INET grantees talk about how they do their work, and how they came to be doing it. Visit this page to find a new interview every week.
Diego Comin – Why New Technologies Do Not Make Poor Countries Rich
Over the past tw
o hundred years, poor countries have become faster at adopting the technologies of rich countries. So why is it, the economist asks, that poor countries have remained poor, by and large? The answer, Diego Comin says, is that poor countries use technologies less intensely: fewer people use less advanced computers less often. To find out why – finance, institutions, geography? – Diego amasses data to measure the diffusion of technologies over two centuries. Compiling a big data set to study the drivers of technology adoption – this is new economic thinking.
Moritz Schularick: Credit Booms Gone Bust
Carmen Reinhart and Kenneth Rogoff tell the history of financial crisis as a tale of excessive public debt. But what more commonly drives financial instability, says Moritz Schularick, is excessive private debt. Financial crises are credit booms gone bust. Schularick and his collaborators compile a long-run data set of disaggregated credit flows, separating loans for productive investment from loans for the purchase of existing assets. A marriage of economic history and modern statistical methods to investigate the role of finance in the macroeconomy -- this is new economic thinking. Watch video
Sanjay Reddy - Facts and Values Are Entangled: Deal with It
Are there more poor people on our planet today than there were last year? Many economists would approach this question as mainly a technical problem, a matter of counting. Sanjay Reddy did, too, but soon recognized that a sound answer required making normative criteria explicit. Much confusion and many technical muddles in poverty measurement can be avoided, Reddy says, only if we become conscious and deliberate about how values enter the analysis. Fact and value are entangled, and Reddy shows how recognizing this leads to greater analytical clarity -- this is new economic thinking. Watch video
Pavlina Tcherneva - Bottom Up Fiscal Policy: Direct Employment of the Unemployed
To cure unemployment, mostly we prime the pump: we devise fiscal strategies on the presumption that jobs follow economic growth. But the strategies have not worked, unemployment remains high. That is why Pavlina Tcherneva studies policies that target the unemployed directly. She says that the government can reduce income inequality and restart the growth engine by putting people back to work. In other words, growth follows jobs. Investigating different models of fiscal policy -- this is new economic thinking. Watch video
Stephen Kinsella - Irish Crisis Demands New Economic Thinking
Most "state of the art" macro models trivialize financial flows and largely neglect the interaction between finance and industry. That is why they failed at predicting and illuminating the collapse of the Irish economy. Stephen Kinsella sets out to provide a remedy: starting from a web of balance sheets, stock-flow-consistent models make it possible to trace the financial flows connecting firms and banks, households and government. Kinsella moves beyond mere simulation, and empirically calibrates a stock-flow consistent model of the Irish economy with the goal to inform policy -- this is new economic thinking. Click here to watch the video
Cosma Shalizi - Why Economics Needs Data Mining
Cosma Shalizi urges economists to stop doing what they are doing: Fitting large complex models to a small set of highly correlated time series data. Once you add enough variables, parameters, bells and whistles, your model can fit past data very well, and yet fail miserably in the future. Shalizi tells us how to separate the wheat from the chaff, how to compensate for overfitting and prevent models from memorizing noise. He introduces techniques from data mining and machine learning to economics -- this is new economic thinking. Click here to watch the video
Ed Kane - Measuring Systemic Risk To Empower the Taxpayer
Banks take on excessive risk since they know, in case of failure, the taxpayer will step in to rescue them. That is a form of free insurance, and Ed Kane wants to end it. To do so, he says, we need to put a number on systemic risk, the amount for which the taxpayer is on the hook. Kane uses the contingent claims model developed by Nobel Laureate Robert Merton to calculate the market value of the implicit insurance -- making the cost explicit, and so empowering the taxpayer. This is new economic thinking. Click here to watch the video
Steven Medema - The Coase Theorem As Fiction
When externalities are present and transaction costs are absent, private parties will strike welfare-enhancing deals regardless of who owns what. In a frictionless world, bargaining leads to efficiency. That is the essence of the Coase Theorem, and it is fiction, according to Steven Medema. The world is not frictionless, which is why the Theorem is not applicable to it. And yet the theorem, distorted versions of it, entered into textbooks and came to captivate the minds of economics and legal scholars alike. Medema investigates how that came to be. Writing the intellectual history of the Coase Theorem -- this is new economic thinking. Click here to watch the video
John Davis - How to Avoid Herding in Research
An individual fish reduces the danger to itself by swimming as close as possible to the center of the school. That is how schools hold together. John Davis says that researchers and fish are alike -- both engage in herd behavior. PhD production, the role of journals, the incestuous relationship between top universities -- Davis looks at it all with an eye to informing policy to promote diversity and alternative views in the profession -- this is new economic thinking. Click here to watch the interview
William Lazonick - How Government Helps, and Wall Street Hurts, the Innovative Enterprise
Innovation drives economic growth and welfare, and the industrial corporation drives innovation, says William Lazonick. But just how do corporations innovate? The key idea is commitment. People with knowledge of and experience in particular industries commit to a business model that ventures into unknown territory. The main problem is that modern financiers are not prepared to support commitment, and the modern executive pushes for stock buy-backs -- that is how Wall Street undermines innovation. Understanding how organization drives innovation -- this is new economic thinking. Click here to watch the video
Katharina Pistor - What Finance (and Economics) Can Learn from Law
Without law and legal institutions, financial markets won't work. That's what economists discovered about 15 years ago, when former socialist countries turned towards capitalism. But economists still conceive of law too narrowly, mainly as a means to reduce transaction costs and protect investors. Katharina Pistor convenes scholars from across disciplines -- law, economics, and sociology -- to re-theorize the relationship between law and finance, from the ground up. The rational autonomous actor meets the socially embedded actor -- this is new economic thinking. Click here to watch the video
Gerald Epstein - Banks: How Big Is too Big?
We all know it: The financial sector is bloated and banks are too big to fail. But just how bloated is it, and how much should it be shrunk? Gerald Epstein and his collaborator James Crotty use both micro and macro data to deliver the numbers. They build on James Tobin's concept of functional efficiency to separate the financial sector's beneficial activities (mobilizing savings, financing investment, and reducing risk) from its socially inefficient activities (gambling, and distorting the political process). An empirical study that is full of institutional detail and addresses the elephant in the room: big banks and regulatory capture -- this is new economic thinking. Click here to watch the video
Philip Mirowski - Why Is There a Nobel Memorial Prize in Economics?
The Nobel Memorial Prize defines high achievement in economics, and it validates the discipline's claim for scientific authority. And yet, historically, it can be understood as a reflection of domestic policy conflicts in Sweden. This, Philip Mirowski would say, is but one example of the multifaceted nature of history. He and his team investigate how the Bank of Sweden's goal of political independence wound up elevating the status of neoclassical thinking within the economics profession. Writing the history of the Nobel Memorial Prize to tease out the influence of economic doctrines on policy norms in recent decades -- this is new economic thinking. Click here to watch the video
Leanne Ussher and Sorin Solomon - Financial Fragility in a Network of Trade Credit
The physicist Sorin Solomon begins to feel dizzy when the economist Leanne Ussher talks econ lingo. Yet he listens, because the two of them have found a productive area of collaboration: some economic phenomena, they find, can be explained without recourse to the quirks that feed into human decision making. Sometimes, they say, we can model people as if they were particles, and explore consequences of the social structure that constrains their possible actions. Ussher and Solomon set up a model of Italian industry, stock-flow consistent and grounded in firm-level data on trade credits, to trace out the relation between network structure and financial fragility -- this is new economic thinking. Click here to watch the video
Doyne Farmer - Macroeconomics From the Bottom Up
In 2006, the Fed asked its macroeconometric model what would happen if house prices dropped by 20%. The model projected the past into the future and said: "Not much." Well, the financial crisis proved it wrong. Meanwhile, DSGE models, the main alternative up to this date, do not feature financial institutions; "They are not even good enough to be wrong," says Doyne Farmer. That's why Farmer and his team are developing an agent-based model, of the housing market first and of the entire economy next, to mimic the current financial crisis. The team collects data on actual people to calibrate a rich model with millions of interacting agents. This is a bottom-up approach to macroeconomics -- this is new economic thinking. Click here to watch the video
David Weinstein - When Banks Fail, the Case of Japan
What happens to Main Street when Wall Street fails? Japan expert David Weinstein squeezes a unique data set to answer this question. While in the US you will find data on banks and data on firms separately, in Japan there's data that links banks and firms -- a great opportunity to analyze the damage done by collapsing financial institutions. David Weinstein investigates the Japanese financial crisis during the 1990s to shed light on the US financial crisis today. This is research about Wall Street shaking Main Street -- this is new economic thinking. Click here to watch the video
Wade Hands - Paul Samuelson and the Neoclassical Synthesis
Paul Samuelson was both a mathematical micro-economist, working from theorem to proof in the neoclassical tradition, and a committed Keynesian macroeconomist, convinced of the necessity of policy intervention to improve the performance of market economies. How did he square these two sides of himself? Wade Hands goes into the archives to find out, as a step toward understanding how the neoclassical synthesis was first made. Understanding the past in order to understand the present -- this is new economic thinking. Click here to watch the video
Scott Condie - Modeling Asset Markets when Knowledge Is Ambiguous
When you flip a coin, you expect heads and tails to show up with a 50% chance each. But what if all you knew was that heads and tails each have a chance of at least 25%? That's how Scott Condie captures Knightian uncertainty in asset markets. He models investors who act on basis of ambiguous knowledge, with the result that asset prices fail to reflect all private information. This is financial market modeling beyond the efficient market hypothesis - this is new economic thinking. Click here to watch the video
Margaret Levenstein - Financing Innovation or Speculation, the Case of Cleveland
Did you know that around 1920 Cleveland, Ohio, had a technological cutting edge not unlike Silicon Valley today? Probably you didn't, because Cleveland lost its edge during the Great Depression, and its innovation networks were never heard of again. Margaret Levenstein tells the story how, in the late 1920s, local investors who used to fund local inventors started speculating in New York instead, and the innovation networks broke down. This is not a story only about Cleveland, Ohio. This is painstaking research yielding a unique relational database to answer questions about the long-term costs of macroeconomic instability - this is new economic thinking. Click here to watch the video
Irwin Collier - How Economists Used to Be Made
Economists aren't born, they're made. Irwin Collier digs into archives to find out how Paul Samuelson and his generation were made. What did they learn, and how did they learn it? While today's graduate schools focus on quantitative methods, Collier says that a background in philosophy, politics, and history is essential to the posing of interesting questions. Without such background, he says, a researcher may be likened to a greyhound who cannot tell the difference between a fake bunny rabbit and a genuine hare. Irwin Collier uncovers the seeds of old economic thinking. Click here to watch the video
Barry Eichengreen - Why Economics Needs History
What challenges will China have to surmount in order to make its currency a true international currency? To answer this question and others, Barry Eichengreen studies history. In the old days, he says, historians and theorists worked smoothly together and saw one another as serious scholars. But those days are gone, and nowadays the profession largely neglects historical and institutional research. That's why Barry Eichengreen is running the Berkeley Economic History Lab to educate a future generation of scholars -- a generation that is historically literate and does policy-relevant research. These are the seeds of new economic thinking. Watch video
Bruce Caldwell - Why Economics Needs the History of Thought
Who is going to teach fields like economic methodology and the history of economic thought if these fields aren't taught to current graduate students? Bruce Caldwell is filling this whole in the graduate curriculum. The Hayek scholar is ramping-up the Center for the History of Political Economy at Duke University to educate a generation of future professors – a generation that is well-versed in the history of economic thought, and that communicates with other social sciences and the humanities. These are the seeds of new economic thinking. Click here to watch the video
David Tuckett - How Investors Use Stories to Tame Uncertainty
If you want to understand how fund managers choose a portfolio, why not ask them? That’s what David Tuckett does: he draws on standard sociological techniques of interviewing to understand investors’ decisions to buy or sell assets. He says financial markets cannot be driven by economic fundamentals – because the future is uncertain – instead, they are driven by stories about fundamentals. David Tuckett merges insights from Keynes, from sociology, and from psychoanalysis to develop what he calls emotional finance – this is new economic thinking. Click here to watch the video
Domenico Delli Gatti - Microfoundations for the Vision of Minsky
Delli Gatti starts where his dissertation advisor, Hyman Minsky, left off. With tools from network theory and agent-based modeling, he simulates the economy as enormous web of credit relations. He says agent-based models can capture a simple idea that traditional macro models could not: when a business fails to pay, its creditors may fail to pay – that’s interaction – threatening to shake the entire web of credit relations. The microfoundations are a step beyond Minsky, the interaction is a step beyond the representative agent – this is new economic thinking. Click here to watch the video
