Government & Politics

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.

We have developed over a number of years and now make publicly available a new and unprecedented data resource for understanding levels of living, poverty, inequality and inclusivity of growth and development around the world.

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

European Union countries are facing an epic challenge of integrating more than 1 million refugees from conflict zones in the Middle East and beyond.

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.

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.

Featuring sessions on Oil Shock and the Global Economy, Sovereign Wealth Funds, and the Political Economy of Oil.

This paper provides a careful and synthetic overview of his contributions as well as a reconstruction of Pasinetti’s philosophical approach to economics as a science meant to serve humanity.

Gerald Friedman responds to the Romers on the Sanders Plan.

Jamie Galbraith and I rarely agree. But we agree here.

The Romer/Romer letter to Professor Gerald Friedman marks a turning point. It concedes that there are indeed important issues at stake when evaluating the proposed economic policies of Presidential Candidate Bernie Sanders. These issues go beyond the political debate and should be discussed seriously between and among professional economists.

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

Economic growth and rising prosperity does not happen at the moment of invention. Only an innovation policy aiming to maximise activities throughout the innovation cycle will succeed in capturing economic growth that enhance the welfare of all citizens.

Lessons Ignored From the 1930s

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

A budget approach cloaked in the aura of science and technical jargon became a tool of manipulation.

Since Aristotle the question about the potential relationship between economic inequality and democratic changes has been studied and debated – but scientifically our ability as researchers to assess and understand how such complex social phenomena may be related is much more limited than recognised.

Patrick Honohan, Governor of the Central Bank of Ireland, discusses the Irish banking crisis.

This paper applies Schein’s model of organizational culture to financial firms and their prudential regulators.

How might a reimagined American foreign policy both bolster the domestic economy and help build a 21st-century global economy that works for everyone?

Spain’s future path for economic policy will soon be decided.

Exploring inequality, gender, and the North-South divide.

How much does the standard theory of externalities and public goods really say?

I describe the American economy in the twenty-first century as a dual economy in the spirit of W. Arthur Lewis.

We investigate the claim that the way in which debtor households service their debts matters for macroeconomic performance.

The impact of the post-meltdown Federal Reserve policy of ultra-low interest rates and Quantitative Easing (QE) on income and wealth inequality has become an important policy and political issue.

A combination of leeway within the government and constitutional immunity during incumbency enables office holders to abuse their budget at will, which in turn creates a crisis of growth in Africa, relative to other parts of the world.

This paper studies the role of credit in the business cycle, with a focus on private credit overhang.

This paper traces the evolution of the concept of the cyclically adjusted budget from the 1930s to the present.

The Institute extends its congratulations to Philip Lane, who has been named to succeed Patrick Honohan as the Irish central bank chief, and inherit his role on the council of the ECB.

Adair Turner discusses his new book, Between Debt and the Devil: Money, Credit, and Fixing Global Finance.

John Kay shares findings from his new book, Other People’s Money, and his insights on changing the financial sector.

The World Bank’s global poverty estimates suffer from deep-seated problems arising from a single source, the lack of a standard for identifying who is poor and who is not that is consistent and meaningful.

Economists’ assumptions, even about seemingly “small” matters, make an enormous difference to global poverty estimates but their impact often goes unnoticed, and the choices made have been badly justified. We must stop pretending that the World Bank’s “$1 per day” estimates are at all reliable.

The effect of ethnic violence on electoral results provides useful insights into voter behaviour and the incentives for political parties in democratic societies.

Professor Richard Portes discusses the problems of Europe and then specifically drills down into Greece itself.

This paper proposes a theoretically based and easy-to-implement way to measure the systemicrisk of financial institutions using publicly available accounting and stock market data.

As I write this it would be appear that the Greek crisis is finally coming to an end. In this report I would like to discuss why the negotiations were so fraught and what an agreement actually means. In a nutshell, the EU sought to address matters with the same kinds of measures that had been tried in the past, while Greece argued that doing so would not make things any better—and would in fact make them far worse.

How well do our assumptions about the global challenges of energy, environment and economic development fit the facts?

The Institute for New Economic Thinking has awarded $2 million in grants to fund 21 different projects as part of the latest round of its research grant program.

The financial crisis of 2008 was unforeseen to a significant extent. One reason is that the dominant academic theories influencing political decision makers ignore recent advances and instead rely largely on models and decision science dating back to the Second World War.

A look behind the scenes of the Greek referendum and what could happen next.

A survey on behalf of the Sueddeutsche Zeitung indicates that German economists are much more American in their thinking than is presumed – with a rising trend.

The ECB has decided to maintain its current level of emergency liquidity to Greece (ECB 2015). By refusing to extend additional emergency liquidity, the ECB has decided that Greece must leave the Eurozone. This may be a legal necessity or a political judgement call, or both. Anyway, it raises a host of unpleasant questions about the treatment of a member country and about the independence of the central bank.

This paper studies the long-run impact of public debt expansion on economic growth and investigates whether the debt-growth relation varies with the level of indebtedness.

Greece: reculer pour mieux sauter

This paper studies the long-run impact of public debt expansion on economic growth and investigates whether the debt-growth relation varies with the level of indebtedness.

The rising crescendo of bickering and acrimony within Europe might seem to outsiders to be the inevitable result of the bitter endgame playing out between Greece and its creditors. In fact, European leaders are finally beginning to reveal the true nature of the ongoing debt dispute, and the answer is not pleasant: it is about power and democracy much more than money and economics.

America’s economic system has failed by not raising living standards for most.

The Ukrainian government has committed to implement far-reaching reforms in exchange for the support it is getting from the international community, led by the International Monetary Fund (IMF). Understandably, given Ukraine’s disappointing transition history, there is widespread scepticism on whether the country will live up to its commitments. Three failed IMF programmes later, the fundamental question is: Is it different this time?

The monetary-fiscal policy connection is under scrutiny by the German Constitutional Court in the context of the ECB’s OMT bond-buying programme. This column argues that most analyses are deeply flawed by the misapplication of private-company default principles to the central bank. ECB bond-buying transforms public bonds into monetary base, and sovereign-default risk into inflation risk. The real question is: What is the non-inflationary limit to money-base expansion? This depends upon the economic situation and is much higher in the current liquidity-trap setting.

Janine Wedel charts the fast–evolving system of power and influence. Who is accountable? What are the remedies available to the average citizen?

How do we rebuild trust in financial services?

The former chairman of Britain’s Financial Services Authority and author of the forthcoming book “Between Debt and the Devil” explains why private debt, not banks, deepened the financial crisis and continues to cause trouble today.

Yes, it is a tale of two nations, but in a much broader way than you think. Not just England and Scotland, but an equally salient parallel between Great Britain and Canada.

Senator Elizabeth Warren, Federal Reserve Chairman Janet Yellen, and IMF Managing Director Christine Lagarde joined a renowned group of globally influential women in discussing how the financial system can be re-imagined to truly benefit society.

In recent decades, advanced economies have experienced low and stable inflation and long periods of liquidity trap. We construct an alternative business-cycle model capturing these two features by adding two assumptions to a money-in-the-utility-function model: the labor market is subject to matching frictions, and real wealth enters the utility function. These assumptions modify the two core equations of the standard New Keynesian model

Yanis Varoufakis and Joseph Stiglitz discuss Greece’s financial challenges and the associated Eurozone politics in this exclusive conversation.

“Because many interests come into play in the financing of an election campaign and then they ask you to pay back. So the election campaign should be independent from anyone who may finance it.” - Pope Francis

Pushing this strand of research brings a certain feeling of trepidation. It comes from recognizing that by openly elaborating on how to catch or deter a criminal, you thereby confer an undue advantage on the criminal through forewarning.

Initiatives to improve sovereign debt restructuring (“SDR”) began long before recent Argentine bond decisions but were redoubled in the aftermath of these rulings. At first glance, these cases identify problematic contract language that could be rectified by re-drafting critical boilerplate provisions such as the pari passu and collective action clauses (“CAC”).

The Cyclically Adjusted Budget (CAB) is the estimated size of the public budget at some previously defined level of output which may represent the ‘normal’ output or a policy target and that usually is considered to be unaffected by business fluctuations or cycles. Such an estimate is supposed to isolate the automatic movements of revenues and expenditures, given the current structure of tax and transfers, from discretionary fiscal interventions and indicate the “impact” and sustainability of fiscal action.

Over the past decades African economies have exhibited two stunning paradoxes: growth acceleration coexisting with stubbornly high poverty rates; increasing capital flight along with widening development financing gaps. There has been no attempt to link the two in the literature.

The modern individual is the point of intersection of the processes of consumption and production. The subjective representation of these processes has been determined by two branches of the modern middle class, the bourgeoisie, which has privileged consumption, and the bureaucracy, which has privileged production.

During the past year, there have been numerous and somber reflections, rather like those during a traditional period of mourning, about the great and tragic events that occurred just 100 years ago – the beginning of the First World War. And in the course of these melancholy reflections about the past, there naturally have arisen anxious concerns about the future.

What is at stake : Increasing doubt over the virtue of democracy. One cannot doubt the ubiquitous lack of confidence and hope in the so-called democratic institutions by a large majority of the people. The fundamental cause is the blatant contradiction between the principle of democracy, promoting the rule and thereby the welfare of the people, and the indomitable tendency of rising and unsustainable inequality in terms of income, standard of living and wealth.

“Oh, the Chinese hate the Japanese and the Japanese hate the Chinese—to hate all but the right folks is an old established rule. The Koreans hate the Japanese and the Vietnamese hate the Chinese, and the North Koreans hate them all. Oh, the People hate the Communists and the Communists hate the People. The Nationalists hate the Communists and the Communists hate themselves. The Confucians hate the Buddhists and the Muslims hate them all. All of my folks hate all of your folks. But during National Brotherhood Week, be nice to people who are inferior to you. It’s only for a week, so have no fear—be grateful that it doesn’t last all year.”

The old political-economic thinking of Karl Polanyi was never properly absorbed into “mainstream” North Atlantic economics: recognizing that land, labor, and finance are not really “commodities” returns institutions and social processes to the center of economic analysis.

Income and wealth inequality have been rising in the past three decades. Surprisingly, inequality has been largely ignored in the literature and practice of monetary policy. However, due to the crisis, this question has been gaining more attention.

Regulation of financial services has been an unmitigated policy disaster.

The logic of deep global capitalist crises needs to be incorporated centrally into an understanding of the changes in the within-country inequality levels. I present a theoretical framework that incorporates two levels of political economic processes. First,global capitalist crises lead to the creation of an institutional structure or a regime in the capitalist centers that influences inequality in these core countries and in the periphery. Second the class configuration in the non-core countries - a set of institutional arrangements that can be termed local political economy - also plays a key role in determining inequality outcomes.

The paper presents a newly compiled and improved database of national household surveys between 1988 and 2008. In 2008, the global Gini index is around 70.5 percent having declined by approximately 2 Gini points over this twenty year period. When it is adjusted for the likely under-reporting of top incomes in surveys by using the gap between national accounts consumption and survey means in combination with a Pareto-type imputation of the upper tail, the estimate is a much higher global Gini of almost 76 percent.

Recent weeks have surfaced an intense exchange of top-level finger pointing, both between Congress and the leadership of the Federal Reserve System, between Fed officials and executives in the private sector and within the Fed between the Board of Governors and the New York Reserve Bank.

This paper empirically examines the effects of the Federal Reserve’s Large Scale Asset Purchases (LSAP) on bank profits.

The Institute for New Economic Thinking held its sixth Annual Conference from April 8 to April 11, 2015, in collaboration with the Organization for Economic Cooperation and Development (OECD) in Paris.

Rapid private-debt growth threw Japan into crisis in 1991 and did the same to the United States and Europe in 2008. China may be next.

This paper discusses the main issues about increasing inequality, whether it matters and its impact on economic activity and growth. It starts by briefly considering the empirical evidence of the share of income going to the top one percent since 1945 in the advanced countries. It then considers whether this represents an increase in the productivity of the top one percent or merely an extraction of economic rent.

How can we reconnect economic success to socioeconomic outcomes?

Inequality and distribution—areas underserved by mainstream economics—sit at the heart of The Institute’s work. This program brings together researchers from a variety of disciplines to develop alternative approaches to the problem of inequality.

Michael Greenberger discusses the current state of play of regulatory reform and gives a barely passing grade.

Rana Dasgupta shares his view of the contradictions and tensions of India’s economic and political scenes.

Cecilia Nahon, Argentina’s Ambassador to Washington, DC., discusses the issues plaguing the Argentine government in it’s attempts to conclude debt restructuring.

A British national of Bengali origin, novelist Rana Dasgupta recently turned to nonfiction to explore the explosive social and economic changes in Delhi starting in 1991, when India launched a series of profoundly transformative economic reforms.

With the approval of the reform proposals by the Greek government, the Eurozone has returned to calmer waters. But it is only a brief interlude.

Fresh from discussions at the UN regarding the Argentinian debt crisis, Institute grantee Kevin Gallagher tells us about his new book and how developing countries can look for opportunity amidst modern financial obstacles.