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We have grown accustomed to regulating financial markets based on imagined, not real markets. Real markets are shaped by and co-evolve with institutional arrangements within two fundamental constraints: Imperfect knowledge and the threat of illiquidity.

The financial sector can support growth but it can also cause crisis. The present crisis has exposedgaps in economists’ understanding of this dual potential.

In the seemingly never-ending aftermath to the economic crisis that began in 2007, there is little disagreement that financial markets are characterized by instability rather than stability.

Many feel that due to its size and scale the financial system has become a burden on society rather than a servant to it. What are the key elements of a productive financial sector?

Complexity economics represents a different vision of the economic process and has the capacity to illuminate different systems of behavior.

Read how did the second day of the Berlin conference go

Mark Thoma has picked up on a significant aspect of this year’s INET annual conference

The Institute for New Economic Thinking (INET) today announced a significant infusion of funding that over the coming years will make the organization self-sustaining and enable INET to dramatically expand its global reach, scale, and scope.

I think I am on the track of what ‘New Economics’ is, and one could roughly sum up two days of presentations in two diagrams:

Lunch was just interrupted Bill Janeway standing up to announce that this morning he decided to give $25m to INET and the board will fund-raise this up to $100m over ten years, but then George Soros added $50m in unconditional funding for INET.

Taking a long‐run view from economic history, I make three points about instability in financial markets. First, I argue that economic historians have a relatively good understanding of the proximate causes of financial crises.

“Natural rate theory” has dominated interpretations of economic trends and policy prescriptions over many decades. European-type welfare state institution were claimed to cause a compressed wage distribution that distorts otherwise well functioning labor markets.

Many models of economic growth exclude materials from the production function. Growing environmental pressures and resource prices suggest that this may be increasingly inappropriate.

The topic of this session of the INET conference is a question: does the effectiveness of fiscal policy in stabilizing an economy depend on the underlying economic context in which the policy is implemented?

The present paradox, as ecological economist Bill Rees is fond of putting it, is simple yet profoundly troubling: “The ecologically necessary is politically infeasible, but the politically feasible is ecologically irrelevant.”