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The latest news, debates, proposals and developments on new economic thinking at a glance.
The minimum wage is currently high on the political agenda not only in Germany – numerous European countries are on the way to structurally higher minimum wages. The threshold of 60% of the median wage, which is also being discussed in the context of the European Minimum Wage Initiative, is considered a benchmark for an appropriate minimum wage level.
A new report by the Economic and Social Research Institute (WSI), which is close to the trade unions, shows that minimum wages at this level can be implemented if a clear political decision is made. With the planned increase of the minimum wage to 12 euros, Germany would come closer to this benchmark and thus move from being a laggard in minimum wage increases to being a pioneer in minimum wage policy within Europe.
Read the full report here (in German).
More on this topic: In a Makronom article Gabriel Ahlfeldt, Professor at the London School of Economics analyses the welfare effects of a minimum wage raise to 12 Euros in Germany (behind the paywall). The associated discussion paper is available here.
In an article, Harvard economist Dani Rodrik argues for a reorientation of global innovation in a more labor-friendly direction. As manufacturing technologies have become increasingly skill-intensive and automation have reduced labor’s share of manufacturing value added, bending the arc of technology to society’s needs, rather than expecting society to adjust to technology’s demands, should be as much a priority for advanced economies as it is a challenge for developing countries.
The article summarises a recent panel discussion of the International Economic Association with Frances Stewart (University of Oxford), Daron Acemoglu (MIT), Eric Verhoogen (Columbia University), Fabrizio Zilibotti (Yale).
Re-watch the whole session here.
America’s Not-So-Great Inflation – Article
Barry Eichengreen, Project Syndicate, 02/10/2022.
In the article, Berkely professor Barry Eichengreen describes why the current inflation does not parallel the stagflation of the 1970s.
“Die Inflation treibt mich um” – Interview (Paywall)
Lisa Nienhaus & Roman Pletter, Die Zeit, 02/09/2022
Prices are rising in Germany, too. In the interview, the new Bundesbank president explains what he intends to do about it. Joachim Nagel thinks: First the ECB should scale back its bond purchases, then raise interest rates.
Kompliziert und konjunkturell nicht passend: Ampel wird Superabschreibungen wohl verschieben – Article
Martin Greive & Jan Hildebrand, Handelsblatt, 02/09/2022
The traffic light coalition is negotiating the form of the investment premium for climate protection and digitization. Problems are emerging in the process. The project is likely to be delayed.
“Der Stabilitätspakt muss reformiert werden” – Article (Paywall)
Björn Finke & Alexander Hagelüken, Sueddeutsche Zeitung, 02/06/2022
Klaus Regling, head of the rescue fund, wants to allow euro states to have debts of around 100 percent instead of 60 percent and create a permanent financial pot for crisis states. This is dynamite for the German government.
Die Übergangenen Strukturschwach & erfahrungsstark – Zur Bedeutung regionaler Perspektiven für die Große Transformation – Study
Paulina Fröhlich, Tom Mannewitz & Florian Ranft, DPZ and FES.
The world, and thus also Germany, is facing a fundamental change, a Great Transformation. The aim of the study is to show how people affected by the Great Transformation can become co-creators of the future. The upcoming upheaval poses particular challenges for the inhabitants of structurally weak regions. From the perspective of those surveyed, climate plays a very important, if not dominant, role in the tasks facing the country. People are even more concerned about social imbalances such as social division, a lack of social cohesion and injustices within society.
How Novelty and Narratives Drive the Stock Market – Book Review
Nicholas Mangee, INET & Cambridge University Press
‘Animal Spirits’ is a term used to describe the instincts and emotions that drive human behavior in economic contexts. In recent years, this concept has been discussed in the context of the emerging field of narrative economics. When unforeseen events hit the stock market, from corporate scandals and technological breakthroughs to recessions and pandemics, the relationships that determine returns change in unpredictable ways. To deal with uncertainty, investors engage in narratives that simplify the complexities of non-routine change in real time. This book evaluates the novelty narrative hypothesis for the U.S. stock market through a comprehensive examination of unanticipated events using Big Data text analysis of financial news.
One of the most heated debates among macroeconomists in recent years has evolved around the controversy of monetary vs. fiscal dominance. Whereas orthodox economists are calling for fiscal prudence to control the public debt levels, advocates of functional finance argue that a government which issues its own currency can never run out of money, so that the size of government debt is relatively unimportant.
This debate has become ever more important, since inflation is back, putting pressure on central banks to raise rates. Also, salience stems from the massive public investment needs necessary to meet ambitious climate goals.
A new working paper of the Centre for the Understanding of Sustainable Prosperity (CUSP) gives an overview about both sides of the controversy and shows a way out of it. The three authors Andrew Jackson, Tim Jackson, and Frank van Lerven argue against a return to fiscal austerity in the aftermath of the pandemic and make the case for greater flexibility and coordination in the use of both monetary and fiscal policy.
Read the whole working paper here.
Against the backdrop of frequent calls for debt cancellation and reorganization, the Private Debt Initiative of the Institute for New Economic Thinking is convening a conference on “Debt Restructuring” in New York City on Thursday, February 3rd and Friday February 4th, 2022, hosted by Richard Vague (Secretary of Banking and Securities, Commonwealth of Pennsylvania), Rob Johnson (INET President), and Moritz Shularick (INET Fellow).
The debts of households, corporations and the government stand at record highs. Are these debts sustainable? Will overhanging debt burdens weigh on growth in the coming decade? What role can debt restructuring play to build a more inclusive economy for the future? The conference brings together a new generation of economic thinkers, sociologists, activists, and historians to discuss the prospects, challenges and potential effects of debt cancellation and restructuring.
Registration is possible here.
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.