Finance

Social safety nets don’t always need to come with a dark side

Institute for New Economic Thinking launches a far-reaching research effort into causes and potential remedies for the low-to-no-growth malaise afflicting many of the world’s leading economies

A conversation with Robert Johnson, President of the Institute for New Economic Thinking, former Managing Director for Soros Fund Management and former Chief Economist of the US Senate Banking Committee.

The epidemic extension of working hours and difficulty in maintaining work-life balance raises the question of the point of income and leisure satisfaction.

The financial system no longer funds new ideas and projects — only about 15 percent of the money coming out of financial institutions goes into business investment; the rest is spent buying and selling existing financial instruments.

Eight years after the crisis erupted, what the global economy is experiencing is starting to look less like a slow recovery than like a new low-growth equilibrium. With monetary policy unable to stimulate demand, or even inflation, it’s time for fiscal authorities to relieve the burden on central banks.

Out of Ammunition? A discussion on central banking and secular stagnation with Larry Summers and Adair Turner

The main point of this paper is that loanable funds macroeconomic models with their “natural” interest rate don’t fit with modern institutions and data. Before getting into the numbers, it makes sense to describe the models and how to think about macroeconomics in the first place.

CEP Lecture by Adair Turner co-hosted with the IMF. 

Past failures, present uncertainty, and a challenging political environment have vastly complicated the central bank’s task, says Institute President Rob Johnson

In a Bloomberg Markets Most Influential Summit Debate, Institute board chairman Adair Turner explains why extraordinary monetary policy isn’t working

The National Institute of Public Finance and Policy (NIPFP) in collaboration with the Institute of New Economic Thinking (INET) are organizing India’s first “Law Economic Policy Conference (LPEC 2016)”. The aim is to bring together economic, legal and policy thinkers together to consider policy issues in a holistic manner.

While many countries throughout the world have faced severe financial crises over the last decades, and while the Japanese stagnation and the 1997 Asian financial crisis did induce some additional interest for the introduction of banking and finance in macroeconomic theory, it is only with the advent of the US subprime financial crisis that macroeconomic and monetary theories put forward by mainstream economists have started to be questioned.

The Eurozone is (quietly) disintegrating as ‘core’ and ‘periphery’ countries continue on paths of economic divergence. That disintegration is reinforced by self-defeating policies shaped by a macroeconomic model that mimics and reinforces the divisions between ‘winners’ and ‘losers’

An exclusive conversation with Richard Batley, Head of Macroeconomics at Lombard Street Research.

China is drowning in it. The whole world has too much of it. History suggests: This won’t end well.

We know about emergency lending, but what we are missing is the macroeconomic framework to guide a new rule for stabilization policy

Like any family reunion, the Jackson Hole Economic Symposium may have been as significant for what was said as it was for what was not discussed

In June of this year, Swiss voters saw an initiative on their ballots calling for an “unconditional basic income” that would “allow the whole population to lead a decent life and participate in public life.” Put on the ballot by a petition drive after it was rejected in parliament, the initiative was rejected by 77 percent of Swiss voters, with 23 percent approving.

This paper analyzes the performative impact of the European Commission’s model for estimating ‘potential output’, which is used as a yardstick for measuring the ‘structural budget balance’ of EU countries and, hence, is crucial for coordinating European fiscal policies.

The 2008 financial meltdown wiped out what was left of the savings of millions of American families, but Professor Edward Wolff says decades of income inequality had set the stage for the collapse of their household wealth.

The US stands out as an outlier: the US spends far more on health than any other country, yet the life expectancy of the American population is not longer but actually shorter than in other countries that spend far less.

The debate about so-called helicopter money is burdened by deep fears and unnecessary confusions: some worry that monetary finance is bound to produce hyperinflation; others argue that, in terms of increasing demand and inflation, it would be no more effective than current policies. Both cannot be right.

Is Market Capitalism simply an accident of certain factors that came together in the 19th and 20th centuries? Does the innovation of economics require a new economics of innovation? Is the study of economics deeply affected by the incentive structures faced by economists themselves, necessitating a study of the “economics of economics”?

The untold story of shadow banking

The Economist pays tribute to Hyman Minsky, whose ideas on financial instability have not been given the attention and prominence they deserve

This paper responds to a paper by Claudio Borio, Piti Disyatat and Anna Zabai “Helicopter Money: the Illusion of a Free Lunch”

Epstein discusses financial reform, central banking, and how the FED actually contributed to economic inequality.

Focusing on what money really is – whether gold or state fiat – shifts attention away from what credit really is, which is to say away from the center of discontent.

Average U.S. household loses over $100,000 to destructive activities of bankers and financiers

Evidence from Insider Trading in Banks

Inflation, the euro crisis – for years there has been one worry hype after another. Yet fear frequently turns out to be wrong. We need a committee of wise men in charge of dealing with the real risks.

The YSI Financial Stability Working Group will explore the changing nature of banking regulation. The series will look into the history of the Basel regulations, how they are conceived, and the challenges that are posed in their implementation.

If Italy or the European Union have to step in to save banks, there’s no reason for them to have to do it for free

The BIS offers a comprehensive picture of the state of the world economy, and of dysfunctional policies holding it back

The deadline for submission of paper proposals and complete sessions for the 20th FMM conference is approaching: 30 June 2016. Proposals (extended abstracts, max. 400 words) have to be submitted electronically via this web application. Please find more information in the Call for Papers.

Remarks at a memorial service for pioneering financial analyst Jack Treynor Memorial, MIT Chapel, June 19, 2016

Some predict global economic catastrophe if Britain votes to leave the EU, others foresee a more limited set of consequences — and some see a telling trend in the public ignoring economists’ warnings

A dollar-denominated global economy means the Fed is at once the bankers bank and government bank, as well as both U.S. central bank and global central bank — managing that hybrid is the challenge of our time

What we’re reading: Recent statements from the IMF and the OECD highlight a growing call for new economic policy thinking in response to the specter of long-term stagnation

Pernicious cultural norms inside American banks and regulatory agencies have crowded out fundamental moral principles. Ed Kane proposes an antidote.

What we’re reading: A weekly scan of published items relevant to the Institute’s work

Book review: Michel De Vroey and the problems of macroeconomics

Neither the Rational Expectations Hypothesis nor behavioral finance approaches alone provides an adequate predictor of investor behavior, argues Roman Frydman

Why most economists did not see the 2008 crash coming

What we’re reading: A weekly scan of published items relevant to the Institute’s work

The recent growth in the scale and different forms of shadow banking and alternative finance mechanisms in China poses many questions of understanding, from its sustainability; different forms of credit growth; to the role of local government financing, and; the tensions between financial reform policy and practice.

Company law in the US and UK fails to acknowledge that authorities’ propensity to rescue giant banks from the consequences of insolvency assigns taxpayers a coerced and badly structured equity stake in too-big-to-fail institutions.

Eight years after the 2008 crisis the global economy is still stuck with low growth, too low inflation, and rising debt burdens. Massive monetary stimulus has failed to generate adequate demand, and some commentators suggest that we are “out of ammunition” with which to counter deflationary pressures.

If the government/CB together finance an increased fiscal deficit with permanent non-interest-bearing fiat money, then some private sector agents have to hold non-interest-bearing monetary base, and must continue to do so even when policy and market interest rates have moved away from the ZLB. How is this possible in an environment where most bank deposit money is potentially interest-bearing?

In the growing debate about the pros and cons of a monetary financed fiscal stimulus (a.k.a. helicopter money) it is argued by some participants that a money-financed stimulus will have no more effect than a debt financed stimulus since:

What we’re reading: A weekly scan of published items relevant to the Institute’s work

Behavioral finance views stock-market investors’ expectations as largely unrelated to fundamental factors. Relying on survey data, this paper presents econometric evidence that fundamentals are a major driver of investors’ expectations.

Author Rana Foroohar explains why the economic policies being touted by both presidential frontrunners offer none of the new thinking necessary to drive a policy response to revitalize the economy

The SPD, the Social Democratic Party of Germany, has been collapsing in the popularity polls ever since they in 2003 launched the reform Agenda. What would have come of the party if it had not been for this insane rush to reform? Possibly Gerhard Schroeder could even still be chancellor today. A case for the time machine.

Despite using different methodologies, a number of scholars agree that most of the ‘bailout’ money is going to Greece’s foreign creditors

Peter Conti Brown’s new book explores and debunks a powerful meme shaping public understanding of the role of the Fed

Any use of money-financed fiscal expansion as a policy tool will require rules to ensure discipline and avoid excess

Five lessons from the last crisis — for managing the next one

Economist James K. Galbraith warns that ‘unrealistic expectations’ by Athens’ creditors is a recipe for turmoil

Amid the ongoing research interest in questions of inequality, it is important to examine the question of access to housing — and how that has changed over the decades. The specific question I have sought to answer, here, is whether the real cost (measured against income) of buying the average home has risen.

Capitalism will destroy itself, the former Greek finance minister warns, if economic calculation excludes human needs and ignores democratic verdicts

Orthodox macroeconomics has become a place where visions die and hopes are banished, for both liberals and conservatives.

How Gerald Friedman’s assessment of Bernie Sanders economic proposals prompted a rare public political spat among economists.

Contrary to common belief, this shift is not so much caused by the refugee crisis, but rather by the historical disaster that followed the big financial crisis since 2007.

Anyone watching the stock market has seen this: a post hits Twitter containing old news, and investors react as if it were new.

Struggles over shadow money today echo 19th century struggles over bank deposits.

What does the rise of shadow banking mean for monetary theory and practice? (How) should we change our traditional theories of money to capture the complex practices through which money is created in modern financial systems?

Should policymakers rely on domestic macroprudential regulation in their quest for greater financial stability?

The intra-EMU divergences are a feature of the system rather than just a bug.

As the European Union Commission readies itself for a new round of budgetary recommendations, INET senior economist Orsola Costantini warns that that the debate over how those harsh fiscal constraints are to be determined is based on a formula that masks political choices as technocratic imperatives.

Leading expert says Iceland is showing the way on tackling a global peril.

When billionaires pay less, we all pay more.

Democratic capitalism is an evolving system that responds to crises by radically transforming both economic relations and political institutions. The time for a new phase has come, regardless of whether “responsible” politicians are prepared to admit it.

A recent policy brief by Blanchard (2016), based on an earlier paper (Blanchard, Cerutti, Summers 2015) raises a number of interesting points concerning the NAIRU and the Phillips Curve, which are further discussed in the comment on the paper by Ball (2015).

This paper proposes a new method to empirically validate simulation models that generate artificial time series data comparable with real-world data.

The condition of the Chinese economy is increasingly becoming a significant factor exorcising the minds of global policy makers.

Some fundamental Keynesian and Post-Keynesian insights, with an analysis of possible mechanisms to achieve a sustained recovery.

The Institute for New Economic Thinking hosts an exclusive luncheon and conversation with Lynn Parramore, Senior Research Analyst at the Institute and Reuters columnist, and Rana Foroohar, TIME Assistant Managing Editor and Economic Columnist, and Global Economic Correspondent at CNN.

What can we learn from the Vietnamese, Cuban, Rwandan, and Syrian refugees crisis?

How excessive debt hurts the economy and why to curb it.

Gerald Friedman responds to the Romers on the Sanders Plan.

Servaas Storm has conviction, yet his analysis throws the baby out with the bathwater.

More on substance, coherence, and relevance in the Eurozone debate.

The current bout of exchange rate anxiety is really just a symptom of the fact that China’s transition from an export-led growth strategy to one propelled by domestic consumption is proceeding far less smoothly than hoped.

Exploring the genesis of an important work, one that critiques mainstream neoclassical economics and offers an alternative framework for understanding modern economies.

From the very start, the European Monetary Union (EMU) was set up to fail.

Bullet-point financial reform proposals are either too simple or too vague.

This is a response to a critique by Paul Davidson of our 2013 book Keynes: Useful Economics for the World Economy and related work, where we describe, amongst other things, how the Swan diagram can be used to show how economies can use policy tools to achieve internal and external balance.

This paper provides critical comments on the Peter Temin - David Vines promotion of the basic Swan Diagram as (1) a policy tool to encourage any individual debtor nation experiencing balance of payment deficits to reduce its exchange rate in order to expand exports and reduce imports and (2) the Swan Diagram as a simple model for understanding Keynes’s General Theory for an Open Economy.

The world economy is just starting to recover from the most disastrous episode in the history of financial globalisation. Understanding what happened is essential.

On 25 September 2015, the United Nations General Assembly adopted the Sustainable Development Goals (SDGs), an ambitious policy agenda that aims to eradicate poverty, in all its forms and dimensions, by 2030.

It is high time to ditch this myth for at least the following five reasons.

Recently, our analysis has been questioned by Servaas Storm who has claimed that it is untenable to blame neo-mercantilist Germany for driving a wedge into the Eurozone. [i] It is shown below that Storm’s critique has a certain aplomb, but lacks substance.

Today’s richest Americans may soon blow past the tycoons of the Roaring Twenties. Lance Taylor explains why, and what to do about it.

We first show that, with a Kaleckian structure that is consistent with Pasinetti (1962), the relationship between distribution and growth is more robust than conventional wisdom suggests. Next, we extend our model by incorporating borrowing and emulation effects into workers’ consumption behavior, under different assumptions about how debt is serviced.

Comments on “German Wage Moderation and the Eurozone Crisis: A Critical Analysis” by Servaas Storm

It is high time to look more closely at the labor cost competitiveness myth.

Join us for a reception at the ASSA conference in San Francisco

This project brings new mathematical tools and ideas from high-dimensional statistics to bear on the problem of creating reliable macroeconomic forecasting models.