Most economists are greatly underestimating the economic challenges posed by the Covid19 pandemic. Without a correct understanding of those challenges, the aggressive monetary and fiscal measures many government are now pursuing will fall well short of their goals. They will go down in history as economic Marginot Lines—scaled up versions of tools designed to fight past crises.
The pandemic poses new and unique economic challenges. It compromises our ability to engage in productive and commercial activities requiring close contact between groups of people—that includes most of the things sustaining a modern economy. Epidemiologists tell us this is needed for several months. Responding in a way that minimises the loss of life and safeguards our long-term productive capacities requires two things: Temporarily shutting down large swaths of the economy, and focusing society’s productive resources on the kinds of work needed to fight the pandemic.
Most economists have not yet understood this partly because the scale and scope of what is needed pushes beyond the boundaries conventional economic thinking, and beyond what they generally consider to be legitimate “economic questions”.
The pandemic requires an unprecedented mobilisation of what feminist economists call care labour: work to care for ourselves, our families, and our communities. Over the next few weeks or months most people need to be focused on a vital job: caring for our collective health and helping save thousands or even millions of lives by staying at home. Many families will have to do this while simultaneously caring for millions of children now out of school, for other loved ones who cannot fully care for themselves, and for those who fall ill but do not require hospitalisation.
We need to allocate resources to enable people to perform this work.Read More »
If reducing greenhouse emissions had economic benefits then we would do it anyway without new policy.
The statement above is used by economists to argue against the introduction of policies to reduce greenhouse gas emissions on the basis that the costs would outweigh the benefits of reducing climate change. It is part of a wider narrative that regulatory policy can only lead to economic costs. However, the statement is perhaps one of the most perverse conclusions from neoclassical economics. It depends on a raft of assumptions that run contrary to real-world experience. Further, as discussed below, if just one assumption is taken out, the conclusion changes.
Sadly, economists and (in particular) economic modellers, have played a key role in turning this fallacy into accepted reality. They have done this by using simple optimisation-based approaches that make strong assumptions about human behaviour. Often the modellers do not critically question or even fully understand these assumptions. Read More »
The concept of secular stagnation, first propounded by Alvin Hansen in the 1930s, has enjoyed an academic – and mainstream – resurrection thanks to Lawrence Summers (2014, 2016), who first advanced the theory as an explanation for the subdued recovery and anaemic growth prospects of advanced economies. A surprising criticism recently came from Joseph Stiglitz (August, 2018), who believes that the theory offers a convenient escape away from assuming responsibility for failed policy during the crisis. An acrimonious debate between Summers and Stiglitz followed.
On the face of it, Summers – and Gauti Eggertson – are right: the modern theory of secular stagnation does see a central and substantial role for fiscal policy. The problem, however, lies in the fact that a short-term fix for aggregate demand shortfalls – fiscal policy – is being advanced as a long-term solution of the problem of reduced growth prospects. The central question of what drives investment in a capitalist economy is not addressed.Read More »
This is a response list to Martin Wolf’s FT column recommending Economics books of 2018 for summer reading. While there are many good books listed, we were struck by the consistent monism in his choices, as the books are all by scholars based in either the UK or the US, 12/13 of the authors are men and most of them come from the same theoretical tradition. Such lists perpetuate the strong white male – and mainstream – biases in our field (the recent list by The Economist suffers from the same biases).
To counter these biases, and with the purpose of broadening our field to become more inclusive of diverse approaches and perspectives, we have put together an alternative list. We deliberately chose books by scholars approaching Economics with alternative theoretical frameworks and by scholars from groups that tend to be excluded from the field, namely women, people of color, and scholars from the Global South. We recognize that no one is exempt from biases, which is why we are providing an explanation for the motivation behind our selection. Due to institutional and language barriers we were unable to include as many scholars from the Global South as we would have liked. For example, we would love to read the new book Valsa Brasileira by Laura Carvalho, but we are still waiting for the English translation. We hope you enjoy it and welcome more suggestions in the comments section.
The drama surrounding President Trump’s decision to impose import tariffs on steel and aluminum has roiled the Republican Party and wide swathes of the corporate elite. The tariff decision comes on the heels of political bluster about the US being treated “unfairly” by other countries. This accusation of “unfairness” when it comes to US trade deficits is well worn. In a previous era, Japan was the alleged culprit of “unfair” trade practices because of its persistent trade surpluses with the U.S.Read More »
On the occasion of the 500th anniversary of Martin Luther’s Reformation, 33 Theses for an Economics Reformation were formulated by Rethinking Economics and the New Weather Institute. The document was symbolically nailed to the door of the London School of Economics In December 2017 and endorsed in The Guardian, and was supported by an impressive list of over 60 leading academics and policy experts. The initiative offers a rare and most welcome refreshing message from the House of Economics.
Several elements in the theses are long overdue – for example, the existence of planetary limits, the superiority of political deliberation over economic logic, the appreciation of the role of uncertainty in economic predictions, the non-independence of facts and values when economic thoughts are formulated, the warning against over-reliance on modelling, econometrics and formal methods. Also important is the indication that both growth and innovation need to be conceived with a desirable end in sight, one which can be associated with material and spiritual progress – rather than with misery, inequity and inequality. It is finally all important that in the teaching of economics itself the history and philosophy of economics should be taught, together with all economic theories: not just the family tree of mainstream economics.Read More »
Since the emergence of modern financial markets, financial analysts have played a critical role in producing visions of “the economy” and its future development. As experts, they analyze market developments and predict future scenarios that enable other financial market participants to speculate on the rise or fall of stock prices, the success or failure of particular investment products, and the growth or decline of entire national economies. The substance of the analysts’ valuation and forecasting practices is, however, heavily disputed among economists. In neoclassical economic theory, the assumption that markets are informationally efficient has challenged the legitimacy of the work of financial analysts since the establishment of the efficient market hypothesis as a central paradigm in the mid 1960s. Alternative schools of thoughts – such as new institutional or behavioral economics – have criticized this paradigm. However, they have also argued that the degree of uncertainty, which is inherent to financial markets, makes prediction impossible.Read More »
The marginalist revolution in the late nineteenth century marked the beginning of the end of classical political economy and the birth of what came to be known as neoclassical economics (Sandelin et al. 2002). All three pioneers of marginal utility theory—Carl Menger (1871), William Jevons (1888), Léon Walras (1954) —referred to scarcity as the starting point for economic analysis. Through the work of these pioneers, especially Menger’s, the centrality of scarcity became a core premise for the advancement of contemporary neoclassical economics (see Hayek 2004:19; Robbins 1998:277). As a result, virtually every neoclassical economic textbook refers to scarcity—even though the field of economics is becoming increasingly differentiated.
I have argued in my research that scarcity problems are, and will remain, an important sub-set of problems, but we need to include sufficiency and abundance problems as well (Daoud 2007, 2010, 2011a, 2011b, 2015, 2017). Under scarcity, economics will give us insights about how people optimize their behavior to get as much as possible out of their limited resources. Neoclassical economics is mainly interested in what we can call allocation problems under a scarcity assumption. If actor A has a set of resources R, that is scarce in relation to fulfilling a set of wants W. Neoclassical economics tells us that a rational actor will optimize his or her resources in such a way that person can derive as much utility U as possible given the circumstances. These types of problems are central to many social science issues—they face governments allocating a limited budget to a myriad of popular demands, they face the individual in deciding if he or she should go to university or take a job. As social scientist, we need to keep analyzing these situations.Read More »