The New Paradigm Papers of the Month of January
Once a month the Forum New Economy is showcasing a handful of selected research papers that lead the way towards a new economic paradigm.
PUBLISHED15. JANUARY 2024
READING TIME4 MIN
Distributional and Financial Impact of Universal Inheritance in four European countries
By Guillem Vidal-Lorda, Andreas Thiemann, Leire Salazar & José A. Noguera
This study discusses the concept of a Universal Inheritance (UI) as a strategy to address increasing inequalities in developed societies. UI involves providing all citizens with an unconditional cash lump sum at a specific point in their lives, typically upon reaching adulthood. Advocates view it as a means to redistribute wealth, reduce inequality of opportunity, and propose increased wealth, estate, and/or inheritance taxes to fund it. Despite variations in UI proposals regarding design, amount, and funding methods, there is limited systematic evidence on their costs and distributive impacts. This study distinguishes itself as the first comparative assessment of UI across multiple countries using harmonized data sources. The authors find that, under some parameters, a UI would significantly reduce inequality in the countries assessed (Finland, Germany, Ireland, and Italy) and could be realistically financed by taxing the top 1%.
Labor Market Tightness and Union Activity
By Chantal Pezold, Simon Jäger & Patrick Nüss
This study investigates the impact of labor market conditions on unionization decisions. The authors explore the possibility that tight labor markets may encourage unionization by reducing the threat of unemployment or employer retaliation in response to unionization attempts. The study also considers the idea that tight labor markets could deter unionization by providing appealing alternatives outside of engaging in the costly process. Through a large-scale survey experiment involving U.S. workers, the study reveals a moderate increase in support for union activity when workers believe in higher labor market tightness. However, the effect sizes are small, indicating a marginal impact, such as a one-percentage-point increase in the probability of voting for a union during the peak of the business cycle. The research also employs quasi-experimental research designs using data from various U.S. states and counties over several decades to examine equilibrium effects. The findings challenge the conventional belief that labor market tightness significantly drives unionization in the United States.
Inflation, Profits And Market Power: Towards A New Research And Policy Agenda
By Carsten Jung & Chris Hayes
This paper discusses a less-acknowledged contributing factor to high inflation – corporate profits. The authors argue that market power wielded by certain corporations, including temporary power post-pandemic, amplified inflation, making price increases more pronounced and persistent. While corporate profits were not the sole driver of inflation, their market power exacerbated its effects, an aspect not adequately addressed in prevailing macroeconomic debates. The paper emphasizes that profit margins do not necessarily have to rise for profits to contribute to inflation. The authors advocate for addressing market power and its economic costs through a global market power index and harmonized measures of excess profits across countries. In terms of policy, the authors recommend a global approach to taxing excess profits, estimating potential revenue at $100 billion globally. Additionally, they advocate for a new direction in competition policy, aligning with the emerging new paradigms in digital markets, emphasizing ex ante and sector-specific regulations to set rules before anticompetitive behavior occurs. The authors see competition policy as an instrument for macroeconomic stabilization in a turbulent environment, beyond its traditional role of preventing microeconomic harms.
Governing the economics of the common good: from correcting market failures to shaping collective goals
By Mariana Mazzucato
In this paper, Mariana Mazzucato addresses the need for a renewed focus on defining and pursuing the “common good” in economic activity, especially in the context of global challenges like the Green Transition. It critiques existing economic frameworks that view government intervention as corrective rather than proactive and proposes a framework centered on market-shaping and public value. Drawing insights from political philosophy, the paper emphasizes the relational and mutual nature of the common good. The proposed framework includes five key principles: purpose and directionality, co-creation and participation, collective learning and knowledge-sharing, access for all and reward-sharing, and transparency and accountability. The paper reviews discussions on the common good in political philosophy and contrasts existing economic concepts, suggesting that a renewed focus on collectively considered “good” objectives is crucial for guiding economic activity towards shared goals in urgent moments for collective action.
Modern industrial policy and the WTO
By Chad Bown
This paper conducts a survey on the economics of industrial policy within the context of the World Trade Organization (WTO). Driven by concerns that contemporary industrial policy practices may jeopardize collaboration in the global trading system, the paper initially outlines the historical economic framework linking industrial policy to underlying market failures. It then explores the predominant economic perspective on the WTO’s role, delving into its rules regarding subsidies (and consequently industrial policy), expressing concerns about the evolution of these subsidy rules, identifying gaps in knowledge, and addressing significant data and measurement limitations. The core section of the paper examines four key factors explaining why modern industrial policy differs and why it has become crucial for the trading system: China, supply chain resilience, supply chain responsiveness, and climate change. The paper highlights existing evidence, unresolved questions, and potential directions for future economic research, aiming to assist policymakers in efforts to restore international economic cooperation in trade and industrial policy.