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The latest news, debates, proposals and developments on new economic thinking at a glance.
While some blame Italy for their unwillingness to reform, others focus on the monetary integration in the Eurozone, or take a firm-level perspective. A new study by Max Krahé argues that none of these explanations alone provide a convincing account and argues that Italy’s stagnation can be traced back to two key moments: a failed attempt in the 1990s/2000s to overcome the growth slowdown, and the retention of this policy mix in the 2000s/2010s.
The paper suggests that any credible reform package must address the deep roots of Italy’s stagnation without repeating past mistakes. Positive conditionality with a focus on companies, institutions and investment may be a promising way forward.
Read the whole study here.
A recently published essay by Yakov Feygin and Nils Gilman explores the possibility of a new economic paradigm called “Designer Economy”, uniting different political camps in the US behind the idea of a pro-active role for the government in shaping the economy.
Instead of a focus on (re-)distribution in a world of secular stagnation, the authors argue for government government-enabled economic development. The Designer Economy focuses on constructing a envisioned future through promoting awareness of economic trends and providing tools for adaptation. Unlike traditional industrial strategy, however, it does promote certain industries, but aims to observe technological and economic trends in order to promote specific potentialities. Rebuilding the administrative capacity is key to enable the state to lead the Design Economy.
The idea of the Designer Economy has the potential to rescue the dream of intentionally transforming the economy to better serve our shared purposes. An emergent political consensus agrees that American capitalism doesn’t have to be a listless system where incomes are stagnant and growing prosperity is available only to the already wealthy. Rather than commanding one ideal path, the politics of design are about what features we want in that future. With the right structures in place, we can transform the government from a mere regulator and issuer of transfer payments into a direct investor in and implementer of a vibrant, verdant, family-friendly and egalitarian future.
Read the whole essay here.
The Knowledge Mismatch – Article
Dani Rodrik, Project Syndicate, 10.02.2023
While economists and policymakers have long appreciated the economic significance of knowledge, they have paid insufficient attention to the conditions that make knowledge useful. Technologies, traditions, and ideas that work well in one setting may not when they are adopted elsewhere or maintained after conditions change.
Habeck’s advisers call for change of strategy in industry restructuring – Article (German)
Julian Olk, Handelsblatt, 09.02.2023
Minister of Economics Habeck wants to restructure industry primarily with subsidies. That is not enough, according to a new report by his advisory board. A green certificate trade is needed.
Flexible pragmatism – (not) a new paradigm? – Blog post (German)
Rouven Reinke & Laura Porak, 08.02.2023
In recent years, the economy has been confronted with various new kinds of crises – and the economist scene with it. A new study has now examined how debates in economics have shifted in the recent past.
Charting Globalization’s Turn to Slowbalization After Global Financial Crisis – Blogbeitrag
Shekhar Aiyar & Anna Ilyina, IMF Blog, 08.02.2023
Trade openness increased after the Second World War, but has slowed following the global financial crisis.
Carbon leakage in times of energy crisis – Article (German)
Tim Bosch & Guntram Wolff, 06.02.2023
In the wake of the energy price shock, energy-intensive production could increasingly be relocated abroad. For European climate policy to be effective, therefore, the domestic and foreign policy dimensions of industrial transformation must be addressed together. A contribution by Tim Bosch and Guntram Wolff.
The case for a land value tax is overwhelming – Opinion Piece
Martin Wolf, Financial Times, 05.02.2023
Natural resources are quite different from the capital stock created out of human effort.
The wage gap is an indictment of Germany – Column (German)
Marcel Fratzscher, Die Zeit, 03.02.2023
Women still earn significantly less than men. If things continue like this, hourly wages will not equalise for another 50 years. Politicians must finally act.
Von der Leyen wants to counter US subsidies – Article (German)
Der Spiegel, 01.02.2023
US President Biden is fighting inflation with billions in aid. In response, the President of the EU Commission has now presented a package of measures that gives priority to green technologies.
We should stop talking about growth – Column (German)
Mark Schieritz, Die Zeit, 01.02.2023
Can the economy still grow in the face of climate catastrophe? That is the wrong question – capitalism is, after all, adaptable.
No confrontation – Guest article (German)
Armin Steinbach, Die Zeit, 01.02.2023
US economic policy is protectionist. But the EU should not let itself be provoked by it. It is more dependent than ever on its allies.
The market regulates nothing. It only enforces its logic mercilessly – Article (Paywall, German)
Christian Baron, Sueddeutsche Zeitung, 01.02.2023
The “Billy” shelf from Ikea is no longer a bargain: what it tells us about inflation, crisis and class injustice.
For the Common Good – Blogpost
Mariana Mazzucato, Project Syndicate, 27.01.2023
Tackling our biggest challenges and reversing the undue concentration of wealth and power will require a fundamental change in political economy. Currently, the principle of the common good is seen as merely a corrective for the current system’s excesses, but it should be the system’s primary objective.
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.
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.