Macroeconomics

State and market are often depicted as distinct, even antagonistic. Markets appear as natural products of spontaneous ordering; states as leviathans that if left untamed will distort, if not destroy markets’ natural state.

Uncertainty is an unavoidable feature of economic life, although we may cope with it sometimes by ignoring it. Institutions, conventions and behaviour are all conditioned by uncertainty, and they in turn condition uncertainty in a reflexive manner.

In the first ten chapters of our book, The Bankers’ New Clothes: What’s Wrong with Banking and What to Do about It, we discuss banking and the economics of funding as it applies to banks.

My remarks today will be focused primarily on features of the developed world’s financial system which led to the crisis of 2008 and to the Great Recession that followed, from which we are only slowly and painfully emerging.

In his recent lecture at the Cass Business School, Lord Turner noted that even mentioning the possibility of overt monetary financing was akin to breaking a taboo.

All of a sudden, tiny Cyprus is making headlines. How could such a small country, with an economy approximately the size of the State of Maranhao, create such big problems?

Further system reforms will enable China to overcome middle-income trap and push forward social progress

What happens when there’s no leader in the global economy?

There is a certain rich irony attached to the sight of corrupt Russian oligarchs now posing as liberal champions of the rule of law as they find themselves sucked into the maelstrom of Cyprus’s ongoing financial crisis.

Eric Beinhocker and Tony Dolphin argue that lasting reform to the financial sector will not be achieved without tackling the price rigging and anti-competitive behaviour that is rife in the industry.

This research project considers and casts doubts on the stationarity properties of macroeconomic data that are key to New Classical models with implications for the understanding of long-term economic growth, shorter term business cycles, stabilization policy, and industrial and development policy.

What do you get when you put two of the most well known and most widely cited economists in the world, both Nobel laureates, on stage together? A healthy dose of economic reality.

What makes a good model?

Can economics be morally centered? And perhaps more importantly, should it be?

In what sense are central banks really independent? From whom are they independent? For whom in society do they deliver?

How must the European institutional structure be modified to fortify the euro zone?

The Collapse of Free Market Macroeconomics

The ongoing eurozone crisis has prompted many to argue that monetary union withoutfiscal union was bound to fail.

Leading thinkers from outside the developed countries look to the future, spotlighting the pitfalls and opportunities thatawait us.

Albeit the majority of the profession either ignores Minskyís Financial Instability Hypothesis (FIH) or considers it plainly wrong, at least since the mid-80’s a few influential economists —who have certainly not embraced any unorthodoxcredo —have grown more receptive to this idea and eager to incorporate it in their models, even if diluted and sometimes disguised in order to make it more palatable to the conventional “representative” macroeconomist

Elephant seals have got too big for their beaches. A large specimen might weigh over 8000 lbs (3700 kg).Their size has a simple evolutionary explanation. Large males fight for the right to mate with a whole beach full of females. For elephant seals it is, quite literally, winner-takes-all. And the key to winning is simple – size.

We have grown accustomed to regulating financial markets based on imagined, not real markets. Real markets are shaped by and co-evolve with institutional arrangements within two fundamental constraints: Imperfect knowledge and the threat of illiquidity.

The financial sector can support growth but it can also cause crisis. The present crisis has exposedgaps in economists’ understanding of this dual potential.

In the seemingly never-ending aftermath to the economic crisis that began in 2007, there is little disagreement that financial markets are characterized by instability rather than stability.

Many feel that due to its size and scale the financial system has become a burden on society rather than a servant to it. What are the key elements of a productive financial sector?

Taking a long‐run view from economic history, I make three points about instability in financial markets. First, I argue that economic historians have a relatively good understanding of the proximate causes of financial crises.

The topic of this session of the INET conference is a question: does the effectiveness of fiscal policy in stabilizing an economy depend on the underlying economic context in which the policy is implemented?

The effectiveness of fiscal stimulus in promoting economic recovery appears to depend upon many factors.

What creates instability in financial markets? How does the weight of debt, the structure of expectations, or radical uncertainty contribute to instability?

In the last few years the impact of income distribution on macroeconomic dynamics has received growing academic attention.

Long periods of unequal incomes spur borrowing from the rich, increasing the risk of major economic crises

Higher income inequality in developed countries is associated with higher domestic and foreign indebtedness

Does greater inequality produce more fragile economic dynamics? Does concentration of wealth and income make societies more prone to crisis? If so, why?

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.

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

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

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

Tonight I will talk briefly about the Keynes-Hayek relationship, then will focus on some of Hayek’s insights that may be of relevance today.

Central to John Maynard Keynes (1941) original Bretton Woods proposal was an international clearing union that would issue a new international currency by fiat called bancor. Among other functions, this international central bank would finance the stabilization of individual commodity prices through commodity buffer stocks.

For more than three decades, orthodox economists, policy makers in government and central bankers and their economic advisors, using some variant of old classical economic theory [OCET], have insisted that (1) government regulations of markets and large government spending policies are the cause of all our economic problems and (2) ending big government and freeing markets, especially financial markets, from government regulatory controls is the solutionto our economic problems, domestically and internationally.

It’s a singular honor to have been asked to deliver the Butlin Lecture. I first met Noel Butlin when I had the pleasure of visiting Australian National University for two months in what was, from my perspective, the summer of 1985.

The Institute joined DIME and Central European University in hosting a conference addressing a key question of economics today: How can we create a new macroeconomic theory that takes into account the true relationship of finance to the real economy and can more accurately anticipate crises?

Joseph Stiglitz at the Institute’s debut conference in Cambridge, UK (2010).

This paper asks, how empirical evidence does or does not influence economic thinking and theory. In particular, which role do calibration, statistical inference, and structural change play?

The global financial crisis—and the Great Recession that followed—have inflicted tremendous economic and social damage across the world. Thankfully, we now appear to be on the path to recovery—though it remains sluggish and uneven, and in need of continued policy support in many advanced economies.

This paper, which is prepared for the Inagural Conference of the Institute for New Economic Thinking in King’s College, Cambridge, 8-11 April 2010, questions the preeminence of theory over empirics in economics and argues that empirical econometrics needs to be given a more important and independent role in economic analysis, not only to have some confidence in the soundness of our empirical inferences, but to uncover empirical regularities that can serve as a basis for new economic thinking.

The purpose of the paper is to argue for attention to be paid, not only to choice of theory, but also to choice of theoretical approach, in order to address issues posed by the crisis.

As Carmen Reinhart and Kenneth Rogoff remind us in the title of their book, This Time is Different: Eight Centuries of Financial Folly, financial crises are nothing new (Reinhart and Rogoff (2009)). However, they often come as a surprise to many people because in most countries they appear only periodically.

Many people regard the recent financial crisis as a painful addition to an already massive body of evidence that demonstrates the inadequacy of today’s economic models of “rational” markets.

Eugene Fama, one of the founders of the so-called “Efficient Markets Hypothesis” (EMH), articulated early on the basic narrative that underpins it: “competition… among the many [rational] intelligent participants [would result in an] efficient market at any point in time [in which] the actual price of a security will be a good estimate of its intrinsic value” (Fama, 1965, p. 56).

The current economic and financial crisis, and it is both, has already imposed great costs on the global economy. Nor is there any guarantee that we have seen the worst and that recovery is now assured.

Economic theory has modeled itself on theoretical physics. It has sought to establish timelessly valid laws that govern economic behavior and can be used reversibly both to explain and to predict events.

The world economy in 2008-2009 has passed through the most severe economic downturn since World War II. This global recession was preceded by the collapse of some of the largest financial institutions in the world.

This is not intended to be a purely historical paper. I am interested in the light the Keynesian and Hayekian interpretations of the Great Depression throw on the causes of the Great Recession of 2007-9 and in the policy relevance of the two positions to the management of today’s globalizing economy.

Learn to read, understand, and evaluate professional discourse about the current operation of money markets at the level of the Financial Times.

The aim of the two-semester sequence is to explore a coherent alternative to neoclassical and post-Keynesian theory that does not rely in any way on concepts of utility maximization, rational choice, rational expectations, or perfect/imperfect competition.

Some years ago, in the aftermath of the “great financial crisis” (GFC) of the first decade of the twentieth century, Paul Krugman famously remarked that “most macroeconomics of the last thirty years was spectacularly useless at best and positively harmful at worst”. It is the premise of this set of lectures that it is possible to do better, much better.

Many thought the financial crash was a final blow to capitalsim. Why does it still reign supreme? Anatole Kaletsky outlines the shape of things to come.