In a recent comment published in the Financial Times, Cambridge professor Diane Coyle calls for a change in economics – and across the next generation of economists. Coyle reasons that economics is a profession that with its influential voice in debates about society and politics comes with a special responsibility. In shaping policy and providing advice to governments and businesses, economic research and ideas hold power over the kind of society in place. Currently, says Coyle, the profession is failing to use its power so that the needs of our time can be met, and the most pressing challenges can be addressed.

For this, she blames two prominent shortcomings. One is the absence of ethics. According to Coyle, through the urge to be as objective as possible by basing economic analysis on data and rigorous statistical techniques, the illusion is being created that economists can stand apart from the society they are analysing – and delegate value judgements to those they are advising. Behind all economic analysis, says Coyle, lies an implicit moral framework. Yet welfare economics, the branch concerned with moral questions, is underrepresented in research and teaching.

The second shortcoming, according to Coyle, is the failure of economists to update their assumptions and models in accordance with the economy of today. The examples Coyle uses to underpin this point are digital technology and its invisibility in economic statistics, and the notion that people are individual maximisers, which cannot hold true in the age of social media driven by advertising revenues. Wherever change in perspectives and approaches is happening, it is not mainstream and far from textbooks, writes Coyle.

According to Coyle, it is hence left to the next generation of economists to ensure that change happens, so that economics can continue to deserve its influence – and the big challenges of our time can be met.

You can read the full article here.

Together with Jan Behringer, Till van Treeck has compared inequality in liberal economies with a leaner welfare state and a pronounced shareholder value orientation (e.g. USA, UK) and in coordinated economies with stronger social protection (e.g. Germany, Scandinavia) in a forthcoming publication. The authors identified different trends. In both ideal types of capitalism, economic inequality as measured by the Gini coefficient has risen sharply since the 1980s.

However, despite the traditionally stronger social partnership between business associations and trade unions, the wage share in coordinated market economies fell more markedly than in liberal market economies. On the one hand, this can be attributed to the veritable explosion of top incomes in liberal market economies and the stagnation of the more “export-driven” economies. On the other hand, large parts of corporate profits have been retained in coordinated market economies, according to van Treeck. In liberal economies, the rapid increase in executive salaries has induced higher – often debt-financed – spending among lower- and middle-income groups to maintain relative living standards, which is why the growth model of these countries can be described as “debt-driven”.

Till van Treeck argues for looking at other indicators besides the Gini coefficient when it comes to inequality and highlights the divergence between household income and corporate profits in Germany over the last twenty years.

Read the full article here.

According to renowned Columbia professor Katharina Pistor, ‘green’ hedging strategies and carbon offsetting schemes allow corporations to avoid taking ownership for the losses that brown capitalism has imposed on the planet and millions of people. In her recently published commentary for Project Syndicate, Pistor argues that the capitalist system, and the laws it is build around, allow for the privatization of gains and the socialization of losses, to the benefit of big corporate entities.

Rather than markets, Pistor writes, it is the law that allows trusts and corporate entities to off-load environmental liabilities and protect their capital even as they act in an environmentally hostile manner. The new consensus with a focus on financial disclosure promises market-friendly change without having to deliver it. If greening the economy was really the goal, Pistor argues, governments would have to eliminate all subsidies for brown capitalism and  place a moratorium on shielding polluters and investors from having to take responsibility for environmental damages.

You can read the full article here.

Columbia professor and Nobel laureate Joe Stiglitz has urged European leaders to abstain from returning to the strict fiscal rules governing deficits and spending that were eased during the Corona virus pandemic. In a recent Financial Times commentary, Stiglitz argues that breaking away from the old fiscal rules can be done sustainably through an ambitious increase of the level of investments. The pandemic had proved that rather than adhering to strict and arbitrary ratios, societies would have been better equipped to deal with the crisis if they had invested in health and supply chains.

Joe Stiglitz warns that a return to the old rules would harm social cohesion. Rather, the system should be rebalanced towards the young and low-wage earners through sustained investment. Ultimately, he says, what is needed is a “more flexible and more thoughtful approach to macroeconomic and fiscal management”.

Read the whole article here.

In his new book Value(s), former governor of the Bank of England, and now UN special envoy on climate action and finance Mark Carney examines the short-comings and challenges of what he identifies as an unreflective belief in the power and competence of free markets. This, he claims, has led to the increasing decay and undervaluation of public goods and society’s core values over past decades – and ultimately fueled the three most significant crises of the present century – the global financial crisis, the climate crisis, and the Covid crisis.  All three, he claims, have either been caused or exacerbated by a failure of markets – and those who unquailingly believe in them – to properly value the importance of ensuring our collective future well-being.

The book’s core subject—the tension between market-determined value and human-led social values—lays the foundation for what Carney sees as the solution to the current misbalances: ‘mission-oriented capitalism’. Rather than subscribing to an economy in which “the price of everything is becoming the value of everything“, markets and corporations should prioritize solving society’s problems, improving people’s lives and expanding our horizons. A better, a new kind of economics, he concludes, needs to recognize the importance of values and beliefs and nurture them into the “three key components of any good society: fairness between the generations, in the distribution of income and of life chances.“

The book, its ideas and content will be discussed at an upcoming OECD NAEC conference.

Online Conference: Value(s): Building A Better World For All
When? Wednesday, 01. September 2021: 2:00-3:00 p.m.
Where? OECD Conference Center Paris and via livestream: here