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The latest news, debates, proposals and developments on new economic thinking at a glance.
In a recent interview with the Süddeutsche Zeitung, Tom Krebs, one of the authors of the study ‘Mapping the State of a Shifting Paradigm’, explains how the economic policy debate has changed.
The market regulates everything, the state is supposed to stay out of it: This policy is over, fortunately, finds economist Tom Krebs. Why the government should intervene again with the minimum wage, but would rather have left it alone with higher earners.
The economic policy debate has changed over the past 30 years, among economists and in international organisations. In the 1990s, the International Monetary Fund (IMF), the World Bank and the OECD argued in a market-liberal way. They called for privatisation, deregulation and flexible labour markets, which often meant low wages. The market should regulate everything. Today, they postulate an important role for the state and think reasonable minimum wages are right.
Read the whole interview here (German, Paywall).
In a recent Tagesspiegel article (paywall), Harald Schumann argues that state is taking over more and more tasks from the market as faith in its efficiency dwindles. He sees a new paradigm entering economic policy: The state as steer, investor and entrepreneur.
Based on a new study by the Forum ‘Mapping the State of a Shifting Paradigm’, the article describes a reorientation of economic science. This can be seen in the fact that all leading institutions from the International Monetary Fund to the EU Commission are abandoning faith in the market and calling for massive state intervention against inequality, climate change and financial crises.
However, it is uncertain whether the ideological turnaround will lead to practical success. A new consistent paradigm is yet to come, so far there are only experimental approaches. In addition, there is now a lack of insight and competent experts in the state apparatuses. In addition, there is a danger of subsidy races and the looting of state coffers by a few beneficiaries. Full transparency is therefore the sine qua non for a successful new economic policy.
The full article is available here. The full study on the state of the paradigm shift is available here.
Is capitalism the crisis? – Podcast (German)
Petra Pinzler & Stefan Schmitt, Die Zeit, 12.01.2023
The loss of nature and the climate crisis show that our economic system is eating away at its own foundations. How can it contribute to the solution?
Monetary policies that do not subsidise banks – Article
Paul de Grauwe & Yuemei Yi, CEPR, 09.01.2023
Central banks pay interest on commercial banks’ holdings of cash reserves at the central bank. Thus, recent rate increases imply larger interest payments to commercial banks and loss of revenue for national governments. This column argues that a better policy would be to combine sustained sales of government bonds with higher minimum reserve requirements. This would avoid transferring central bank profits to commercial banks, which essentially amounts to a subsidy paid by the central bank.
A US Inflation Reduction Act for Europe – Article
Tom Krebs, Project Syndicate, 10.01.2023
While some European policymakers are ambivalent about the US Democrats’ signature climate-change legislation, the American plan’s targeted, government-centered approach is far more credible than the market-based approach guiding the EU’s current green agenda. Instead of fighting the IRA, Europe should embrace its pro-worker bent.
What’s Beyond Beyond Neoliberalism? – Article
Amy Kapczynski, LPE Blog, 09.01.2023
Part of the nature of a governing paradigm is that it is shapes how we see things. But something we look through is, of course, hard to see beyond. Perhaps there’s an iron rule at work here. So suggests Hegel’s claim about the Owl of Minerva flying only at dusk. But if we seek not just to interpret the world but also to change it, it is especially important to try to glimpse the future that might be emerging in our present
Warum die Weltwirtschaft ein neues Betriebssystem braucht – Article (German)
Moritz Schularick, Der Spiegel, 06.01.2023
Wir stehen vor einer neuen Phase der Globalisierung. Deutschland braucht dafür eine Weltwirtschaftspolitik, die auf Europa setzt und die Interessen des Landes als Ganzes von denen einzelner Branchen trennt.
Traditional climate policy mostly relies on market-based policies centred around carbon pricing with ex-post compensation of so-called climate change “losers”. As Tom Krebs argues in a recently published New Economy Working Paper, this market-liberal approach is flawed as it neglect transaction costs and economic power relations in the labor market.
A modern climate policy stance takes account of these flaws and, according to Krebs, is built upon the idea of a forward-looking government that creates pro-worker, green institutions and uses green industrial policy to support households and firms in the transformation process. He names the US Inflation Reduction Act (IRA) as an example where modern climate policy was put into action to some extent. More precisely, it includes several elements of a worker-friendly and green industrial policy, while lacking a institutionalised pro worker climate agenda.
As Krebs argues in a recent article, Europe should embrace the IRA and its pro-worker bent, because the American plan’s targeted, government-centered approach is far more credible than the market-based approach guiding the EU’s current green agenda.
AI in the Common Interest – ArticleGabriela Ramos & Mariana Mazzucato, 26.12.2022
Public policies and institutions should be designed to ensure that innovations are improving the world; but as matters stand, many technologies are being deployed in a vacuum, with advances in artificial intelligence raising one red flag after another. The era of light-touch self-regulation must end.
The Double Transformation – Article
Diane Coyle, Project Syndicate, 09.12.2022
The transition to a carbon-neutral economy will make it impossible for competition authorities to keep operating as they have over the past few decades. To accelerate the clean-energy revolution and ensure that dominant companies do not erect new barriers to market entry, policymakers must shed 40 years of conventional wisdom.
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.