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The latest news, debates, proposals and developments on new economic thinking at a glance.
Why Services Need an Industrial Policy – Article
Dani Rodrik, Project Syndicate, 12.10.2022
Enhancing productivity in services is notoriously difficult, and it is often impeded by a myriad of well-meaning licensing, safety, and other regulations. But if policymakers are serious about increasing the supply of good jobs for less-educated workers, services are where they must direct their efforts.
The public-private financing cocktail – Article (German)
Michael Peters & Uwe Zöllner, Makronom, 10.10.2022
According to the will of the federal government, the “mobilisation” of private capital is to play a central role in financing the ecological transformation. But this can only lead to success under certain conditions.
Toward a Progressive Economic Agenda – Article
Mariana Maazucato, Project Syndicate, 05.10.2022
Past policy failures and unmet populist promises represent an opportunity for progressive leaders. But to win power, they must articulate a coherent alternative economic-policy program, focusing not only on redistribution but also on wealth and value creation.
The Politics of Pay-Fors: A Simple Framework – Blogpost
JW Mason, October 2022
One of the central economic debates among progressives is over the necessity or desirability of accompanying new public spending with similar-sized tax increases. In recent years perhaps the most visible, or at least the most heated, instances of this debate have been around Modern Mone(tar)y Theory. But the debate itself is broader and older.
Tax rate not the right lever for targeted relief – Article (German)
Katja Rietzler, Wirtschaftsdienst, Oktober 2022
In view of the drastic price increases, the federal government has already launched the third relief package in September 2022. In order to prevent an additional tax burden due to the cold progression, an annual adjustment of the tax rate to the price development is regularly demanded. Why this alone is problematic.
Yesterday, the Alfred Nobel Memorial Prize in Economic Sciences was awarded to former US Federal Reserve Chairman Ben Bernanke and the two economists Douglas W. Diamond and Philip H. Dybvig. They were awarded for their research on banks and financial crises.
The Diamond-Dybvig model from the 1980s uses simple game-theoretic methods to show how vulnerable banks are to bank runs as intermediaries for maturity transformation (long-term loans and short-term deposits). Ben Bernanke was awarded for his research on the Great Depression in the 1930s, particularly on how the financial crisis developed into a recession of the real economy (from Wall Street to Main Street).
Partly because of the influence of the aforementioned research, the 2008-09 financial crisis was not as devastating as the Great Depression and classic bank runs have become rare. However, this also suggests that banks are only one side of the story and that the systemic risks of the financial sector now come from the shadow banks. But here, too, the model can help to understand the trade-off between preserving liquidity and mitigating risk (preventing moral hazard).
Reactions to the award have been mixed. While some praised the research for its contribution to mitigating the financial crisis or even saving the world, others criticised the outdated understanding of banks as simple intermediaries and underlined their credit creation function.
Inequality has risen sharply in many major economies in recent decades, including Germany. A new study shows that a tax on high wealth, such as Spain is currently introducing, could also help to reduce inequality in Germany without reducing growth.
In a guest article for Makronom, Linus Mattauch analyzes what conditions would have to be met for this to happen.
In today’s edition of Die Zeit, Mark Schieritz reports on the protest letter from top economists to OECD chief Mathias Cormann over his hostile course against the OECD’s New Approaches to Economic Challenges (NAEC) initiative. Read the article here.
Governance for a Healthy Economy – Article
Dani Rodrik, Project Syndicate, 09.09.2022
Addressing the world’s biggest challenges will require a completely new policymaking paradigm, one that looks past all the old arguments about the supposed inherent limits of government and the dichotomy between the public and private sectors. States and markets must be treated as the complementary institutions they have always been.
Big Majority In Favor of Wealth Taxes – Studie
Süddeutsche Zeitung, 09.09.2022
According to a study, the demand for a higher contribution from the wealthy is very popular, because very many feel that conditions are unfair. However, the question of who wants to make their own contribution is a sensitive one.
Feelings of injustice: Perceptions of justice in Germany – Umfrage
Bertelsmann Stiftung, 09.09.2022
Many people believe there is injustice in Germany. However, the willingness to contribute to changing this themselves is low.
Zugzwang central banking (ECB edition) – Artikel
Daniela Gabor, Financial Times, 08.09.2022
Zugzwang is the German word for a situation in chess (and life) in which a move must be made, but each possible one will make the situation worse. It also captures perfectly the predicament facing central banks in Europe.
Christian Lindner no longer rules out suspending the debt brake – Artikel
In an emergency situation, the suspension of the debt brake is the “last resort,” says the federal finance minister. However, such a scenario is not on the horizon at present.
The Myth of the Meritocracy – Artikel
Martyna Linartas, Jacobin, 06.09.2022
Germany sees itself as a society in which performance is rewarded. However, the majority of wealth was not earned, but inherited.
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.