Archive

Finance is built on trust. It is based on promises about tomorrow, often paper promises backed by nothing other than words on a page. When trust in those promises breaks down, so too does the financial system. That is the lesson of thousands of years of history.

In standard economics, inequality in outcomes is typically attributed to inequality of inputs, for example, from differences in education. Yakovenko thinks about inequality in a different way by extending some ideas from statistical physics.

The United States government openly flirting with a default on its debt is, to the financial system, like a Pope wondering out loud about the existence of God.

When Greece’s sovereign-debt crisis threatened the euro’s survival, U.S. officials called their European counterparts to express bewilderment at their inability to resolve the issue.

Inequalities in skills are fundamentally linked to economic and social inequalities.

So, most Nobel Prize exegetes went a long way, this week, toward explaining that asset pricing is not primarily born out of theoretical reflection but out of prize-deserving empirical work.

In the aftermath of the global financial crisis, few would dispute the risks of excessive borrowing. But which debts should one worry about – public or private? This column presents new research on the interplay of public and private debts since 1870 in 17 advanced economies. History demonstrates that excessive private-sector borrowing plays a greater role than fiscal profligacy in generating financial instability. However, when the credit boom collapses, the government’s capacity to alleviate the downturn is limited by the prevailing level of public debt.

This episode features grantee D’Maris Coffman of the Centre for Financial History talking about her organization’s commitment to a New Financial History and what the fruits of their approach can tell us about modern debt crises and sustainable debt levels.

Advisory Board members Carmen Reinhart and Kenneth Rogoff today issued a response to recent criticism of their paper “Growth in a Time of Debt.”

This episode features Pier Carlo Padoan, Chief Economist and Deputy Secretary-General of the OECD, talking about the euro zone crisis, Europe’s structural problems, and how uncertainty has damaged economic growth in Europe.

If Congress and the White House fail to raise the debt ceiling this week and the United States defaults on its debt, what can we expect and how can we protect ourselves against these events?

This morning, when I woke up a few hours before the Nobel announcement, I felt seriously dissatisfied. I had meant to write a post on Thomson Reuters’s prediction that Card, Angrist and Krueger may win the Nobel for their work on empirical microeconomics.

“You are now leaving the world as you know it.”

This episode features David Vines of Oxford University talking about the euro crisis. Can the monetary union survive the crisis?

World leaders who are gathering for the APEC summit next week had hoped to be signing the Trans-Pacific Partnership Agreement (TPP). The pact would bring together key Pacific-rim countries into a trading bloc that the United States hopes could counter China’s growing influence in the region.

How does economic theory match up with reality?

The current economic and financial crisis has given rise to a vigorous debate about the state of economics, and the training which graduate and undergraduates economics students are receiving. Importantly, among those arguing most strongly for a change in the way that young economists are trained are the ultimate employers of these students, in both the private and the public sector. Employers are increasingly complaining that young economists don’t understand how the financial system actually works, and are ill-prepared to think about appropriate policies at a time of crisis.

Anat Admati, author of The Bankers’ New Clothes: Whats Wrong with Banking and What to Do about It, talks about how to fix our broken banking sector.

Sadly, it is questionable whether the economy has really improved.

What do we need to do to get the financial sector back on track?

Friedrich von Hayek described the economist’s task as demonstrating how little we really know about what we imagine we can design

what would measures of systematic risk have indicated to Treasury Secretary Paulsen if they had been available at that time?

How can we contain institutional failure?

A look at the large role the trade deficit of the United States has played since the 1980s.

The failure of Lehman Brothers on 15 September 2008 marked the beginning of the end of the world’s love affair with financialization.

What can emerging economies learn from the financial meltdown in advanced economies?

With the collapse of Lehman Brothers in September 2008, a crisis in part driven by derivatives on subprime mortgages, a seemingly obscure sector of the financial market help fuel the worst economic crisis since the Great Depression.

what have we learned from the crisis and what should we have learned?

Simon Johnson, Professor at MIT and former chief economist of the IMF, calls for much higher capital requirements for big banks.

How could reputable ratings agencies – and investment banks – misjudge things so badly?

Five years after the collapse of the U.S. investment bank Lehman Brothers, the world has still not addressed the fundamental cause of the subsequent financial crisis – an excess of debt. And that is why economic recovery has progressed much more slowly than anyone expected (in some countries, it has not come at all).

What have we learned about the American political economy from the crisis and its aftermath?

What happens when professionals lose touch with the people they’re supposed to serve?

Ronald Coase, who passed away last week at age 102, spent his academic career swimming against the current.

What’s behind rapidly worsening inequality in the United States?

What was the political dynamic driving post-crisis economic policy?

Let Them Eat Credit: Has Financial Capitalism Failed the World?

Can China lead the way on innovation?

Can China lead the way on innovation?

Economic theories that have been predominant over the past few decades have broken down, and we now have to start creating a new economics that reflects the realities of today.

Every nation faces the challenge of imagining what a good life means. Sound nutrition, shelter, health care, personal safety, social stability, security of savings, clean air and water, and the development of children are among the elements of what many envision as vital to a happy and healthy society.

The global financial cycle has transformed the well-known trilemma into a ‘dilemma’. Independent monetary policies are possible if and only if the capital account is managed directly or indirectly. This column argues the right policies to deal with the ‘dilemma’ should aim at curbing excessive leverage and credit growth. A combination of macroprudential policies guided by aggressive stress‐testing and tougher leverage ratios are needed. Some capital controls may also be useful.

Where will today’s innovation come from?

Kiel Institute President Dennis Snower talks about the euro zone crisis

The degree to which economics is isolated from the ordinary business of life is extraordinary and unfortunate.

The course explores how money markets they work, in the U.S. and internationally.

The battle for a living wage for the nation’s poorest workers is set against the backdrop of mass unemployment and the highest level of economic inequality in the U.S. in almost a century.

Institute for New Economic Thinking grantee Hans-Joachim Voth talks about the crisis in Europe.

what is economically correct must always be balanced with what is morally right.

William White, chairman of the Economic Development and Review Committee (EDRC) at the OECD in Paris

We are coming up to the fifth anniversary of the Lehman crash in September 2008. How bad was it? Have we fixed the problems?

How can we get the financial sector back to serving its intended function?

economists still conceive of law too narrowly, mainly as a means to reduce transaction costs and protect investors.

Why didn’t central banks see the financial crisis coming?

The Obama stimulus remains controversial even as we approach the fourth anniversary of its launch.

What does the bankruptcy of Detroit say about the US social contract?

Should China internationalize the RMB? Will it take the lead on sustainable development? Can it maintain growth and productivity?

The shortage of liquidity in the interbank market in China has sparked off a fear of “monetary famine.” This seems rather odd when the national savings rate is 50 per cent of GDP

Adam Posen, President of the Peterson Institute for International Economics, discussing the lessons of macroeconomic stimulus provided by the recent histories of Japan and Great Britain.

Recent austerity policies have been guided by ideology rather than research. This column discusses research that reconciles disparate estimates of fiscal multipliers in the literature. It finds that common identification assumptions are problematic. Matching methods based on propensity scores show how contractionary austerity really is, especially in economies operating below potential.

Did the global economic collapse in 2008 stem from structural failures in the capitalist system?

“How could Michigan officials possibly talk about cutting the average $19,000-a-year pension benefit for municipal workers while reaffirming their pledge of$283 million in taxpayer money to a professional hockey stadium?

Warren Mosler, president of the financial services firm Valance Company and one of the founders of Modern Monetary Theory (MMT), speaks about what MMT tells us about economic policy. How can MMT help get the economy back on track?

Changing the incentives for how economists determine both the content of the subject and their approach to scientific research could increase the range of thinking in the profession

In introducing game theory (in chapters 7-9), MWG build upon the theory of rational choice by individual agents, developed previously in the book to attempt to analyze (describe, explain, and even predict?) the interactions of such agents as well as the outcomes to which they give rise. In previous chapters, MWG discuss interactions only in the form of the arms-length interactions of numerous firms and consumers in specific markets (e.g. under ‘perfect competition’, in chapters 3 and 5).

Orville Schell, Director of the Asia Society’s Center on U.S.-China Relations, discussing his new book, “Wealth and Power: China’s Long March to the Twenty First Century.”

Is China is “too big to fail.”?

Economic theories are powerful things, to be used and misused. Those who write economic theory and do economic policy need to be aware of the consequences of what they are doing.

Will Abenomics succeed in getting Japan’s economy back on the path to sustainable growth? Or is it doomed to fail?

A review of The Entrepreneurial State: Debunking Public vs. Private Sector Myths, the new book by Mariana Mazzucato

Between July 5th and 12th, the second annual summer school in development economics, jointly sponsored by Azim Premji University and the Institute for New Economic Thinking, was held in Bangalore, India.

Matheus Grasselli discusses how the use of advanced mathematics in economics enables innovative new thinking.

The Institute have organized a Workshop on “Interlinkages and Systemic Risk” in Ancona, Italy that will take place on July 4th and 5th.

We estimate the effect of the diffusion of photovoltaic (PV) systems on the fraction of votes obtained by the German Green Party.

In this short interview, Institute co-founder George Soros tackles the question at the heart of the Institute’s mission: What’s wrong with economics and what can we do to change it?

Axiomatic bargaining is presented in MWG in the context of welfare economics (Ch. 22), the aim being the formulation of reasonable criteria for dividing gains resulting from cooperative endeavors (the “joint surplus”). It is further presented as an application of cooperative game theory, in which an arbitrator distributes the joint surplus in a manner that reflects “fairly” the bargaining strength of the different agents (although we could conceive of a situation where the parties are bargaining without an external party). If bargaining fails, the outcome is the parties’ own fallback positions (the threat point, or status quo).

is the public sector really sclerotic and conservative in contrast with a dynamic and innovative private sector?

To what extant do existing mainstream models properly address issues such as heterogeneity and interactions, which are considered central ingredients to understand economic crises as emergent, endogenous phenomena.

How to become a historian of economic thought? Members of the profession gather just once a year at the annual conference of the History of Economic Society but otherwise are dispersed in universities and archives all around the world.

“Four men sat at a table. Raised sixty floors above the city, they did not speak loudly as one speaks from a height in the freedom of air and space; they kept their voices low, as befitted a cellar.”

How does debt influence growth?

Collective Action When Market Forces Overwhelm the Nation State

A genome-wide association study (GWAS) of educational attainment was conducted in a discovery sample of 101,069 individuals and a replication sample of 25,490. Three independent single-nucleotide polymorphisms (SNPs) are genome-wide significant (rs9320913, rs11584700, rs4851266), and all three replicate.

‘Helicopter money’ may in some circumstances be the only certain way to stimulate nominal demand

In the wake of the 2008 financial crisis, many of our policy makers and top economists are still stumbling in the dark.

Dr. Vamsi Vakulabharanam, an associate professor of economics at the University of Hyderabad and a grantee of the Institute for New Economic Thinking, has won the prestigious Amartya Sen Award, a newly instituted honor given by the Indian Council for Social Sciences Research (ICSSR).

This chapter discusses different approaches pursued to explore three broad questions related to technology diffusion: what general patterns characterize the diffusion of technologies, and how have they changed over time; what are the key drivers of technology, and what are the macroeconomic consequences of technology.

Recovery from recessions takes longer than it has in the past.

Looming behind the aforementioned narratives of postwar economics is a notion – economics as engineering – which at times appears as a metaphor and at times stands for a straight depiction of economists’ professional milieu and practices.

The rise of the economist as engineer is, economists and historians say, an essential characteristic of the development of economics in the postwar period.

The recent debate about the reproducibility of the results published by Carmen Reinhart and Kenneth Rogoff offers a showcase for the importance of replication in empirical economics.

So why am I hopeful about the future?

To illustrate the previous post on the difficulties in putting together a chronology, here is tentative chronology of economics at Carnegie. It’s still in process, and links, sources and entries will be updated as I read.

The proliferation of China’s opaque, loosely regulated (or unregulated) shadow-banking system has been raising fears of possible financial instability. But just how extensive – and how risky – is shadow banking in China?

This year, I’m sharing an office with an econometrician on Mondays and with a geographer on Fridays (you don’t want to go into the subtleties of the French educational system).

There is a “tendency to neglect applied economics in writing the history of economic thought,” Roger Backhouse and Jeff Biddle remarked in 2000. They then followed the “applied” trail back into the XIXth and early XXth centuries, at a time the scope and nature of economics were debatted by continental and especially British political economists

Reinhart and Rogoff’s 2010 paper “Growth in a Time of Debt” has recently come under scrutiny

INET Advisory Board members Carmen Reinhart and Kenneth Rogoff today issued a response to recentcriticism of their paper “Growth in a Time of Debt.” Their response in full is below.