Archive

Debate about the pension crises has centered on certain questions such as: Are greedy government workers bankrupting states? Arepension-slashing politicians backed by big money saving the day? Or do the budget problems of state and localgovernments have more to do with wasteful corporate subsidies than pensions? What are the real policy solutions to the pressures placed on pensions?”

Economists discussing the problem of radical uncertainty commonly invoke Frank Knight’s classic definition in Risk, Uncertainty and Profit, but only rarely venture to explore the broader contours of his argument.

Cyberwar is very much in the news these days. It is tempting to try to understand the economics of such an activity, if only qualitatively. What effort is required? What can such attacks accomplish? What does this say, if anything,about the likelihood of cyberwar?

Five years after the end of the Great Recession, corporate profits are high and the stock market is booming. Yet most Americans are not sharing in the apparent prosperity.

This article studies the reasons for the under-investment in research vs. development in the decentralized equilibrium and argues that this bias provides a micro-foundation for the government direct involvement in conducting applied research rather than just financing it.

In recent decades, market values have crowded out non- market norms in almost every aspect of life—medicine, education, government, law, art, sports, even family life and personal relations. Without quite realizing it, we have drifted from having a market economy to being a market society. Is this where we want to be?

The Institute for New Economic Thinking joined the Centre for International Governance Innovation (CIGI) in holding its fifth Annual Conference from April 10 to April 12, 2014 in Toronto.

Adair Turner at the Institute’s #HumanAfterAll conference in Toronto, CA (2014).

The fall of 2008 was scary. For most people, the aftermath of Lehman Brothers’ bankruptcy resembled a major earthquake with strong aftershocks. Official narratives have promoted the image of the crisis as a rare, unpreventable and unforeseen natural disaster, the “100-year flood.” Policymakers emphasize the extraordinary measures they have taken to prevent the system from collapsing and to support recovery since.

Innovation, the commercialization of invention, is both desirable and necessary for growth and higher living standards in modern economies. Innovation’s contribution to the economy is being measured increasingly more precisely, and its contribution has been assessed aseconomically important and growing.

The forthcoming Institute for New Economic Thinking conference will focus on innovation and its impact on economics and society. When we think about innovation we tend to imagine the future. But as with so many subjects in economics, it’s also useful to examine the past.

In this paper we explore the effects of alternative combinations of fiscal and monetary policies under different income distribution regimes.

We study analytically and numerically Minsky instability as a combination of top-down, bottom-up and peer-to-peer positive feedback loops.

Since the outbreak of the Greek debt crisis at the end of 2009, the Eurozone finds itself in an unprecedented debt crisis.

What is “capital”? To Karl Marx, it was a social, political, and legal category—the means of control of the means of production by the dominant class. Capital could be money, it could be machines; it could be fixed and it could be variable. But the essence of capital was neither physical nor financial. It was the power that capital gave to capitalists, namely the authority to make decisions and to extract surplus from the worker.

Owing to its strong dependence on exports, Germany was among the economies hit hardest by the financial crisis.

The “economics and engineering” line of argument is part of economists’ rhetoric.

We are not “all in it together.”

Pisani-Ferry discusses the challenges facing the creation of a common monetary union in the form that was eventually agreed in the 1990s absent a political union.

What exactly is an exchange rate?

The last straw in the enduring blog debate over microfoundations has taken a decisive historical turn.

A growth model incorporating dynamics of capital per capita, atmospheric CO2 concentration, and labor and energy productivity is described.

Recent claims, particularly in Paul Krugman’s column and blog, on the superiority of the Hicks-Modigliani version of Keynesian economics calls for a re-thinking of the issues raised in the early controversies over what Joan Robinson called “bastard Keynesianism”.

Adair Lord Turner’s powerful comments about the global economy’s addiction to private debt are continuing to reverberate around the world.

Who wields supreme power over the ECB? This column analyses the recent ruling by the German Constitutional Court that the ECB cannot act as lender of last resort. Although seemingly couched by the referral of this decision to the European Court of Justice, this is a bid for power and the return to the pre-crisis paradigm of ‘ultra posse nemo obligatur’.

In this “New Economic Thinking” interview, EBRD Chief Economist and Special Adviser to the President Erik Berglof, who also is a member of the Institute for New Economic Thinking’s Governing Board, discusses the report’s findings with Institute President Rob Johnson.

A showdown has taken place within Italy’s governing coalition.

Institute for New Economic Thinking grantees Christian Belabed and Thomas Theobald and their co-authors have revived this old theory as a hypothesis to explain the apparent statistical link between rising income inequality and current account deficits.

We invited Thomas Scheiding from Cardinal Stritch University to review what we know about the scholarly communication process in economics. Tom has written forcefully on the history and economics of economic literature (see for instance, his 2009 JEM article). His latest is a study of the scholarly communication process in physics (an article in Studies).

Inflation targeting insufficient: central banks and governments must manage the quantity and mix of credit created

Sometimes new tools are what we need to create new thinking.

Two separate narratives have emerged in the wake of the Global Financial Crisis. One interpretation speaks of private financial excess and the key role of the banking system in leveraging and deleveraging the economy. The other emphasizes the public sector balance sheet over the private and worries about the risks of lax fiscal policies. However, the two may interact in important and understudied ways.

Last week the “Macroeconomics in Perspective Workshop” was held at the Department of Economics of the Université Catholique de Louvain (UCL), in Louvain-la-neuve, Belgium

Reflections of the Université Catholique de Louvain “Macroeconomics in Perspective Workshop”

India’s economic leaders are determined to rein in skyrocketing inflation, but the country’s volatile political landscape may prevent reforms from taking hold.

Lazonick discusses how we evolved from a society in which corporate interests were largely aligned with those of broader public purpose into a state where crony capitalism, accounting fraud, and corporate predation are predominant characteristics.

Fears that bank regulation or capital controls could lead to a “balkanisation” of global capital markets are overstated and should not constrain policy action to address the problems created by volatile short term capital flows and excessive credit creation, says Adair Turner, Senior Fellow at the Institute for New Economic Thinking and former chairman of the United Kingdom Financial Services Authority.

Bubbles have become a major focus of discussion in today’s financial markets. But very few people actually define what they mean when describing this financial phenomenon.

The Institute will host the Winter School on Law and Finance at Columbia University’s Global Center in Paris on January 6-9, 2014.

Did the so-called “Scandinavian approach” offer a better alternative than the Geithner plan?

Corrado DiGuilmi and Laura Carvalho, grantees of the Institute for New Economic Thinking, have individually been exploring two possible alternative analytical entry points: mean field methods from physics and stock flow consistent modeling from accounting. The idea behind their grant is to work together to combine these two approaches, the first bottom-up and the second top-down.

This paper analyzes equilibrium, dynamics, and optimal decisions on the factor bias of innovation in a model of induced innovation.

This research project discovers how real people, not just the abstractions of traditional economic theory, respond to various possible policy interventions aimed to bring climate change under control and thus which policies will have the biggest impact.

This research project studies the pricing and liquidity implications of sentiment and disagreement as origins of radical uncertainty in financial markets.

This research project develops a new field of anthropology: the anthropology of financialization, focusing on China and two main institutions of financialization, management consultancies and fund managers.

This resarch project examines the economic theory, policy, and international political economy of cross border finance in the run up to and in the wake of the global financial crisis of 2008.

This research project seeks to develop a theory of how bubbles and crashes can arise even when all agents are rational, informed, and trading in perfect markets.

This research project develops a novel framework to capture both instantaneous and dynamic contagion mechanisms arising in financial networks when balance sheet linkages across entities exist.

This research project uses statistical physics and network analysis to understand and explain the contagion and panic effects associated with crises that are unexplained in standard economic models.

This research project explores the sources of and remedies for financial instability as well as the relationship between traders’ choice of a price-setting mechanism and market structure and the relationship between market freezes and the amount of intermediation in the market.

This research project investigates the reasons behind the US financial crisis by applying the tools of the history of economic thought to the postwar evolution of US antitrust law and economic

This research project integrates two research paradigms to understand the degree to which financial markets can be reformed in order to nurture value creation and :capital development” rather than value extraction and destruction.

This research project contends that Piero Sraffa tried to develop an economic theory that could stand up as an alternative to the orthodox theory of value and provide a foundation for the Keynesian and post-Keynesian alternatives.

This research project establishes a long-run global picture of economic inequality as revealed by fiscal records and analyzes the long-run drivers of inequality as well as the distributional impact of banking crises.

This research project incorporates recent US data to update empirical analyses of regional growth and utilizes case study strategies of American regions to investigate the underlying causal mechanisms of inequality.

This research project follows freed slaves from when they first applied for their land under the Southern Homestead Act until 1900 to learn how access to free land influenced their economic progress.

This research project addresses a need for a more comprehensive estimation of the distributional impact of various policies attempting to limit carbon emissions in the United States.

This research project replicates a large number of studies by teaching replication to students, with the results included in a wiki project about the replicability of research.

This research project provides insights into how the lending market and resale market for asset-backed securities could have broken down during the 2008-2009 financial crisis, leading to a near-collapse of the banking sector and to a significant decline in real loan activity.

This research project explores the interaction between group identities and decisions to engage in collective action to secure access to public goods, such as education.

This research project proposes a large-scale simulation of how distress and growth propagate through the real economy via a network of trade credit between firms.

This research project aims to change the conventional wisdom about how global banks take and manage risks and generate ideas that are both innovative and useful to realistic thinking about policy.

This project studies a broad array of financial institutions to discover the impacts of financial regulations on functionally efficient finance, productivity growth, and income distribution.

This research project builds on theory indicating that credit flows to the real sector have systematically different effects from financial flows to asset markets.

This research project studies contagion among financial institutions and the role of financial market regulation in weakening or strengthening the transmission of financial turmoil across institutions.

This research project develops a model of foreign exchange markets in which agents’ expectations are explicitly modeled and evolve over time and examines how these models perform in terms of capturing the behavior observed in the experiments with human subjects.

This research project designs and evaluates new strategies that can address the issues of financing human capital investments by developing and estimating a unified framework.

This research project proposes linking emission fees to actual temperatures, thereby helping to break the policy stalemate and reach agreement on an effective policy.

This research project creates a systematic and publically available database of macroeconomic and structural conditions in all IMF loan agreements signed after 1987.

This research project analyzes the role of investment in the operation and performance of three broad high-technology sectors: communication technology, biopharmaceutical drugs and medical technologies, and wind power, solar power, electric vehicles, and the smart grid.

This research project introduces heterogeneous microeconomic behavior into a demand-driven stock flow consistent model to study the links between microeconomic financial fragility and macroeconomic instability.

This research project analyzes the country-specific effects of inequality within a stock-flow consistent macro model and within a DSGE model with heterogeneous and interacting households.

This research project seeks to understand the linkages between the changes in the financial economy and the behavior of households in the real economy.

This research project organizes a systematic database of policies implemented in response to crises, focusing on fiscal and monetary measures, in order to identify policy action rather than simply looking at endogenous outcome variables.

This research project addresses in depth the questions of the nature of economic uncertainty, with the aim of revisiting from a new perspective many of the questions that have been raised by the recent crisis both in finance and macroeconomics.

This research project captures systemic risk of the credit market by combining information about the level of fragility of individual economic entities with the network structure of their mutual credit exposures.

This research project constructs new measures of slavery as a state-sanctioned property rights institution and documents how slavery impacted economic development in US history.

This research project deepens the understanding of the history of economics as a discipline by making economic texts of historical importance available to students and scholars and by translating the important historical works of economics into English.

This research project reinterprets the events causing the British Industrial Revolution by showing that the Glorious Revolution of 1688-1689 was significant in causing the divergence of political institutions which led to the divergence of economic institutions and policy.

This research project analyzes the history of the concentration of bank regulatory authority within the Federal Reserve and explores the public policy issues arising from that concentration.

This research project examines the value of political connections between corporate groups in Italy and the National Fascist Party (PNF) during the years of Mussolini’s rise to power (1921-1929).

This research project uses reflexivity thinking to develop a theory of reflexive economic agents whose behavior is central to both the theory of innovation and to the explanation of phenomena such as bubbles, cascades, and herding that are inconsistent with DSGE/rational expectations macroeconomics.

This research project focuses on the role of the representative agent in recent macroeconomics and general equilibrium theory, with a particular emphasis on how different the situation was in the economic theorizing of the first neoclassical synthesis during the 1950s.

Does it matter if the Rational Expectations Hypothesis is unrealistic?

We analyse the link between income distribution and the current account for the period 1972-2007. We find that rising (top-end) personal inequality leads to a decrease of the current account, ceteris paribus.