much more in the financing of the state’s tasks. The corresponding data are being collected right now. Another practical aspect is that the increase – or decrease – in the value of a property could be taken into account in a relatively uncomplicated way when calculating the tax. One would then simply have to query the value on a regular basis.
The whole column can be found here.
What Drives Innovation? – Article
William H. Janeway, Project Syndicate, 20.01.2023
After decades in the wilderness, industrial policy is now being rediscovered as a tool for addressing climate change and navigating a fraught new geopolitical environment. This development is long overdue, and fully justified by economic history since the dawn of the Industrial Revolution.
The Unfair Costs of Care – Article
Nancy Folbre, The Prospect, 18.01.2023
A very different kind of inflation.
The planned reform of EU budget rules gives the EU Commission too much power – Article (Paywall, German)
Philipp Heimberger, Handelsblatt, 16.01.2023
The EU Commission wants to change the Union’s budget rules. But the Commission’s plans would create a dangerous arbitrariness, warns Philipp Heimberger.
Corporations and the Super-Rich are Crisis Winners – Article (German)
Die Zeit, 16.01.2023
Food and energy companies made billions of US dollars in windfall profits last year, according to a report. At the same time, extreme poverty increased again.
France Wants to Revolutionise Europe’s Industrial Policy – Article (Paywall, German)
Martin Greive, Julian Olk & Gregor Waschinksi, Handelsblatt, 15.01.2023
The EU has so far failed to find a common response to US industrial subsidies in the wake of the Inflation Reduction Act. France is also pushing for new EU funds – the German government is sceptical.
Necessary Targeting – Article
Achim Truger, Aus Politik und Zeitgeschichte, 02.01.2023
The relief measures should be precisely targeted. In the case of private households, they should preserve energy-saving incentives and focus on lower and middle incomes.
OUR MAIN TOPICS
After decades of overly naive market belief, we urgently need new answers to the great challenges of our time. More so, we need a whole new paradigm to guide us. We collect everything about the people and the community who are dealing with the question of a new paradigm and who analyze the historical and present impact of paradigms and narratives – whether in new contributions, performances, books and events.
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For decades, there was a consensus that reducing the role of the state and cutting public debt would generate wealth. This contributed to a chronic underinvestment in education and public infrastructure. New research focuses on establishing when and how governments need to intervene to better contribute to long-term prosperity and to stabilize rather than aggravate economic fluctuations.
More than a decade after the financial crisis there still seems to be something seriously wrong with the financial system. Financial markets still tend to periodically misprice risk and contribute to boom and bust cycles. A better financial system needs to discourage short-termism and speculative activity, curtail systemic risk and distribute wealth more broadly.
During the high point of market orthodoxy, economists argued that the most 'efficient' way to combat climate change was to simply let markets determine the price of carbon emissions. Today, there is a growing consensus that prices need to be regulated and that a carbon price on its own might not be enough.
The rising gap between rich and poor has become a threat to social cohesion in most rich countries. To reverse this trend it will be crucial to better understand the importance of different drivers of income and wealth inequality.
Do we need a whole new understanding of economic growth? What would be a real alternative? How viable are alternatives to GDP when it comes to measuring prosperity? These and other more fundamental challenges are what this section is about.
After three decades of poorly managed integration, globalization is threatened by social discontent and the rise of populist forces. A new paradigm will need better ways not only to compensate the groups that have lost, but to distribute the gains more broadly from the start.
The euro was planned during a period in which economic policy making was driven by a deep belief in market liberalism and the near impossibility of systemic financial crises. This belief has been brought into question since the euro crisis, which showed that panics do happen. New thinking needs to focus on developing mechanisms to protect eurozone countries from such panics and to foster economic convergence between members.
The current Corona crisis is probably the worst economic crisis of the post-World War 2 era. Economists are working hard on mitigating the economic effects caused by COVID-19 to prevent a second Great Depression, the break-up of the Eurozone and the end of globalisation. We collect the most important contributions.