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A country that produces goods of high quality at a competitive price is likely to be rewarded for its ingenuity with a trade surplus. Small countries often achieve great development success through export-led growth. At the same time, the entire economic system must be balanced.

These are truly testing times. The world economic order – capitalism – is being called into question following the Lehman crisis. The world’s best form of societal organization – democracy – is being challenged by the economic success of autocratic countries such as China and Singapore.

When the very fabric of society is threatened by prolonged austerity or a financial sector collapse, a deliberate re-structuring of debt may be necessary to restore the hopes of renewed prosperity.

After an era of vigorous expansion a downturn can reveal a large stock of debt relative to the economy’s capacity to service it.

What has been learned now that the Euro zone’s fault lines have been revealed? Where are Europe and the Euro zone today?

INET’s Berlin Conference, “Paradigm Lost: Rethinking Economics and Politics,” opened yesterday and continues to receive enthusiastic coverage from both local and international press.

Just as the agricultural share of employment has fallen from 40% in the 1920s to less than 2% of the workforce in Europe today, manufacturing’s share of employment will fall to less than 5% of employment.

While yesterday presented a number of frontrunning scientists discussing current economics and state of the economy in general, academic terms, today starts with ECB executive board member Asmussen.

Behind all the technical language and the common theme of bashing bankers, there remains the Great Divide between Germans and the rest.

Mark Thoma offers a thorough, nuanced take on Roman Frydman’s theory of Imperfect Knowledge Economics (IKE) and George Soros’s ideas on the inability of people to predict the outcomes of financial and social change, which Soros calls “fallibility” and “reflexivity.”

On my way back home from the Brandenburger Tor, I recalled that I already have been there, it must have been in 1988.

A suprisingly large number of talks refer to the issue of human decision making.

The Institute joined the Centre for International Governance Innovation, and the Mercator Research Institute on Global Commons and Climate Change in hosting its third-annual plenary conference in Berlin from April 12-15, 2012.

In modern economies, individuals and companies engage in innovative activities, discovering new ways to use existing physical and human capital, and new technologies in which to invest. The institutional and broader social context within which these activities take place also changes in novel ways.

With my remarks today on financial markets and the financial crisis, I do not make any claims to originality. Rather, they are intended as a reminder of certain circumstances that are already familiar to us, in one form or another.

The global economy is in turmoil. Societies are unstable and not anchored by faith in the system or social order.

The economics profession stands on the fragile foundation of presuppositions adopted by professional agreement rather than as a result of empirical observation.

The human brain relies on three devices for its decisions: emotion controls; addictive learning; and intellectual processing. Understanding the conditions under which the three devices are engaged is essential for conscious decision-making.

George Soros, Axel Leijonhufvud and Perry Mehrling in Berlin, Germany (2012).

Read how did the day of the Berlin conference go

A new interdisciplinary research center to explore and challenge conventional economic thinking has been created by the Oxford Martin School in collaboration with the Institute for New Economic Thinking (INET).

Dinner has already rolled around on what has been a quick day.

Just wanted to let you all know that amongst the distinguished, distinguishable and disturbing people at the INET conference we have inserted ourselves in the middle to do some interviews, attend talks and blog about what is going on.

In science, empirical disciplines such as physics, chemistry, history, and parts of sociology and political science, reason from facts.

FT Alphaville has picked up on my friend James Sweeney’s latest, and since James cites the latest writings by other friends Zoltan Pozsar, Manmohan Singh, as well as my own most recent, the piece reads like a discussant’s comments on a shadow banking symposium.

Having just started Findlay and O’Rourke’s mammoth history of world trade in the second millenia, I have been struck by a strange incongruity

Last week the central banks of China and Australia announced the creation of a $31bn currency swap line

Registration is now open for YSI Commons, at INET’s Plenary Conference, Berlin April 12-15.

Yesterday the Chancellor of the Exchequer (or UK ‘finance minister’) gave his annual budget speech where UK fiscal policy is set for the coming years.

We reserved 25 slots, but we got 563 applications. Something had to be done.

Entangling alliances or entangling leagues are nothing to the entanglements of cash owing—Keynes

The G20 must address the problem of sovereign debt.

Is China’s manufacturing sector in decline?

In his notorious “How Did Economists Get It So Wrong” NYT article in 2009, Paul Krugman relied on the freshwater/saltwater distinction to explain that the economists’ inability to predict and solve the current economics crisis was due to the fact that MIT/Harvard economics lost their long dispute against their Chicagoan counterparts.

Discussion of the results of the ECB’s LTRO2 has revolved around the question of hoarding, specifically whether banks are using the newly-created reserves to fund new lending.

Fundamentally, the ECB is trying to keep the ongoing sovereign debt crisis from turning into a full-fledged bank credit crisis.

Judy Klein is Professor of Economics at Mary Baldwin College in Virginia. She is the author of Statistical Visions in Time: A History of Time Series Analysis 1662-1938, (Cambridge 1997) and co-editor of The Age of Economic Measurement (Duke 2001), and co-author of The Strange Career of Cold War Rationality (in preparation)

In Europe and the United States, political and economic breakdowns have become untenable.

Perry and I extend our apologies for the unplanned hiatus. By way of breaking radio silence, it seems appropriate to check in on our two favorite banks.

At least since Joseph Schumpeter we know that credit is good for economic growth. At least since 2007 we know that too much credit foreshadows financial turmoil.

Inequality did not increase during the early stages of economic development in Japan and the East Asian Tigers. But in India and China it did. Why is that?

I am writing from my notes. The event I want to report took place some two months ago, I have since been preoccupied, then occupied, and now increasingly overwhelmed.

Over the past two hundred years, poor countries have become faster at adopting the technologies of rich countries. So why is it, the economist asks, that poor countries have remained poor, by and large?

A new angle on the link between property rights and economic growth

Strong enforcement of property rights is good for economic growth, says the conventional wisdom. The link may not be as clear cut, says Suresh Naidu

A money view of SDRs

Carmen Reinhart and Kenneth Rogoff tell the history of financial crisis as a tale of excessive public debt. But what more commonly drives financial instability, says Moritz Schularick, is excessive private debt.

From a money view perspective, the central issue is settlement of TARGET balances between national central banks within the Eurozone, and the key is to understand TARGET balances as a kind of interbank correspondent balance.

What can be done to repair economics so economists can play a productive role in helping society?

We are pleased to announce the program of INET’s annual plenary conference in Berlin.

The current account still matters, but other things do too, and maybe more. In light of recent focus on gross flows, here and elsewhere, I want to argue for the language of the balance of payments.

In recent years, an increasingly significant part of the history of economics has modeled itself after the methodologies developed by Science and Technology Studies (STS) scholars.

The title is the same as that of Maury Obstfeld’s Ely Lecture, delivered Jan 6 at the AEA meetings in Chicago. Yours truly was at the meetings mainly to deliver a paper on “Three Principles for Market-Based Credit Regulation”, about which more in a later post. And for most of the rest of the time I was locked in a hotel room interviewing candidates for an assistant professor slot at Barnard College (which gave me a good overview of the current state of macroeconomics, again fodder for a later post).

The Institute for New Economic Thinking will host its third annual plenary conference in Berlin fromApril 12 to 14, 2012.

Are there more poor people on our planet today than there were last year? Many economists would approach this question as mainly a technical problem, a matter of counting.

So with a suitably provocative title I think we can declare 2012 open.

So with a suitably provocative title I think we can declare 2012 open.

A correspondent sends us to a column of Paul Krugman’s that asserts that “nobody understands debt”. Fair enough.

When I started this blog, almost exactly one year ago today, my thought was to provide commentary on the financial events of the day, using the Financial Times as my primary source of information about those events.

This research project offers a radical reconsideration of the centrality of the Corn Returns to the development of classical liberal political economy and shows how much the Corn Laws enriched agrarian interests and how their repeal represented a boost to British manufacturing.

This research project examines how US military needs during World War II and the Cold War steered engineers and applied mathematicians to an economic way of thinking about scarce resources, including limited computational resources, and how economists subsequently incorporated that into mathematics.

This research project studies the endogenous emergence of systemic risk and bubble-and-burst dynamics and the transmission of financial shocks to the real economy.

This research project documents long-run trends in personal bankruptcy, with special emphasis on the use of the bankruptcy law at the local level and among women.

This research project constructs a new theory of the relationship between law and finance through using case studies drawn from the global financial crisis as analytical windows for determining deficiencies of established theoretical frameworks

This research project studies the drivers of technology adoption as well as the consequences of the dynamics of technology adoption for economic growth.

This research project analyzes the ways in which an important financial institution, the stock market, affects the economic performance of the industrial corporations that are listed on it.

This research project offers a theoretical and empirical reassessment of alternative fiscal policy actions to tease out their advantages and disadvantages.

This research project analyses the possibility of achieving economic and financial stability, high employment, and good social outcomes, in the presence of clearly defined resource and environmental limits, even if these mean some limits to economic growth.

This research projects aims to understand Buddhist thinking in rational choice terms and apply that to some important contemporary economic problems.

This research project develops a comprehensive research agenda to formulate proposals that will help make the financial sector sustainable and facilitate a transition to sustainable economic development.

This research project explores the implications for the economics of gender stereotypes that consider self-interested economic behavior and risk-taking to be masculine and care and caution to be feminine.

As we prepare to digest the implications of this week’s ECB move, it seems worthwhile to take a look at the monetary economics of fixed exchange rates.

INET Advisors Help Answer

[The following guest post is by John Whittaker, from whom we have learned much of what we know about how the European payments system works. See his terrific papers here and here, both of which reward close study. He has been looking over the last couple Money View posts, and the comments to those posts, and has this to say.]

To cure unemployment, mostly we prime the pump: we devise fiscal strategies on the presumption that jobs follow economic growth. But the strategies have not worked, unemployment remains high.

Why is the IMF getting involved in the Eurocrisis, and why is its involvement taking the form of lending to individual member states of the Eurozone?

The ECB has always been the protagonist of the eurozone crisis story.

The fact of the matter is that European bank funding markets are collapsing onto the ECB balance sheet.

The Future of Economic Growth in a Multispeed World

My friend read somewhere that the experience of death makes people think in philosophical terms. He might have thought of religion rather than philosophy, I replied. We agreed, and wandered off talking about our crypto-religious experiences in good old secular Europe.

Most “state of the art” macro models trivialize financial flows and largely neglect the interaction between finance and industry. That is why they failed at predicting and illuminating the collapse of the Irish economy.

Bloomberg’s reporters continue their diligent work looking back on the Fed’s lending in the subprime crisis.

Europe is embarked on a grand experiment, managing modern financial crisis without a dealer of last resort, so refusing to follow the lead of the 2008 Fed.

On November 2nd, I was sitting in the Hayden Library Special Collection reading room at MIT, browsing archives on the undergraduate and graduate students’ discontent during the early 70s and the response of the economics department faculty.

Amid mass unemployment and economic turmoil, instructors who lecture on the superiority of free markets without acknowledging the dysfunction in the wider economy are at risk of appearing out of touch and exacerbating antipathy towards economics.

Cosma Shalizi urges economists to stop doing what they are doing: Fitting large complex models to a small set of highly correlated time series data.

INET published a paper, written by John Kay, that deals with the relationship between economics and the world we live in. The Map Is Not the Territory: An Essay on the State of Economics spells out methodological critiques of economic theory in general, and of DSGE models and rational expectations in particular.

A week ago, Mark Carney, chairman of the Financial Stability Board, warned of emerging global consequences of the escalating eurozone crisis.

The INET roundtable on “new conversations and the academy” took place a week ago. Most panelists were bloggers, including Mike Konczal from RortyBomb and Noah Smith from Noahopinion.

A recent e-mail conversation I had with Harro Maas concerning one of my latest drafts (shameless self-promotion) made me buy and read Naomi Oreskes and Erik Conway’s, Merchants of Doubts.

The following text was sent to us by Roger Backhouse and Bradley Bateman, we reproduce it in its entirety.

Professors Roger Backhouse and Brad Bateman wrote an op-ed for the New York Times a few days ago, arguing that “thanks to decades of academic training in the “dentistry” approach to economics, today’s Keynes or Friedman is nowhere to be found” - we have stopped thinking big they say.

The Toxic Textbooks movement devotes energy to curriculum reform as well. Its purpose is to galvanize student protests and “encourage schools and universities to use economics textbooks that engage honestly with the real world.”