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The latest news, debates, proposals and developments on new economic thinking at a glance.
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.
Germany is in a bizarre fiscal mess of its own making – Article (Paywall)
The Economist, 30.11.23
Three steps to resolve the fiscal panic.
Luxury Boom Boosts Wealth of Billionaires – Article (German)
Der Spiegel, 30.11.23
The rich make the rich even richer: according to a study, the post-coronavirus spending spree has ensured that owners of luxury goods companies have amassed more money. Who becomes a new billionaire is largely determined by their background.
The New Industrial Policy and Its Critics – Blogpost
Laura Tyson & John Zysman, 17.11.23
For many years, industrial policy was considered taboo in the United States and many other advanced economies, owing to assumptions that it is inherently protectionist and market-distorting. But context matters, and in today’s world, state interventions to address market failures are exactly what is needed.
Majority Thinks Debt for Investments Is Ok – Article (German)
ZDF, Dominik Rzepka, 29.11.2023
Getting into debt is not actually a majority option – but there are exceptions: If the money flows into schools or roads, a majority is in favour of relaxing the debt brake.
Anarcho-capitalism, What Is That? – Article (Paywall, German)
Nikolaus Piper, Süddeutsche Zeitung, 26.11.23
The new Argentinian President Javier Milei is an avowed anarcho-capitalist. To understand this, you have to get to know the economist after whom Milei named his dog.
In a representative survey on the topic of public debt conducted by Fiscal Future and d/part in June 2023, over 3,000 people in Germany were asked about public debt and government investment.
At first, superficial glance, population surveys seem to support the assumption that people in Germany expect a reduction in debt in terms of fiscal policy. When asked about this, many people state that they are rather sceptical about extensive government debt. But can we really conclude from this that they consider government investment to be less important and prioritise fiscal discipline? Existing research casts doubt on this.
Find the whole briefing here.
Monster of the mainstream – Article
Quinn Slobodian, The New Statesman, 20.11.23
Argentina’s new president Javier Milei embodies the zombie neoliberalism of the 1990s.
Why Mainstream Economics Got Inflation Wrong – Blogpost
James K. Galbraith, 15.11.23
Leading economists’ misdiagnosis of inflation in 2021-22 was the latest episode in a long-running series of failures, from not foreseeing the 2008 financial crisis to endorsing self-destructive austerity in the 2010s. Either mainstream economists need to re-examine their core beliefs, or the profession needs a new mainstream.
« The United States and the European Union must support a United Nations tax treaty » – Article (Paywall, French)
Collectif, Le Monde, 21.11.23
Fourteen economists, lawyers and former politicians – including Jayati Ghosh, Joseph Stiglitz and Thomas Piketty – are warning of the crucial vote on Wednesday 22 November at the United Nations on a resolution on international tax cooperation.
Best books of 2023 — Economics – Article
Martin Wolf, Financial Times, 15.11.23
Martin Wolf selects his best reads of the second half of 2023.
Three and a half ideas for a new debt brake – Article (German)
Fabian Franke, Die Zeit, 24.11.23
Christian Lindner’s solution to the budget crisis is short-term, the demands for a reform of the debt brake remain. This is what it could look like.
The Hidden Gender Wealth Gap – Article
Celine Bessiere & Sibylle Golac
As important as equal pay and other labor-market advances for women have been, progress toward economic parity with men remains tenuous and incomplete. As inequality becomes less about wages and more about wealth, women once again find themselves facing profound structural disadvantages.
“Democracy has not delivered what it promised” – Interview (Paywall, German)
Markus Zydra, Süddeutsche Zeitung, 21.11.23
Economist Raghuram Rajan foresaw the global financial crisis – and now recognises fractures in the system. He explains where they are, why so many people are turning to authoritarian regimes and what can be done about it.
The think tank Dezernat Zukunft has published a new information page on the German debt brake. The website explains and visualises the fiscal rule on three levels. Firstly, how it came about. Secondly, how it actually works. And thirdly, how it could be reformed.
The impact of the debt brake on the budget, education, infrastructure and society is enormous. Nevertheless, few people understand it. And experts doubt whether it is really future-proof. An attempt to explain it, including a proposal for reform.
Find the website 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.