Blogs

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

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Cited in Wikipedia entry “Tendency of the rate of profit to fall

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, he 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

William Lazonick: How Superstar Companies Like Apple Are Killing America’s High-Tech Future

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Few would argue that America’s fortunes rise and fall on its ability to generate technological innovations — to put bold ideas to work and then bring them to market. William Lazonick, professor of economics at the University of Massachusetts Lowell, and Matt Hopkins, research associate at the Academic-Industry Research Network, have investigated how the technology knowledge base gets created, what has gone wrong in America’s approach to innovation, and why the truth about who invests in the process is poorly understood. In the interview that follows, Lazonick shares findings from two recent papers that are part of the Institute for New Economic Thinking’s project on the “Political Economy of Distribution.” He explains why successful companies like Apple need to make fundamental changes to the way they allocate resources and stop throwing away America’s most valuable asset for future innovation — you. Read more

They called it a sunspot

Coauthored with Aurélien Saidi.

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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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Steven Fazzari & Barry Cynamon: Why is the U.S. Economy Underperforming? Rising Inequality is the Key.

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Steven M. Fazzari and Barry Z. Cynamon, researchers long interested in consumer behavior, wrote an op-ed for the St. Louis Post Dispatch in October, 2007 in which they predicted that an end to the relentless trend of rising household debt and a subsequent crash in household spending could lead to a surprisingly deep U.S. recession. Soon after, their prediction came true in the aftermath of the global financial crisis.

Fazzari and Cynamon’s current work, which examines how high and rising inequality is holding back the American economy, is part of the Institute for New Economic Thinking’s project on the “Political Economy of Distribution.” In two papers, “Inequality, the Great Recession, and Slow Recovery” and “Household Income, Demand, and Saving: Deriving Macro Data with Micro Data Concepts,” they explore how the massive debt which led to the Great Recession, the spending collapse that followed, and the stagnation that persists are all linked to income inequality. In the following interview, they discuss how their findings challenge conventional economic views. (Click here for an extended version of the interview). Read more

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

A History of the JEL Codes: Should There be a Separate "Economic Theory" Category? [Part 2]

 I've been toying with the disappearance of the Theory category for a while, yet it is still unclear to me how the story below should be interpreted. Does it reflect a change in the pecking order between theory and empirical work, as once suggested by Krugman? A change in theoretical work itself? And if so, how to characterize it? The requirement that applications should be built in theoretical thinking ('applied theory')? Or the standard that a theoretical intuition be presented alongside application/ empirical work in scholarly articles? Read more