What Will New Economic Thinking Look Like?

Alejandro Nadal

The crisis that erupted in 2007 has generated interest in re-thinking economics. As Mark Blyth noted earlier this week, one of the more visible efforts in this respect is the creation of the Institute for New Economic Thinking, INET, committed to promote “new thinking about how to reform our economic system and get economists to better serve our policy makers and our society”. That is certainly a good objective, but you still need to define several key words in that sentence, beginning with “economic system” and “policy makers”.

On the very positive side, INET’s executive director Rob Johnson says the Institute is still defining “on the fly what new economic thinking means”. This good news leaves the doors open for truly innovative thinking. On the other hand, several participants in the first INET conference in King’s College mention the magic words, “shifting paradigms”.

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On Reagan's Birthday We Still Celebrate His Policies That Broke the Middle Class

Triple Crisis blogger Jeff Madrick published the following opinion article on New Deal 2.0 on the mischaracterization of President Reagan’s successes and failures in the media coverage of his centennial.

As the nation celebrates the hundredth anniversary of Ronald Reagan’s birthday, the mischaracterization of his tenure as president is a national tragedy in itself. The media’s need to gloss over its glaring failures — failures that live on for all of us — is now so common that it hardly draws notice. If the media sometimes deigns to note that Reagan blundered in the Iran-Contra scandal — and almost surely violated the law, not to mention the much-adored U.S. Constitution — it is quick to repeat the stale, dreary myth that he was a “transformative” president. President Obama has apparently bought in.

He was transformative. He taught America to hate government and in the process created an economy that utterly failed to restore itself or the nation’s standard of living. He taught Americans not to be citizens who cared about each other but to ask what government did for them. And when asked, he distorted the answers. Does Obama truly not know this?

Read the full article at New Deal 2.0.

On Reagan’s Birthday We Still Celebrate His Policies That Broke the Middle Class

Triple Crisis blogger Jeff Madrick published the following opinion article on New Deal 2.0 on the mischaracterization of President Reagan’s successes and failures in the media coverage of his centennial.

As the nation celebrates the hundredth anniversary of Ronald Reagan’s birthday, the mischaracterization of his tenure as president is a national tragedy in itself. The media’s need to gloss over its glaring failures — failures that live on for all of us — is now so common that it hardly draws notice. If the media sometimes deigns to note that Reagan blundered in the Iran-Contra scandal — and almost surely violated the law, not to mention the much-adored U.S. Constitution — it is quick to repeat the stale, dreary myth that he was a “transformative” president. President Obama has apparently bought in.

He was transformative. He taught America to hate government and in the process created an economy that utterly failed to restore itself or the nation’s standard of living. He taught Americans not to be citizens who cared about each other but to ask what government did for them. And when asked, he distorted the answers. Does Obama truly not know this?

Read the full article at New Deal 2.0.

Paradigms Lost? Cowboys and Indians in the Battle over Economic Ideas

Mark Blyth

One of the most interesting organizations to come out of the crisis is the Institute for New Economic Thinking (INET), which is dedicated to “fresh insight and thinking to promote changes in economic theory and practice.” I attended its first conference in April 2010. The mood was optimistic. Rational expectations theories, the efficient markets hypothesis, capital account openness, Ricardian equivalence, were all on the chopping block. The book of the conference was Skidelsky’s The Return of the Master. We were all Keynesians now, again…for about eight months.

Then came the ECB June 2010 Monthly Report that raised the specter of ‘Ricardian consumers’ and ‘expectation effects,’ while the G20 meeting that same month (coincidence?) focused attention upon ‘Growth Friendly Fiscal Consolidation’ and the overwhelming need to reduce debt. Led by the UK (whose net debt-to-GDP ratio was at that time was below the Maastricht threshold) the voices of orthodoxy quickly regrouped and triumphed. Austerity and belt-tightening gained traction as the advocates of a reinvigorated Keynesianism shifted their sights from dismembering the neoclassical corpus to simply maintaining the legitimacy of spending under any circumstances.

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Obama (and Congress) Can’t Cut the Budget Deficit

Ann Pettifor, Guest Blogger

The terrific hoo-ha around the US Budget Deficit is just that: hot air – predicated on the fallacy that President Obama and an ideologically-driven Republican Congress can cut the deficit.

They can’t.

It’s a delusion that arises because economists insist on applying microeconomic reasoning to macroeconomic conditions.  It’s a delusion that leads to broader misunderstanding as voters wrongly make the link between their own individual budgets and the government’s budget.

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Financial governance and the crisis: New developments on the horizon

Ilene Grabel

In what follows, I flag a number of new developments that relate to developing country and international financial institutions responses to the ongoing economic crisis.

1. Central banks to investors: “Don’t worry–no capital controls here!”

As Triple Crisis readers know, a great many developing countries have deployed controls on capital outflows and especially on inflows in response to the myriad challenges they face in the current environment. For some countries, controls on outflows have been implemented to mitigate financial instability and currency depreciation following capital flight. Rapidly growing developing countries, on the other hand, are using inflow controls to reduce inflationary pressures, cool asset bubbles, staunch currency appreciation, and protect economies from the financial instability induced by significant future reversal of inflows. Indeed, capital controls have emerged as a key weapon of choice in the modern day “currency war.”

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The Future of the EU: Shaping economic governance

Daniela Schwarzer

The Triple Crisis Blog is pleased to welcome Daniela Schwarzer, head of the European Integration research unit at the German Institute for International and Security Affairs, Stiftung Wissenschaft und Politik (SWP), as a regular blogger.

The EU is heading for a crucial European Council meeting. On March 24/25, all eyes (in particular those of market actors) will be on the 27 Heads of States and Government who will tackle important questions on Economic Governance and on the future architecture of the euro area.

A broad debate has developed in the last twelve months drawing conclusions from the way the financial, real economic and sovereign debt crises have struck the EU. There is a growing gap between the academic view on where the euro area should move and the likely outcome of the current reform process: More and more observers advocate a leap forward in terms of political and fiscal union. But there is no political consensus on substantial budgetary integration, e.g. a larger European budget (ideally with a stabilizing function) or a pooling of public debt by issuing joint Eurobonds (as has been suggested for instance by Eurogroup President Juncker and the Think-Tank Bruegel).

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The coming crisis of renewed soaring food prices

Martin Khor

The events in Egypt that incredibly propelled President Mubarak out of power after 18 days of protests have surprised everyone, probably Egyptians too.

The main reason for the protests was political, the yearning of the people for the ending of repression and for a new era of democracy. But part of the anger of the people, especially the young, arose from serious economic and social problems. Poverty has been growing in recent years, affecting one in four people. Unemployment jumped to 10% while the rate was one-third for young men.

And then there are the increasing prices of food.  Food accounts for almost half the average Egyptian household expenditure. In 2008 there were riots in Egypt over the rising price of bread, which was part of the dramatic global food price inflation in that year.  The global recession ended that round of inflation, but in recent months the prices of foods and other commodities have been jumping up again.

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Commodity Speculation: Krugman leaves questions unanswered

Timothy A. Wise

The debate on commodity speculation continues, generating lots of heat but not as much light as I was looking for in my last post. Paul Krugman has responded to those of us bewildered by his position, basically reiterating that because these are physical commodities speculation can only happen if there is evidence of inventory accumulation by, essentially, hoarders. He sees no evidence of that now, except maybe for cotton and copper but not for food commodities. Instead he points to real weather issues that have reduced supplies. Yves Smith, at Naked Capitalism, called his analysis flawed, but took issue not with dismissing financial speculation but rather by pointing to the many flaws in the available data on inventories.

Okay, sure, weather and imperfect information, but please: Are you two really saying that the influx of non-commercial speculative capital into futures markets has no impact on real prices, on the functioning of these markets? If it doesn’t, why bother re-regulating the commodity derivatives market, as Dodd-Frank mandated and the CFTC has proposed?

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