Centroids : Exactly what can succeed laissez faire and Keynes ? Assuming we seriously need a new kind of economics, where do we look for a new model for the system ? Turns out that there is at least one group which is working on the problem. This is not an endorsement for the Institute for New Economic Thinking. Seems to me that it is still operating on the presumption that most or all traditional ways of conceiving economics remain valid. This can be questioned. But here is an attempt to move further than the usual debate and into new territory. --------------------------------------- In a search for a new and useful paradigm what ideas might be worked with ? For now the best anyone can do would seem to be to some brainstorming, coming up with ideas, throwing them against the wall, and seeing what sticks. When some do appear to have promise, work with those ideas and forget the others. Here then are a couple of ideas to get the conversation started. These could prove to be impractical or assume some things that are incorrect, but let's see what happens-- Culture as Engine of the Economy How to energize the sluggish economy has, so far, been seen as a question of monetary policy, or tax rates or redistributionist remedies. Without dismissing these factors, suppose we conceive them as the caboose and not the train ? In other words, what gives value to "economic" activities ? Is it simply a question of dollars and cents benefits ? The answer is "sometimes," but far from always. What is the economic advantage of watching sitcoms ? None that I can think of. Except to NBC, ABC, and CBS and maybe some indy TV producers. Multiply this example by all cultural discretionary economic activity. Hence sports, museums, some types of education, the music biz, Hollywood, etc. Not sure what % slice of the economy this is, but surely it is substantial. Next, what specifically economic values do each of these sectors generate ? THEN, identify, empirically, those that are most beneficial and those that are most counter-productive. Simple example, films and TV shows that feature criminal violence. Exactly what values do such things promote ? I'm not sure, and while, I, too, see actual value in Without a Trace and Law & Order, the question arises, what else are we being sold when watching these shows besides the worth of careful investigations and a scientific / forensics attitude more generally ? And what about the mayhem and gratuitous violence shows ? Do they have any value at all except negative value ? Not sure at this point, but do feel certain that there are various subtexts in such productions that promote economic activity, such as incentives to spend $$$ on legal services at every opportunity. But, IMHO, about 70 % or 80 % of all legal expenditures is money thrown away ; it certainly isn't productive of anything. Therefore, suppose there was a "Consumer Reports" of entertainment which analyzed such things and regularly publicized policy recommendations to deal with the problems that promotion of ill-advised expenditures causes AND to recommend policies that encouraged entertainment that furthers productive expenditures ? Suppose that a "new Fox TV" came along with an independent streak and made this a centerpiece of its offerings ? Could turn out that, as a guess, 15 % - 20 % of the economy is pure waste, generated by crappy values promoted by Hollywood / TV etc. And it could turn out that historic analysis shows that the situation is getting worse. Parts of the trend might even be traced to specific films or TV shows. Social Cost Benefit Analysis of Economic Policy as standard operating procedure rather than strictly financial benefit analysis. If this was de rigueur, foreclosures would come to a screeching halt because the social costs are waaaaaaaaaaaaay too high, and , quantified in some plausible manner, could be seen as costing the nation hundreds of billions. Sure, the megabanks would cry, but exactly how could we justify the overall costs of added welfare expenses, lost jobs, added police costs, and on and on ? In effect, we are fighting a war, an economic war. We need policies that enable us to win as a nation, not a system that simply benefits one party or the other in particular elections. For now almost all social costs are dealt with anecdotally and nothing else. But suppose we quantify social costs ? Make social cost accounting part of the political process ? And make it standard operating procedure ? Wouldn't this change the economic paradigm ? ----------------------------------------------------------- Any thoughts on such questions ? Any other ideas ? Billy =================================================== from the site : Triple Crisis _What Will New Economic Thinking Look Like?_ (http://triplecrisis.com/what-will-new-economic-thinking-look-like/)
_Alejandro Nadal_ (http://triplecrisis.com/author/alejandro-nadal/) The crisis that erupted in 2007 has generated interest in re-thinking economics. As _Mark Blyth noted_ (http://triplecrisis.com/paradigms-lost/) earlier this week, one of the more visible efforts in this respect is the creation of the Institute for New Economic Thinking, _INET_ (http://ineteconomics.org/about-the-institute) , 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_ (http://ineteconomics.org/initiatives/campus-outreach) 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”. I hope INET offers the opportunity for something a bit more ambitious than just a shift in paradigm, especially if a narrow definition of “paradigm” is used. After all, when we change paradigms, we are still playing the same ball game. It is perhaps more appropriate to think of changing of ball park altogether. And if this is the task at hand, then we need to reconsider the basic building blocks of theory, as well as the nature of our discourse and the boundaries of our field. Let me give one example related to money and ethics. It is no secret that economic theory has a problem with money, that “ portentous issue” (Arrow and Hahn 1971:338). At the starting point of all price theory is the abstraction that puts money outside the field of analysis. This is accompanied by the postulate that commodities are physically determined. Then value theory restores the unit of measure that allows economic discourse to move on to price determination. This is true for classical political economy (and its contemporary Sraffian version). And it certainly is true for neoclassical general equilibrium theory (GET). When linking monetary and value theory in GET, relative prices are determined first (in terms of physical rates of substitution) and, in a second stage, monetary prices are determined (say, with a version of the Cambridge money equation). Back in 1965 both Patinkin and Hahn showed this procedure was deeply flawed. Today general equilibrium theory remains essentially a theory of barter economics (or a theory where all exchanges are ruled out). At least _Debreu_ (http://cowles.econ.yale.edu/P/cm/m17/m17-02.pdf) (1959 Chapter 2, footnote 3) was frank about this. Can you imagine what people’s reactions would be if told that the most sophisticated model for market theory that economists can put on the table is limited to non-monetary economies? Integrating monetary theory with value theory remains an esoteric field. Considerable time and effort has gone into solving this problem (for example, using overlapping generations models and search theory), but the results are still unsatisfactory. It can be argued that macroeconomic theory takes a different starting point and does not examine the value of the common unit of account in terms of a value theory. Perhaps one exception is found in _Keynes_ (http://ebooks.adelaide.edu.au/k/keynes/john_maynard/k44g/chapter17.html) who thought it was natural “to enquire wherein the peculiarity of money lies as distinct from other assets” (GT, Chapter 17 on “The Essential Properties of Interest and Money”). As we know, this “mysterious chapter” (as Joan Robinson called it) generated more questions than answers. In other terms, the concept of money remains fuzzy. Now, that’s something that most economists would hate to admit in public. So here’s an idea: new economic thinking cannot continue to abstract from money as a starting point. Money, it can be said, is arguably the most important “economic object” and thus it is truly amazing that economic theory could even think this abstraction is necessary. New economic thinking needs to start afresh in this problem area. A way to approach this is to understand how prices and money were thought of before economics got in the way. In strong contrast with economic theory, we must stop thinking of money as a simple transactions technology. It is something much more complicated. This probably entails looking at money as a political and ethical object. This leads us into the critical issue of the relations between ethics and economics, a key component of new economic thinking. This is part of my research agenda and will be the theme of a later entry on this blog. These are all relevant questions, for as _Keynes_ (http://ebooks.adelaide.edu.au/k/keynes/john_maynard/k44g/preface1.html) warned one December night in 1935 “the difficulty lies, not in the new ideas, but in escaping from the old ones, which ramify, for those brought up as most of us have been, into every corner of our minds”. -- Centroids: The Center of the Radical Centrist Community <[email protected]> Google Group: http://groups.google.com/group/RadicalCentrism Radical Centrism website and blog: http://RadicalCentrism.org
