Grant Awarded to Gerald Epstein and James Crotty

Gerald Epstein and James Crotty of University of Massachusetts, Amherst to be Awarded a Grant From the Institute for New Economic Thinking

An INET grant will fund professors Epstein and Crotty to peform in-depth research on issues surrounding “too big to fail”

New York, NY, December 3rd, 2010 – The Institute for New Economic Thinking (INET), launched with a $50 million pledge from George Soros to promote changes in economic theory and practice through research grants, Task Force groups, academic partnerships, and conferences, announced that it has selected Gerald Epstein and James Crotty of University of Massachusetts, Amherst to study the impacts of financial regulations on functionally efficient finance, productivity growth and income distribution. The grant program, along with other INET initiatives, was created in direct response to arguably the worst economic crisis in world history, and has been designed to encourage and support new economic thinking. Starting in 2011, INET will conduct two grant cycles annually.

The project examines the significant growth of the financial sector, and raises the questions of whether it is too big or engaged in socially inefficient activities. In our present day, there are no clear metrics to measure the social usefulness of financial activities to help us assess its appropriate size and nature. Professors Epstein and Crotty plan to use INET’s grant to build on James Tobin’s concept of functional efficiency. They will study a broad array of financial institutions by developing a new micro and macro dataset to shed light on key questions regarding the size of financial sector and its broader impact on society.

“The expression ‘too big to fail’ has been widely used in books, newspapers, and television programs over the past few years, and for the most part these media accounts have done a good job of helping people gain an initial understanding of the role that unchecked expansion of the financial sector played in the financial crisis” said Dr. Robert Johnson, Executive Director of the Institute for New Economic Thinking. “This project will deepen our understanding of the broader impacts of the size and activities of the financial sector on society, and provide useful input to regulators and policy makers.”

Gerald Epstein is Professor of Economics and a founding Co-Director of the Political Economy Research Institute (PERI) at the University of Massachusetts, Amherst. He received his PhD in Economics from Princeton University in 1981. Epstein has written articles on numerous topics including financial regulation, alternative approaches to central banking for employment generation and poverty reduction, capital account management, and capital flows. He has worked with numerous UN organizations, including the United Nations Development Program and the International Labor Organization in the areas of Pro-Poor Macroeconomic Policy and Human Development Impact Assessments of Trade Policies in Madagascar, South Africa, Ghana, Cambodia and Mongolia, and with UN-DESA on developing alternatives to inflation targeting monetary policy.

“Most agree that in the lead up to the economic crisis, our financial system got too large, took too many risky bets with taxpayer money, and appropriated too large a share of global income to the financial sector. But we do not have the economic analysis or empirical understanding to make these general statements more concrete and precise. Using historical, institutional, comparative and empirical analysis, we plan to identify the types of financial activities that contribute to productivity growth, socially productive investment and useful risk sharing. We will then compare these activities with the characteristics that currently predominate in the financial sector,” said Gerald Epstein, Professor of Economics and Co-Director of the Political Economy Research Institute (PERI), University of Massachusetts, Amherst. "INET’s funding will greatly help our research, which results should help improve our theoretical and empirical understanding of the proper role of finance as well as inform current debates over financial restructuring and reform."

INET’s Inaugural Grant Program has been designed to harness the new economic thinking we recognize as crucial to effecting change. The program was launched this summer and received more than 500 applications from around the world and has selected 32 initiatives to be awarded grants totaling $7 million. INET's Grant Program will continue with two similar grant cycles annually, the next one commencing in the spring of 2011.

For further details regarding INET’s Grant Program or additional projects and people to be awarded grants please visit the Institute’s website.

About the Institute for New Economic Thinking:
Launched in October 2009 with a $50 million commitment from George Soros and driven by the global financial crisis, the Institute for New Economic Thinking (INET) is dedicated to empowering and supporting the next generation of economists and scholars in related fields through research grants, Task Force groups, academic partnerships, and conferences. INET embraces the professional responsibility to think beyond current paradigms. Ultimately, INET is committed to broadening and accelerating the development of innovative thinking that can lead to insights into and solutions for the great challenges of the 21st century and return economics to its core mission of guiding and protecting society. For more information please visit http://www.ineteconomics.org/

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