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The latest news, debates, proposals and developments on new economic thinking at a glance.
Economist Isabella Weber in conversation: “The debt brake has been a brake on the future for 14 years” – Interview (German, Paywall)
Julius Betschka & Felix Kiefer, Tagesspiegel, 03.01.2024
Saving is not always a virtue, says Isabella Weber. The economist warns that austerity is not only detrimental to competitiveness, but also to democracy.
Clarifying America’s Great Inequality Debate – Article
Daron Acemoglu, Project Syndicate, 03.01.2024
Technical debates about the nature and scale of income inequality are important, but they should not obscure what matters most in the story of the US economy. The mitigating effects of taxes and transfers do not change the fact that the market economy has been malfunctioning for the past 40 years.
Mainstream Economics’ Medieval Inflation Medicine – Article
James K. Galbraith, Project Syndicate, 29.12.2023
Considering that the US inflation rate peaked in June 2022, there is no evidence that monetary policy had any significant effect on the direction taken by prices. Yet, like premodern physicians committed to the ancient humoral theory of disease, mainstream economists today have shown that they lack the tools to cure the patient.
To Fight Populism, Invest in Left-Behind Communities – Article
Diane Coyle, Project Syndicate, 28.12.2023
People living in “places that don’t matter” have seen quality jobs disappear, public services eroded, and their economic prospects rapidly diminish. Seen in this light, today’s populist backlash is hardly surprising, especially when many politicians are part of the thriving urban elite.
Debt, guilt and Swabian housewives: debate on German borrowing rule heats up – Article (Paywall)
Guy Chazan, Financial Times, 31.12.2023
Scholz government at an impasse over reforming popular debt brake after November court decision.
On the Brink of System Failure – Article (German, Paywall)
Georg Diez, Die Zeit, 02.02.2024
Whether pensions, federalism or education: The country has a number of eternal construction sites. Everyone knows about it, but no one changes anything. In the end, this jeopardises democracy.
The Exploring Economics platform has compiled a review of key publications from the German-speaking ‘New Economy Space’ over the past year.
The Forum appears twice. In January with the study Mapping the State of a Shifting Paradigm on the current state of the paradigm shift in economic policy. And in November with our new inequality website including the ReBalance wealth simulator.
Click here for the end-of-year review.
The Myth of the 1% – Article
Michael R. Stain, Project Syndicate, 14.12.2023
The skewing of income toward the top 1% of earners has become a central issue in American politics, with both Republicans and Democrats proposing higher taxes on the rich. But new research finds that it may not be true, suggesting that policymakers would do better to focus more on helping the working class.
A Bidenomics score chart – Column
Martin Sandbu, Financial Times, 14.12.2023
A boastful administration that has much to be boastful about.
Tax justice is yet to hit the richest ‘citizens of the world’ – Column
Rana Foroohar, Financial Times, 11.12.2023
A Supreme Court case highlights the difficulties of raising revenue from wealthy people who can park money offshore.
Why the economic miracle is not reaching Americans – Article (Paywall, German)
Ann-Kathrin Nezik, Süddeutsche Zeitung, 12.12.2023
The US economy is performing better than in most other industrialised countries. Nevertheless, the majority of people are dissatisfied. Economists suspect other reasons behind this.
High time for a constitutional amendment – Article (Paywall, German)
Alexander Thiele, Max Krahé, Philippa Sigl-Glöckner, FAZ, 12.12.2023
The debt brake must be reformed so that Germany does not fall behind economically.
Debt brake? Yes, but relax it! – Interview (Paywall, German)
Die Zeit, 07.12.2023
Gita Gopinath, deputy head of the International Monetary Fund, speaks out on the German budget dispute and worries about global trade.
Ecological sustainability and high employment are often perceived as being in tension. Historically and also today, economic development has almost always come at the expense of the environment. Does this mean, conversely, that the green transformation threatens jobs?
In a recently published study, Enzo Weber and Gerd Zika estimate the employment effects of climate transformation and come to the conclusion that they are likely going to be positive.
The approaches take into account that existing jobs can be replaced and eliminated by new technologies and regulations. Similarly, investments, infrastructure development, and new business models associated with the transformation are also considered. All these impulses associated with the transformation or the measures are then simulated simultaneously in a structural economic and labor market model. This model illustrates how the changes are processed and what adaptation reactions occur.
The central result: Overall, there are positive employment effects in the socio-ecological transformation. And this applies to all skill levels, meaning not only ‘good’ jobs are replaced by ‘cheap’ jobs. The climate policy turnaround is possible without losing jobs overall.
Read the whole study (in German) here.
The independent scientific advisory board at the Federal Ministry for Economic Affairs and Climate Protection has proposed a comprehensive reform of the debt brake. According to this, investments should no longer fall under the debt rule, as quoted in a recently published article.
The independent committee states that the debt brake in its current form contains “false incentives”. Although the advisory board does not propose abolishing it, it does propose several changes. These are the two most important:
“Golden Rule Plus”: The state can take on debt for investments that do not fall under the brake. “Investment promotion companies”: The state undertakes to provide these companies with a fixed amount of money each year. They then use the money exclusively for investments.
The report also criticises the previous fiscal policy practice of special funds to circumvent the debt rule:
In the view of the advisory board at the Ministry of Economic Affairs, it was urgently necessary to put an end to the practice of special funds, not only from a legal but also from an economic point of view. This policy was “not sustainable”, it was merely an attempt to “disguise” the actual financial requirements. These are the words of the report, which was compiled over the course of more than a year under the leadership of Mannheim financial scientist and advisory board chairman Eckhard Janeba.
Read the whole article (in German) here.
OUR MAIN TOPICS
New Paradigm
NEW PARADIGM
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.
Redefining
the role of
the state
REDEFINING
THE ROLE OF
THE STATE
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.
Remaking
finance
REMAKING
FINANCE
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.
Greening
prosperity
GREENING
PROSPERITY
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.
Reducing
inequality
REDUCING
INEQUALITY
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.
Innovation Lab
INNOVATION LAB
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.
Globalization
for all
GLOBALIZATION
FOR ALL
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.
Europe
beyond markets
EUROPE
BEYOND MARKETS
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.
Corona Crisis
CORONA CRISIS
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.