October 2011

Edwin M. Truman responds to Charles Goodhart's "Europe After the Crisis"

by Edwin M. Truman on October 31, 2011

INET published a paper, written by Charles Goodhart, that calls for structural reforms in Europe. In Europe After the Crisis Goodhart proposes to have the President of the European Commission elected by the voters and to introduce a fiscal counterpart to monetary union. Here, Edwin M. Truman reacts to the proposals. Read more

Charles Goodhart: Europe After the Crisis

by Charles Goodhart on October 21, 2011 1 comment

“The European ideal has so much power that crisis and even division will not permanently prevail.” So says Professor Charles Goodhart. At a time when everyone else is doing crisis-mode, Goodhart, the Norman Sosnow Professor of Banking and Finance at the London School of Economics, is looking through the crisis to deeper structural reforms. “The single most important political reform for the EU is to have the President of the European Commission elected by the voters… The purpose of the exercise is to construct a European polity, and power centre, that answers directly to the people of Europe, and is not simply an apparatus managed by national political leaders.” Read more

Steven Medema: The Coase Theorem As Fiction

by The Institute for... on October 20, 2011

30 Ways to Be an Economist is INET's grantee interview series - INET grantees talk about how they do their work, and how they came to be doing it. This week: 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. Read more

MEDIA MENTIONS: The Business News Network interviews Perry Mehrling

by The Institute for... on October 20, 2011 1 comment

The Business News Network (BNN) interviewed Perry Mehrling, INET Senior Advisor and blogger for The Money View, about new economic thinking. Click here to watch the video (7min).

Saving the World from Godzillas: The Bretton Woods Conference

by The Institute for... on October 18, 2011 1 comment

INET presents you a fascinating video that refreshes our memory of the INET Annual Conference in Bretton Woods last April. Click here to watch it.

Can Goldman Sachs fail?

That was the question MIT economics professor and INET Advisory Board member Simon Johnson asked a packed house at the Institute’s April 2011 annual conference in Bretton Woods, New Hampshire. The crowd was silent. Not a single hand went up. Johnson’s point was made. “It can’t happen,” he said. “I wouldn’t allow it to fail if it was my decision. You wouldn’t either. It’s too scary.” Read more

READING ROOM: Economics has met the enemy, and it is economics

by The Institute for... on October 17, 2011 1 comment

The Globe and Mail published a long piece about the dismal science, covering a lot of ground from moral philosophy to rational expectations, from Adam Smith to this year's Nobel laureate Thomas Sargent, from the Post-Autistic Economics movement to the Institute for New Economic Thinking. Excerpts: Read more

John Davis - How to Avoid Herding in Research

by The Institute for... on October 13, 2011

30 Ways to Be an Economist is INET's grantee interview series - INET grantees talk about how they do their work, and how they came to be doing it. This week: 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. Read more

Roger Guesnerie: A Response to John Kay

by Roger Guesnerie on October 11, 2011 3 comments

INET published a paper, written by John Kay, that deals with the relationship between economics and the world we live in. The Map Is Not the Territory: An Essay on the State of Economics spells out methodological critiques of economic theory in general, and of DSGE models and rational expectations in particular.

INET forwarded Kay's paper to a handful of economists and invited them to respond. Here we offer a perspective by Roger Guesnerie, Professor of Economic Theory and Social Organization and Chairman of the Board of the Paris School of Economics.

Guesnerie, as Michael Woodford before him, takes issue with rational expectations. To Guesnerie, rational expectations is a hypothesis, but “dominant economic discussion and practice have most often transformed the Hypothesis into an unavoidable and supposedly uncontroversial modeling axiom.” The optimism embedded in the efficient market hypothesis, Guesnerie continues, “has been one of the main sources of the recent turmoil: it has opened the floodgates to overconfidence, and weakened regulatory forces everywhere.” Read more

William Lazonick: How Government Helps, and Wall Street Hurts, the Innovative Enterprise

by The Institute for... on October 11, 2011

30 Ways to Be an Economist is INET's grantee interview series - INET grantees talk about how they do their work, and how they came to be doing it. This week: William Lazonick - How Government Helps, and Wall Street Hurts, the Innovative Enterprise. Read more

Paul Davidson: A Response to John Kay

by Paul Davidson on October 06, 2011 7 comments

INET published a paper, written by John Kay, that deals with the relationship between economics and the world we live in. The Map Is Not the Territory: An Essay on the State of Economics spells out methodological critiques of economic theory in general, and of DSGE models and rational expectations in particular. Read more