Economic Policy

Finance and the Welfare of Nations: The View from Economic History

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The widely held belief that financial deepening benefits the economy by efficiently allocating capital and diversifying risk was shaken to its core by the breadth and scope of the 2008/09 financial crisis. Advanced economies saw a steady increase in financial intensity, measured by the volume of credit to output, since the Second World War. But as the tremendous costs of the last crisis are still being tallied, doubtful questions naturally arise: Was it worth it? What where the benefits of the remarkable growth of leverage and credit in the last three decades? Was finance promoting growth or was financialization of the economy allowed to proceed to unsustainable, inefficient, and ultimately destabilizing levels? Read more

Reorienting Fiscal Policy: A Bottom Up Approach

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Over 70 years of fiscal activism have not been able to address what Keynes called the two outstanding faults of society, namely our failure to produce and maintain a close approximation to full employment and to improve the income distribution in the economy. Indeed, this project argues that fiscal policy, as is currently practiced, largely undermines these two objectives. Read more

The Political Economy of the New “Fiscalism”

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Fiscal policy has witnessed a double U-turn, or policy pirouette, over the last few years because of the financial crisis. The purpose of our three-year research program is to provide a comprehensive explanation of this new "fiscalism" that has emerged as a result of this crisis. This will require a thorough investigation of the recent economic history to understand what first triggered the initial changes and then the ensuing policy reversal by first trying to answer the questions of “why”, “when” and “how” exactly these dramatic transformations took place and what exactly were these changes, both pertaining to the composition of public spending and its financing. As to its geographical coverage, it will entail an investigation of the U.S. Read more

23 Things They Don't Tell You About Capitalism

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"The global economy lies in tatters. While fiscal and monetary stimulus of unprecedented scale has prevented the financial meltdown of 2008 from turning into a total collapse of the global economy, the 2008 global crash still remains the second-largest economic crisis in history, after the Great Depression. At the time of writing (March 2010), even as some people declare the end of the recession, a sustained recovery is by no means certain. In the absence of financial reforms, loose monetary and fiscal policies have led to new financial bubbles, while the real economy is starved of money. If these bubbles burst, the global economy could fall into another (‘double-dip’) recession..."

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Jean Pisani-Ferry on Europe’s Tiger and German Nightmares

Greece is a German nightmare come true, and Ireland is a tiger that allowed its banks to become highly leveraged with risky assets. That’s how Jean Pisani-Ferry characterizes Greece and Ireland in this INET interview on Europe’s debt crisis. Read more

New Economic Thinking on Greece

Bailout, Default, or Plan C

The Greek debt crisis is once again upon us, and the FT is filled with articles about ramifications for the Eurozone, and recommendations for what to do now. Read more

The New Lombard Street

Further Thoughts

In the aftermath of the Lehman-AIG collapse of September 2008, I set myself the challenge to write a kind of update of Bagehot's famous 1873 Lombard Street:  A Description of the London Money Market. Read more

Advice to the US: Massive Investment Towards Climate Change - Giovanni Dosi

In part 5 of INET's interview with Giovanni Dosi, he says that the US needs to match levels of research investment of the space program to create sustainability and energy technologies