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The latest news, debates, proposals and developments on new economic thinking at a glance.
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.
In a recent twitter thread, Olivier Blanchard argued that there is a distributional conflict lying at the heart of inflation between workers, firms, and taxpayers. Taking this Post-Keynesian perspective, opens the room for the state when it comes to the most efficient policy response to recent inflationary episodes. Leaving the task to solve a distributional conflict to the central bank alone then seems to be highly inefficient.
His tweet has sparked a hot debate on Econtwitter about the roots of inflation and how to tackle them best. For a short summary, read the blog post by Claudia Sahm here.
Cost of living crisis, ecological emergency and war are some of the new challenges facing Europe. How should the EU economic governance framework change to allow Europe to become stronger, more sustainable and resilient to face these challenges? Finance Watch, Heinrich Böll Stiftung Brussels and the New Economic Foundations are hosting a conference to discuss the ongoing review of the framework.
When? 24 January, 16:00-18:00 pm
Where? In Brussels (Press Club) or online
More information and registration here.
Fiscal policy: Relieve the burden more precisely! – Article (German)
Achim Truger, Wirtschaftsdienst, 16.12.2022
German fiscal policy is facing the next big challenge because of the Ukraine war and the energy crisis. The fiscal effects of the corona pandemic have not yet finally subsided.
Why the Age of American Progress Ended – Article
Derek Thompson, The Atlantic, 12.12.2022
Invention alone can’t change the world; what matters is what happens next.
The UK government’s policy on public sector pay is foolish – Opinion piece
Martin Wolf, Financial Times, 11.12.2022
Letting inflation reduce real wages while expecting services to be maintained is dishonest.
It’s time for a big justice check – Article (Paywall, German)
Heribert Prantl, Süddeutsche Zeitung, 10.12.2022
The nobility has been abolished. The moneyed aristocracy, however, lives and thrives. This is the effect of inheritance tax law: the larger the inheritance, the smaller the tax.
Systemic inflation drivers (and what to do about them) – Article
Robin Wigglesworth, Financial Times, 08.12.2022
Is inflation truly only a macro phenomenon?
Where next for Europe’s industry? – Opinion piece
Martin Sandbu, Financial Times, 08.12.2022
More evidence that factories have weathered the energy crisis well.
Finance and the polycrisis – Fed effects & European corporate bond market – Blogpost
Adam Tooze, 23.11.2022
Though the polycrisis may deliver shocks from different directions, if history has confirmed anything in 2022, it is that the dollar credit-cycle remains a common denominator of much of the world economy.
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.