Re-Live: A New Common Ground for Economics?

The Berlin Declaration on “winning back the people” was signed at the Berlin Summit at the end of May by an impressive number of renowned academics and practitioners, including Dani Rodrik, Mariana Mazzucato, Adam Tooze, Olivier Blanchard, Laura Tyson, Angus Deaton, and many others. The growing interest in the Declaration is clearly indicative of a new common ground in economic thinking. As Branko Milanović (CUNY) explained, the set of guiding principles for economic policy set out in the declaration significantly depart from the Washington Consensus by advocating for reducing economic inequality, reigning in monopolies, promoting proactive industrial policy while also fostering international cooperation and ambitious climate action through a combination of state aid and market instruments.

Most importantly, the Berlin Declaration calls for economic policies to be adapted to local contexts and does not offer a ‘one size fits all’ approach as the Washington Consensus that had market efficiency at its core. Branko Milanović argued that, while market efficiency is an important criterion, it cannot remain the sole guiding principle if it leads to economic policies that undermine democracies and the functioning of society.

“One should not focus on efficiency alone. We are still economists who absolutely care about efficiency but if so-called ‘efficiency’ leads to societal disaster or in a breakdown, it´s not an efficiency. (…) You can have technical policies that seem efficient on paper but if they destroy society, then you will have a backward movement.”  –  Branko Milanović

Isabella Weber (UMass Amherst) agreed that, while market-liberal thinking has come under scrutiny, it still dominates many policy decisions. Most notably, the standard response to inflation still remains the Washington Consensus paradigm of stabilization, even though international institutions such as the IMF recently adopted a more differentiated view. 

“The old paradigm is not gone, but in distress.” –  Isabella Weber

Weber stressed that for a new paradigm to evolve, economy policy must not only divert from the efficiency criterion when crises hit but also in preparation of future shocks, particularly in view of climate change. She also advocated discussing different criteria beyond efficiency for sectors of the economy deemed “too essential to fail” for the public. In her view, economists might try to assess how to better navigate radical uncertainties and make theoretical models more adaptable to crises and price shocks. This should include focusing more on the potential of short-term stabilization measures.

Realizing that economics is a social science, Branko Milanović and Isabella Weber both agreed, that interdisciplinary exchange should play a greater role in crafting economic policy in a radically uncertain world.