Quick & New -
the New Economy Ticker
The latest news, debates, proposals and developments on new economic thinking at a glance.
In a review of Diane Coyle’s book Cogs and Monsters: What Economics Is, and What It Should Be, James K. Galbraith criticises the Cambridge professor to have neglected the legacy of Cambridge Economics left behind by Keynes, Kaldor and others.
He accuses the author of committing a fault typical for reformers of the Economics profession: embracing the same false premises that they should be seeking to overcome. For example fully rational agents, perfectly competitive markets and prices signalling scarcity. Of course, Galbraith acknowledges mainstream economics having left market fundamentalism of the 1980s behind, implementing behavioural insights, asymmetric information, or sticky prices in the models. Nevertheless, all these “departures” still hew to the orthodoxy treating prices as the key to everything – something strongly opposed by Nicholas Kaldor who regarded price signals ultimately as a manifestation of quantity signals.
According to Galbraith, a profound critique of Economics has yet to establish a new theoretical footing, or put differently a new paradigm. Maybe, realising that one is standing on the shoulders of giants can help.
Read the full book review here.
Usually, technological progress is regarded as a good thing, as the foundation of today´s prosperity even. Recently, there are more and more influential economists who raise concerns. One of them is Daron Acemoglu (MIT). In a study with Pascual Restrepo from Boston University, the authors find that half or more of the increasing gap in wages among American workers over the last 40 years is attributable to the automation of tasks formerly done by human workers, especially men without college degrees. One does not have to be a luddite to wonder whether there is room for policy interventions – especially, since the promised productivity gains have been elusive.
The process of technological change is not something God-given or immutable, as some economic models using exogenous innovations suggest. Rather, it can be shaped by societal and political choices. According to Acemoglu, technological development should be steered into a more human-friendly direction. More specifically, he suggests fair tax treatment for human labor in relation to the costs of equipment and software and well-designed education and training programs for the jobs of the future.
For more detailed information, read this New York Times article on technology and inequality.
In his talk with Joe Kaeser, Harvard economist Dani Rodrik also talked about redirecting technology to work for people, not against them.
On Monday this week, the IMF has appointed Pierre-Olivier Gourinchas as the Fund’s Economic Counsellor and Director of the Research Department (RES). He will succeed Gita Gopinath, who will join the Fund’s management team as First Deputy Managing Director.
The Berkeley Professor has worked in different macroeconomic areas ranging from global imbalances and capital flows to the stability of the international monetary and financial system, and more recently, to economic policies for the pandemic era.
More information on Pierre-Olivier Gourinchas.
In an opinion piece, former German Interior Minister (1978-1982) Gerhart Baum (FDP) calls for liberals to overcome their distrust of state intervention. He argues for an updated understanding of freedom that includes responsibility.
Baum hopes for a revival of “social liberalism” which defined the FDP’s programmatic orientation in the 1970s. With the traffic light coalition, he says, the right time has come for a liberal reorientation. Because: “Social, ecological and liberal, that’s a good mix.”
The author cites two areas of application in particular in which a paradigm shift is necessary. First, environmental protection, which the Free Democrats had long neglected as a freedom-restricting growth killer. Second, the social dimension. The focus of liberal politics should be on people and their self-realisation – linked with social responsibility and the pursuit of social justice.
The full Handelsblatt article is (behind a paywall) available here.
In a recently published study, Jens van ‘t Klooster describes the fiscal and monetary policy of the European Union since 2008. He observes a genuine paradigm shift taking place amongst central bankers and EU technocrats setting financial and fiscal rules. The new economic paradigm could be labeled Technocratic Keynesianism, where policy makers are informed by Minskian-Keynesian ideas to constrain the power of capital.
These policies are pushed through strategic ambiguity: new policies of monetary financing and credit guidance have a justification in terms of previously hegemonic market liberal ideas. Continuity is suggested and legislative involvement is minimised. Hence, similar to the European integration process this paradigm shift also seems to work through the back door.
The full article is available open access 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.