Blogs

A sparsity based model of bounded rationality

The basic microeconomics textbook teaches that, when making a decision, people “maximize.” That is, they do the best they can in a very rational way.

Of course, this is at best a crude rendition of what real people do. Instead, people “sparsely maximize” and pay less or no attention to some features of the problem, such as prices. Read more

Joseph Stiglitz: Economics Has to Come to Terms with Wealth and Income Inequality

Nobel laureate Joseph Stiglitz has been writing about America’s economically divided society since the 1960s. His recent book, The Price of Inequality, argues that this division is holding the country back, a topic he has also explored in research supported by the Institute.  On December 4th, Stigltiz chaired the eighth Institute for New Economic Thinking Seminar Series at Columbia University, in which he presented a paper, "New Theoretical Perspectives on the Distribution of Income and Wealth Among Individuals.” In the interview that follows, Stiglitz explores the themes of this paper, the work of Thomas Piketty, and the need for the field of economics to come to terms with the growing gulf between haves and have-nots. Read more

From Reflexivity to the Wu-Tang Clan

Mathematics as a Common Language

A recurrent criticism made about the economics profession is that it has become overly mathematicised, to the extent of allowing “elegant” models crowd out reality. So the advocacy of mathematics as a common language for the economics profession undoubtedly fills many with horror. Read more

Inequality Hurts Economic Growth, for All of Us

It’s official, at least according to the OECD.

Rising inequality is estimated to have knocked more than 10 percentage points off growth in Mexico, New Zealand, Sweden, Finland and Norway over the past two decades. In Italy, the United Kingdom and the United States, the cumulative growth rate would have been six to nine percentage points higher had income disparities not widened. On the other hand, greater equality helped increase GDP per capita in Spain, France and Ireland prior to the crisis. Read more

A History of the JEL Codes : the Making of the "Microeconomics" and "Macroeconomics" Categories [Part 3]

During the 1930s, members of the Econometric Society such as Tinbergen or Fleming, increasingly came to use a slightly transformed version of a pair of words coined by Ragnar Frisch around 1933: “macrodynamics” and “microdynamics.” Yet, it was only in 1990 that Microeconomics and Macroeconomics were established as independent JEL categories.

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Why is the U.S. Economy Underperforming?

 

Researchers Say Rising Inequality is the Key.

 

Why Keynes is Important Today

By Peter Temin and David Vines

Macroeconomists have been notably unhelpful in explaining and recommending policies since the global financial crisis of 2008. 

How could this have happened? 

Since John Maynard Keynes created macroeconomics in the 1930s, the field has grown to be half of all introductory courses in economics and has become well represented and respected among academic economic publications. Keynes was considered helpful in the “Golden Age of Economic Growth” after the Second World War, but he is largely ignored now that we have recreated conditions similar to the Great Depression in many countries. Read more

Income and Wealth Distribution in Germany: A Macroeconomic Perspective

Household economic surveys, such as the German Socio-Economic Panel, notoriously underestimate the degree of income and wealth inequality at the upper end of the distribution.

To combat this, a new approach developed by Thomas Piketty and co-authors analyzes tax return data in an attempt at better measuring top incomes and wealth. But in the case of Germany, this approach faces a number of difficulties. Since 2009, capital incomes have been subject to a flat rate withholding tax, levied at source. In addition, Germany abandoned the wealth tax in 1997. Read more