James Galbraith: Governing with a Higher Purpose to Spur Innovation

The United States’ deep political polarization is blinding the nation from seeing what it takes to create an effective innovation economy.
Simply put, to many figures on the political right the government is simply a source of corruption and inefficiency, and it’s most effective means of handling innovation is to leave markets to their own devices. The political left, on the other hand, typically retorts that state intervention is necessary for economies to generate innovation because the government is the only entity positioned to mobilize national resources for broader public purposes.

Mariana Mazzucato: Government Risk and Private Sector Reward

Is there a role for the state in fostering innovation?  
The usual caricature of government involvement in business, which has become especially prominent in the last 40 years, can be seen in the classic American aphorism: “The government that governs least, governs best.”  Admittedly, it’s a nice, pithy expression. And it has gained a powerful following among policymakers starting in the Reagan years. 
But is it true? 

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

Adair Turner: The Consequences of Money Manager Capitalism

In the wake of World War II, much of the western world, particularly the United States, adopted a new form of capitalism called “managerial welfare-state capitalism.”

The system by design constrained financial institutions with significant social welfare reforms and large oligopolistic corporations that financed investment primarily out of retained earnings. Private sector debt was small, but government debt left over from financing the War was large, providing safe assets for households, firms, and banks. The structure of this system was financially robust and unlikely to generate a deep recession. However, the constraints within the system didn’t hold. 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

Adam Smith's first - and last! - book: what rational choice?

Penguin's 250th anniversary editionI was going to call this blog post 'Utility maximising agents in Adam Smith's Theory of Moral Sentiments' but realised that was much too dull - even if it accurately describes my bedtime reading at the present moment. The intention with this, and a series of blog posts, will be to share my on-going reading of the theory of moral sentiments, and this first post is about the first chapters on sympathy in particular. Read more