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The latest news, debates, proposals and developments on new economic thinking at a glance.
In a new opinion piece for the Financial Times, Martin Sandbu makes the point for opening the discussion about the mandate for central bank, between the poles of independence and democratic accountability:
“Credibility of central banks itself is only as good as the credibility of the macroeconomic regime as a whole. That is not to say central bank independence should be jettisoned, but to ask openly whether it actually works for the economy… Even if monetary considerations should take priority, such monetary dominance is undoubtedly something to be democratically debated, not technocratically imposed.”
Federal government wants to skim off windfall profits in the electricity sector as well – Article (German)
Zeit Online, 19.10.2022
A price brake is to be introduced not only for gas, but also for electricity. The Ministry of Economics wants to skim off profits from the electricity sector.
The gas price brake is better than its reputation – Article (German)
Tom Krebs, Zeit Online, 18.10.2022
The Gas Price Commission’s proposal strikes the right balance between savings incentives and price brakes. But the government absolutely has to improve on one point.
Wars Aren’t Won with Peacetime Economies – Article
Joseph Stiglitz, Project Syndicate, 17.10.2022
Since launching his war of aggression in Ukraine, Russian President Vladimir Putin has described his barbaric project as a confrontation with the entire West. But while Western governments have responded politically and diplomatically, they have yet to do what is needed economically.
A New Chance for the World Bank – Article
Larry Summers, Project Syndicate, 10.10.2022
The World Bank should be a major vehicle for crisis response, post-conflict reconstruction, and, most importantly, for supporting the huge investments necessary for sustainable and healthy global development. To realize this potential, those attending the Bank’s meeting this week need to step up and do the right thing.
Why market power undermines climate protection – blog post (German)
Max Bank & Nelly Grotefendt, Makronom, 17.10.2022
Time and again in recent years, the consequences of one-sided lobby and market power have become clear – and how difficult it is to limit them.
Due to the abolition of the petrol discount and the 9-euro ticket and further price increases for energy and food, low-income families are particularly hard hit, according to a study by the trade union-affiliated Macroeconomic Policy Institute (IMK).
“At 11.4 %, the household-specific inflation rate of low-income couples with 2 children was the highest among the households considered here. As has been the case consistently since January 2022, the lowest household-specific inflation rate was recorded by high-income single people (8.0%).”
This means that not only does the inflation rate reach an all-time high of 10% overall, but also the inflation spread between individual population groups of 3.4 percentage points.
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.
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.