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the New Economy Ticker
The latest news, debates, proposals and developments on new economic thinking at a glance.
A new study by the German Institute for Economic Research (DIW) examines the burden on German households across the entire basket of goods along the income distribution on the basis of the Income and Consumption Survey and SOEP.
The authors come to the conclusion that the lower the income of households, the more the price increase burdens them. Moreover, the aid packages would relieve the lowest income decile in particular, while the lower middle class would continue to be significantly affected by price increases. Should inflation continue to rise in the second half of the year, low-income households in particular would be at greater risk of poverty.
An extensive summary of the study is available here.
Globally rising prices are an expression of a shift away from a shortage of demand to a shortage of supply, a phase of supply bottlenecks and general scarcity. In a new article, Gustav Horn therefore argues for a reorientation towards supply-side policies.
Instead of (only) relying on classical monetary policy instruments of higher interest rates, which lower inflation by dampening demand, a policy focused on expanding supply could achieve this goal at lower cost. Furthermore, according to Horn, a future-proof supply policy could drive the energy and mobility transition and enable broad-based digitalisation. For this to happen, he says, globalisation must be redesigned to focus on resilience rather than solemnly on naïve trade relations. The focus is on mobilising the labour market so that more people have opportunities for good work.
Read the whole article (in German) here.
French finance minister says EU debt rules are ‘obsolete’ – Article
Victor Mallet & Leila Abboud, Financial Times, 07.07.2022
Bruno Le Maire calls time on ‘frugal’ union and promises further economic reforms.
Dobrindt calls for a temporary “citizens’ base price” for gas – Article (German)
FAZ, 05.07.2022
Gas prices will rise. The CSU, on the other hand, wants to set a cap on basic needs per person with a citizen base price.
Alles, was fest ist, schmilzt zur Inflation – Artikel
Harold James, Project Syndicate, 05.07.2022
Die politischen Entscheidungsträger in den westlichen Industrieländern täten gut daran, sich daran zu erinnern, dass Zeiten hoher Inflation in der Vergangenheit zu viel größeren Problemen geführt haben. Indem sie versuchten, Gesellschaften mit Geld zusammenzuhalten, haben die Zentralbanken immer wieder die Saat für einen breiteren politischen und sozialen Zerfall gelegt.
Only a progressive tax revolution can perhaps still stop the climate collapse – Article
Ulrich Thielemann, Makronom, 04.07.2022
The time to avert climate collapse with market-based instruments alone has expired – now only consumption reductions will help. And by taxing away the disastrous overconsumption, the funds for building a renewable infrastructure can be made available at the same time.
The distinct feature of an economic paradigm is its cross-political nature. At its height, the Keynesian welfare state received as much support from conservative politicians as it did from those on the left.
It was similar with neoliberalism, when also center-left leaders like Bill Clinton and Tony Blair had internalized much of its pro-market agenda.
Today we are in the midst of a transition away from market liberalism, but what will replace it is highly uncertain. In a new article, Dani Rodrik sees signs for a new paradigm emerging around what he calls “productivism”.
This possible new bipartisan consensus emphasizes the dissemination of productive economic opportunities throughout all regions and all segments of the labor force. Unlike in neoliberalism, governments and civil society play a significant role in achieving that goal. It puts less faith in markets, is suspicious of large corporations, favours production and investment over finance, and revitalizing local communities over globalization. It also departs from the Keynesian welfare state by focusing less on redistribution, social transfers, and macroeconomic management and more on supply-side measures to create good jobs for everyone.
Rodrik sees examples of this new paradigm on both sides of the American political spectrum. Joe Biden’s administration – and some of its policies – feature many of these elements. Examples include the embrace of industrial policies to facilitate the green transition, rebuild domestic supply chains, and stimulate good jobs. But he also mentions examples from the right. Alarmed by China’s rise, Republicans are also pushing for investment and innovation policies to bolster US manufacturing.
In summary, productivism is rooted in production, work, and localism instead of finance, consumerism, and globalism. The new economic policy framework might just develop into a new policy model that captures imaginations of even the most polarized of political opponents. Read the whole article here.
The past two decades have witnessed sluggish economic growth, mounting inequality, dysfunctional competition, and a host of other ills that have left people wondering what has happened to the future they were promised. Most explanations of these problems involve either bad policy or inevitable circumstances arguments. In their book Restarting the Future, Jonathan Haskel and Stian Westlake offer an alternative narrative centred around institutions. More precisely, they see all those problems being rooted in the failure to develop the institutions demanded by an economy now reliant on intangible capital such as ideas, relationships, brands, and knowledge.
The growth of intangible investment has slowed significantly in recent years, making the world poorer, less fair, and more vulnerable to existential threats. The authors present new ideas to help governments to catch up with the intangible revolution, offering a road map for how to finance businesses, improve our cities, fund more science and research, reform monetary policy, and reshape intellectual property rules for the better.
The book is featured at Martin Wolf’s selection of the best summer books of 2022 in Economics.
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.