"Is Modern Capitalism Sustainable?" by Kenneth Rogoff

Many social scientists and philosophers have speculated about what type of economic system is after capitalism. The empirical reality, however, is that capitalism exists in multiple forms around the globe and will organize societies in the future (in one form or another). Thus, the more important questions that need to be addressed are: 1) how have different forms of modern capitalism been constructed; 2) how are economic institutions changing over time; and 3) what are the social consequences of changing economic institutions on how resources and societies are governed--e.g. among class, race, and gender. According to Kenneth Rogoff, the Thomas D. Cabot Professor of Public Policy and Professor of Economics at Harvard University, we need to realized that all current forms of capitalism are ultimately transitional. The focus for academics and public policy should be to develop specific mechanisms that address capitalism’s problems. 

CAMBRIDGE: I am often asked if the recent global financial crisis marks the beginning of the end of modern capitalism. It is a curious question, because it seems to presume that there is a viable replacement waiting in the wings. The truth of the matter is that, for now at least, the only serious alternatives to today’s dominant Anglo-American paradigm are other forms of capitalism.

Continental European capitalism, which combines generous health and social benefits with reasonable working hours, long vacation periods, early retirement, and relatively equal income distributions, would seem to have everything to recommend it – except sustainability. China’s  Darwinian capitalism, with its fierce competition among export firms, a weak social-safety net, and widespread government intervention, is widely touted as the inevitable heir to Western capitalism, if only because of China’s huge size and consistent outsize growth rate. Yet China’s economic system is continually evolving.

Indeed, it is far from clear how far China’s political, economic, and financial structures will continue to transform themselves, and whether China will eventually morph into capitalism’s new exemplar. In any case, China is still encumbered by the usual social, economic, and financial vulnerabilities of a rapidly growing lower-income country.

Perhaps the real point is that, in the broad sweep of history, all current forms of capitalism are ultimately transitional. Modern-day capitalism has had an extraordinary run since the start of the Industrial Revolution two centuries ago, lifting billions of ordinary people out of abject poverty.  Marxism and heavy-handed socialism have disastrous records by comparison. But, as industrialization and technological progress spread to Asia (and now to Africa), someday the struggle for subsistence will no longer be a primary imperative, and contemporary capitalism’s numerous flaws may loom larger.

First, even the leading capitalist economies have failed to price public goods such as clean air and water effectively. The failure of efforts to conclude a new global climate-change agreement is symptomatic of the paralysis.

Second, along with great wealth, capitalism has produced extraordinary levels of inequality. The growing gap is partly a simple byproduct of innovation and entrepreneurship. People do not complain about Steve Jobs’s success; his contributions are obvious. But this is not always the case: great wealth enables groups and individuals to buy political power and influence, which in turn helps to generate even more wealth. Only a few countries – Sweden, for example – have been able to curtail this vicious circle without causing growth to collapse.

A third problem is the provision and distribution of medical care, a market that fails to satisfy several of the basic requirements necessary for the price mechanism to produce economic efficiency, beginning with the difficulty that consumers have in assessing the quality of their treatment.

The problem will only get worse: health-care costs as a proportion of income are sure to rise as societies get richer and older, possibly exceeding 30% of GDP within a few decades. In health care, perhaps more than in any other market, many countries are struggling with the moral dilemma of how to maintain incentives to produce and consume efficiently without producing unacceptably large disparities in access to care.

It is ironic that modern capitalist societies engage in public campaigns to urge individuals to be more attentive to their health, while fostering an economic ecosystem that seduces many consumers into an extremely unhealthy diet. According to the United States Centers for Disease Control, 34% of Americans are obese. Clearly, conventionally measured economic growth – which implies higher consumption – cannot be an end in itself.

Fourth, today’s capitalist systems vastly undervalue the welfare of unborn generations. For most of the era since the Industrial Revolution, this has not mattered, as the continuing boon of technological advance has trumped short-sighted policies. By and large, each generation has found itself significantly better off than the last. But, with the world’s population surging above seven billion, and harbingers of resource constraints becoming ever more apparent, there is no guarantee that this trajectory can be maintained.

Financial crises are of course a fifth problem, perhaps the one that has provoked the most soul-searching of late. In the world of finance, continual technological innovation has not conspicuously reduced risks, and might well have magnified them.

In principle, none of capitalism’s problems is insurmountable, and economists have offered a variety of market-based solutions. A high global price for carbon would induce firms and individuals to internalize the cost of their polluting activities. Tax systems can be designed to provide a greater measure of redistribution of income without necessarily involving crippling distortions, by minimizing non-transparent tax expenditures and keeping marginal rates low.  Effective pricing of health care, including the pricing of waiting times, could encourage a better balance between equality and efficiency. Financial systems could be better regulated, with stricter attention to excessive accumulations of debt.

Will capitalism be a victim of its own success in producing massive wealth? For now, as fashionable as the topic of capitalism’s demise might be, the possibility seems remote. Nevertheless, as pollution, financial instability, health problems, and inequality continue to grow, and as political systems remain paralyzed, capitalism’s future might not seem so secure in a few decades as it seems now. (read more)

"The Unfinished Business of Financial Reform" by Paul Volcker

Three years after the financial collapse of the US economy, what has been done by the federal government to ensure the crisis is not repeated? What progress has been made for financial regulatory reform, and what still needs to be done? According to Paul Volcker, a former Chairman of the Federal Reserve and Chairman of the President’s Economic Recovery Advisory Board, there has not been enough to address the unsustainable, imbalances between and within national economies. Additionally, there are a number of failures in national economic policy and an absence of a disciplined international monetary system.

NYRB: It should be clear that among the causes of the recent financial crisis was an unjustified faith in rational expectations, market efficiencies, and the techniques of modern finance. That faith was stoked in part by the huge financial rewards that enabled the extremes of borrowing, the economic imbalances, and the pretenses and assurances of the credit-rating agencies to persist so long. A relaxed approach by regulators and legislators reflected the new financial zeitgeist.

All the seeming mathematical precision that was brought to investment, all the complicated new products, including the explosion of derivatives, that were intended to diffuse and minimize risk, did not work as had been claimed. Instead, the vaunted efficiency helped justify an explosion of weak credit and an emphasis on trading along with exceedingly large compensation for traders.

If those remarks sound critical—and they are meant to inspire caution—let me also emphasize that the breakdown in financial markets and the “Great Recession” since 2007 are also the culmination of years of growing, and ultimately unsustainable, imbalances between and within national economies. These are matters of failures of national economic policy and the absence of a disciplined international monetary system.

Take the most familiar and egregious case. The huge surpluses China has accumulated from its external trade reflect the view of the Chinese government that it is desirable to have rapidly growing export industries that support employment growth. China was willing to build up trillions of short-term dollar assets, mainly US securities paying low interest rates—and thus kept the process going. Conversely, the United States happily utilized that inflow of low-interest dollars from China to sustain heavy consumer spending—much of it on Chinese products—a growing budget deficit, and eventually an enormous housing bubble.

Or consider the current European crisis. At its roots are years of growing imbalances within the countries of the eurozone. As in other parts of the world, the ability to borrow at low rates bridged for a while the proclivities of some countries to spend and import beyond their means, while other countries saved and invested, tending to reinforce an underlying gap in productivity between national economies.

Those were fundamentally matters of public policy—the result of decisions on taxing, spending, and exchange rates; they were not a reflection of the characteristics of the financial market. But neither can we ignore the fact that financial practices helped sustain such imbalances. In the end, the build-up in leverage, the failure of credit discipline, and the opaqueness of new kinds of securities and derivatives such as credit default swaps helped facilitate, to a truly dangerous extent, accommodation to the underlying imbalances and to the eventual bubbles.

All these developments derive in some part from the complexity implicit in the growth of the so-called shadow banking system—the nondepository banks, hedge funds, insurers, money market funds, and other largely unregulated entities that grew enormously in size after 2000—a system that by June 2008 was roughly the size of the traditional banking system. In the end, the consequence was to intensify the financial crisis and to severely wound the real-world economy. Even today, four years after the first intimations of the subprime mortgage debacle, high indebtedness and leverage, impaired banking capital, and a pervasive loss of confidence in a number of major financial institutions constrict an easy flow of credit to smaller businesses, potential home buyers, and consumers alike. (read more)

Capitalism and Democracy: Can Capitalist Markets and Democratic Politics Coexist?

Is there an inherent conflict between capitalism and democracy in modern societies? Can an economic system that operates according to a free-market logic be compatible with a political system that operates according to collectivities securing social needs and entitlements for a broad spectrum of society? Are the economic and political principals in advanced capitalist societies reconcilable? If so, how? If not, what is the solution? This month's New Left Review has an excellent historical account of the instability in the socio-economic order that repeatedly creates crises in democratic capitalist economies. According to Wolfgang Streeck, Director of the Max Planck Institute for the Study of Societies and Professor of Economic Sociology and Political Economy, "the present crisis can only be fully understood in terms of the ongoing, inherently conflictual transformation of the social formation we call ‘democratic capitalism’." Enjoy the article below and I look forward to any comments, critiques, and questions.

NLR: The collapse of the American financial system that occurred in 2008 has since turned into an economic and political crisis of global dimensions. How should this world-shaking event be conceptualized? Mainstream economics has tended to conceive society as governed by a general tendency toward equilibrium, where crises and change are no more than temporary deviations from the steady state of a normally well-integrated system. A sociologist, however, is under no such compunction. Rather than construe our present affliction as a one-off disturbance to a fundamental condition of stability, I will consider the ‘Great Recession’ and the subsequent near-collapse of public finances as a manifestation of a basic underlying tension in the political-economic configuration of advanced-capitalist societies; a tension which makes disequilibrium and instability the rule rather than the exception, and which has found expression in a historical succession of disturbances within the socio-economic order. More specifically, I will argue that the present crisis can only be fully understood in terms of the ongoing, inherently conflictual transformation of the social formation we call ‘democratic capitalism’.

Democratic capitalism was fully established only after the Second World War and then only in the ‘Western’ parts of the world, North America and Western Europe. There it functioned extraordinarily well for the next two decades—so well, in fact, that this period of uninterrupted economic growth still dominates our ideas and expectations of what modern capitalism is, or could and should be. This is in spite of the fact that, in the light of the turbulence that followed, the quarter century immediately after the war should be recognizable as truly exceptional. Indeed I suggest that it is not the trente glorieuses but the series of crises which followed that represents the normal condition of democratic capitalism—a condition ruled by an endemic conflict between capitalist markets and democratic politics, which forcefully reasserted itself when high economic growth came to an end in the 1970s. In what follows I will first discuss the nature of that conflict and then turn to the sequence of political-economic disturbances that it produced, which both preceded and shaped the present global crisis.

I. Markets Versus Voters?

Suspicions that capitalism and democracy may not sit easily together are far from new. From the nineteenth century and well into the twentieth, the bourgeoisie and the political Right expressed fears that majority rule, inevitably implying the rule of the poor over the rich, would ultimately do away with private property and free markets. The rising working class and the political Left, for their part, warned that capitalists might ally themselves with the forces of reaction to abolish democracy, in order to protect themselves from being governed by a permanent majority dedicated to economic and social redistribution. I will not discuss the relative merits of the two positions, although history suggests that, at least in the industrialized world, the Left had more reason to fear the Right overthrowing democracy, in order to save capitalism, than the Right had to fear the Left abolishing capitalism for the sake of democracy. However that may be, in the years immediately after the Second World War there was a widely shared assumption that for capitalism to be compatible with democracy, it would have to be subjected to extensive political control—for example, nationalization of key firms and sectors, or workers’ ‘co-determination’, as in Germany—in order to protect democracy itself from being restrained in the name of free markets. While Keynes and, to some extent, Kalecki and Polanyi carried the day, Hayek withdrew into temporary exile.

Since then, however, mainstream economics has become obsessed with the ‘irresponsibility’ of opportunistic politicians who cater to an economically uneducated electorate by interfering with otherwise efficient markets, in pursuit of objectives—such as full employment and social justice—that truly free markets would in the long run deliver anyway, but must fail to deliver when distorted by politics. Economic crises, according to standard theories of ‘public choice’, essentially stem from market-distorting political interventions for social objectives. In this view, the right kind of intervention sets markets free from political interference; the wrong, market-distorting kind derives from an excess of democracy; more precisely, from democracy being carried over by irresponsible politicians into the economy, where it has no business. Not many today would go as far as Hayek, who in his later years advocated abolishing democracy as we know it in defence of economic freedom and civil liberty. Still, the cantus firmus of current neo-institutionalist economic theory is thoroughly Hayekian. To work properly, capitalism requires a rule-bound economic policy, with protection of markets and property rights constitutionally enshrined against discretionary political interference; independent regulatory authorities; central banks, firmly protected from electoral pressures; and international institutions, such as the European Commission or the European Court of Justice, that do not have to worry about popular re-election. Such theories studiously avoid the crucial question of how to get there from here, however; very likely because they have no answer, or at least none that can be made public.

There are various ways to conceptualize the underlying causes of the friction between capitalism and democracy. For present purposes, I will characterize democratic capitalism as a political economy ruled by two conflicting principles, or regimes, of resource allocation: one operating according to marginal productivity, or what is revealed as merit by a ‘free play of market forces’, and the other based on social need or entitlement, as certified by the collective choices of democratic politics. Under democratic capitalism, governments are theoretically required to honour both principles simultaneously, although substantively the two almost never align. In practice they may for a time neglect one in favour of the other, until they are punished by the consequences: governments that fail to attend to democratic claims for protection and redistribution risk losing their majority, while those that disregard the claims for compensation from the owners of productive resources, as expressed in the language of marginal productivity, cause economic dysfunctions that will become increasingly unsustainable and thereby also undermine political support. (read more)

The Role of Political Institutions in Economic Markets

The political economy and economic sociology scholarship has repeatedly shown that markets are dependent on political institutions for stability, predictability, and growth. If political institutions do not establish the broader rules, constraints, and mechanisms needed to make markets function, then they will experience repeated crises and collapse. This empirical reality, however, has had difficulty making its way into the chambers of our political leader's offices. In this month's New York Review of Books, George Soros has written a great article linking the euro crisis--which is wreaking havoc throughout Western Europe and the global economy--to the failures in the political institutions that govern markets.

NYRB: The euro crisis is a direct consequence of the crash of 2008. When Lehman Brothers failed, the entire financial system started to collapse and had to be put on artificial life support. This took the form of substituting the sovereign credit of governments for the bank and other credit that had collapsed. At a memorable meeting of European finance ministers in November 2008, they guaranteed that no other financial institutions that are important to the workings of the financial system would be allowed to fail, and their example was followed by the United States.

Angela Merkel then declared that the guarantee should be exercised by each European state individually, not by the European Union or the eurozone acting as a whole. This sowed the seeds of the euro crisis because it revealed and activated a hidden weakness in the construction of the euro: the lack of a common treasury. The crisis itself erupted more than a year later, in 2010.

There is some similarity between the euro crisis and the subprime crisis that caused the crash of 2008. In each case a supposedly riskless asset—collateralized debt obligations (CDOs), based largely on mortgages, in 2008, and European government bonds now—lost some or all of their value.

Unfortunately the euro crisis is more intractable. In 2008 the US financial authorities that were needed to respond to the crisis were in place; at present in the eurozone one of these authorities, the common treasury, has yet to be brought into existence. This requires a political process involving a number of sovereign states. That is what has made the problem so severe. The political will to create a common European treasury was absent in the first place; and since the time when the euro was created the political cohesion of the European Union has greatly deteriorated. As a result there is no clearly visible solution to the euro crisis. In its absence the authorities have been trying to buy time.

In an ordinary financial crisis this tactic works: with the passage of time the panic subsides and confidence returns. But in this case time has been working against the authorities. Since the political will is missing, the problems continue to grow larger while the politics are also becoming more poisonous.

It takes a crisis to make the politically impossible possible. Under the pressure of a financial crisis the authorities take whatever steps are necessary to hold the system together, but they only do the minimum and that is soon perceived by the financial markets as inadequate. That is how one crisis leads to another. So Europe is condemned to a seemingly unending series of crises. Measures that would have worked if they had been adopted earlier turn out to be inadequate by the time they become politically possible. This is the key to understanding the euro crisis. (read more)

The Economic Consequences of Deregulation and Speculators

A recent report by The Pew Research Center’s Social & Demographic Trends demonstrates the shocking wealth inequalities that have developed in the United States. For example, the median wealth of white households is 20 times that of black households and 18 times that of Hispanic households. For those not familiar with Pew Research Center, the project studies behaviors and attitudes of Americans in key realms of their lives, including family, community, health, finance, work and leisure. The project explores these topics by combining original public opinion survey research with social, economic and demographic data analysis.

It is one of seven projects that make up the Pew Research Center, a nonpartisan “fact tank” that provides information on the issues, attitudes and trends shaping America and the world. It does not take positions on policy issues. The Pew Research Center is an independent subsidiary of the Pew Charitable Trusts.

PEW: These lopsided wealth ratios are the largest since the government began publishing such data a quarter century ago and roughly twice the size of the ratios that had prevailed between these three groups for the two decades prior to the Great Recession that ended in 2009. The Pew Research analysis finds that, in percentage terms, the bursting of the housing market bubble in 2006 and the recession that followed from late 2007 to mid-2009 took a far greater toll on the wealth of minorities than whites. From 2005 to 2009, inflation-adjusted median wealth fell by 66% among Hispanic households and 53% among black households, compared with just 16% among white households.

As a result of these declines, the typical black household had just $5,677 in wealth (assets minus debts) in 2009; the typical Hispanic household had $6,325 in wealth; and the typical white household had $113,149. Moreover, about a third of black (35%) and Hispanic (31%) households had zero or negative net worth in 2009, compared with 15% of white households. In 2005, the comparable shares had been 29% for blacks, 23% for Hispanics and 11% for whites.

Hispanics and blacks are the nation’s two largest minority groups, making up 16% and 12% of the U.S. population respectively. These findings are based on the Pew Research Center’s analysis of data from the Survey of Income and Program Participation (SIPP), an economic questionnaire distributed periodically to tens of thousands of households by the U.S. Census Bureau. It is considered the most comprehensive source of data about household wealth in the United States by race and ethnicity. The two most recent administrations of SIPP that focused on household wealth were in 2005 and 2009. Data from the 2009 survey were only recently made available to researchers.

Plummeting house values were the principal cause of the recent erosion in household wealth among all groups, with Hispanics hit hardest by the meltdown in the housing market. From 2005 to 2009, the median level of home equity held by Hispanic homeowners declined by half—from $99,983 to $49,145—while the homeownership rate among Hispanics was also falling, from 51% to 47%. A geographic analysis suggests the reason: A disproportionate share of Hispanics live in California, Florida, Nevada and Arizona, which were in the vanguard of the housing real estate market bubble of the 1990s and early 2000s but that have since been among the states experiencing the steepest declines in housing values. (read more)

Political Ideology Holding the American Economy & Society Hostage

THE PRESIDENT:  Good evening.  Tonight, I want to talk about the debate we’ve been having in Washington over the national debt -- a debate that directly affects the lives of all Americans.

For the last decade, we’ve spent more money than we take in.  In the year 2000, the government had a budget surplus.  But instead of using it to pay off our debt, the money was spent on trillions of dollars in new tax cuts, while two wars and an expensive prescription drug program were simply added to our nation’s credit card.

As a result, the deficit was on track to top $1 trillion the year I took office.  To make matters worse, the recession meant that there was less money coming in, and it required us to spend even more -– on tax cuts for middle-class families to spur the economy; on unemployment insurance; on aid to states so we could prevent more teachers and firefighters and police officers from being laid off.  These emergency steps also added to the deficit.

Now, every family knows that a little credit card debt is manageable.  But if we stay on the current path, our growing debt could cost us jobs and do serious damage to the economy.  More of our tax dollars will go toward paying off the interest on our loans.  Businesses will be less likely to open up shop and hire workers in a country that can’t balance its books.  Interest rates could climb for everyone who borrows money -– the homeowner with a mortgage, the student with a college loan, the corner store that wants to expand.  And we won’t have enough money to make job-creating investments in things like education and infrastructure, or pay for vital programs like Medicare and Medicaid.

Because neither party is blameless for the decisions that led to this problem, both parties have a responsibility to solve it.  And over the last several months, that’s what we’ve been trying to do.  I won’t bore you with the details of every plan or proposal, but basically, the debate has centered around two different approaches.

The first approach says, let’s live within our means by making serious, historic cuts in government spending.  Let’s cut domestic spending to the lowest level it’s been since Dwight Eisenhower was President.  Let’s cut defense spending at the Pentagon by hundreds of billions of dollars.  Let’s cut out waste and fraud in health care programs like Medicare -- and at the same time, let’s make modest adjustments so that Medicare is still there for future generations.  Finally, let’s ask the wealthiest Americans and biggest corporations to give up some of their breaks in the tax code and special deductions.

This balanced approach asks everyone to give a little without requiring anyone to sacrifice too much.  It would reduce the deficit by around $4 trillion and put us on a path to pay down our debt.  And the cuts wouldn’t happen so abruptly that they’d be a drag on our economy, or prevent us from helping small businesses and middle-class families get back on their feet right now.

This approach is also bipartisan.  While many in my own party aren’t happy with the painful cuts it makes, enough will be willing to accept them if the burden is fairly shared.  While Republicans might like to see deeper cuts and no revenue at all, there are many in the Senate who have said, “Yes, I’m willing to put politics aside and consider this approach because I care about solving the problem.”  And to his credit, this is the kind of approach the Republican Speaker of the House, John Boehner, was working on with me over the last several weeks.

The only reason this balanced approach isn’t on its way to becoming law right now is because a significant number of Republicans in Congress are insisting on a different approach -- a cuts-only approach -– an approach that doesn’t ask the wealthiest Americans or biggest corporations to contribute anything at all.  And because nothing is asked of those at the top of the income scale, such an approach would close the deficit only with more severe cuts to programs we all care about –- cuts that place a greater burden on working families.

So the debate right now isn’t about whether we need to make tough choices.  Democrats and Republicans agree on the amount of deficit reduction we need.  The debate is about how it should be done.  Most Americans, regardless of political party, don’t understand how we can ask a senior citizen to pay more for her Medicare before we ask a corporate jet owner or the oil companies to give up tax breaks that other companies don’t get.  How can we ask a student to pay more for college before we ask hedge fund managers to stop paying taxes at a lower rate than their secretaries?  How can we slash funding for education and clean energy before we ask people like me to give up tax breaks we don’t need and didn’t ask for?  (read more)

The Busts Keep Getting Bigger: Why?

Was the 2008-2009 financial crisis a historical anomaly? Is it empirically accurate to categorize the crisis as a black swan? Or was this financial crisis simply the latest event in what has become a reoccurring, and increasingly more harmful, pattern of "engineered" economic shocks? If so, what are the social and political forces driving these harmful economic shocks? In this month's New York Review of Books, Paul Krugman and Robin Wells have a excellent review of new research by Jeff Madrick that sheds light on these questions. 

PRINCETON: Suppose we describe the following situation: major US financial institutions have badly overreached. They created and sold new financial instruments without understanding the risk. They poured money into dubious loans in pursuit of short-term profits, dismissing clear warnings that the borrowers might not be able to repay those loans. When things went bad, they turned to the government for help, relying on emergency aid and federal guarantees—thereby putting large amounts of taxpayer money at risk—in order to get by. And then, once the crisis was past, they went right back to denouncing big government, and resumed the very practices that created the crisis.

What year are we talking about?

We could, of course, be talking about 2008–2009, when Citigroup, Bank of America, and other institutions teetered on the brink of collapse, and were saved only by huge infusions of taxpayer cash. The bankers have repaid that support by declaring piously that it’s time to stop “banker-bashing,” and complaining that President Obama’s (very) occasional mentions of Wall Street’s role in the crisis are hurting their feelings.

But we could also be talking about 1991, when the consequences of vast, loan-financed overbuilding of commercial real estate in the 1980s came home to roost, helping to cause the collapse of the junk-bond market and putting many banks—Citibank, in particular—at risk. Only the fact that bank deposits were federally insured averted a major crisis. Or we could be talking about 1982–1983, when reckless lending to Latin America ended in a severe debt crisis that put major banks such as, well, Citibank at risk, and only huge official lending to Mexico, Brazil, and other debtors held an even deeper crisis at bay. Or we could be talking about the near crisis caused by the bankruptcy of Penn Central in 1970, which put its lead banker, First National City—later renamed Citibank—on the edge; only emergency lending from the Federal Reserve averted disaster.

You get the picture. The great financial crisis of 2008–2009, whose consequences still blight our economy, is sometimes portrayed as a “black swan” or a “100-year flood”—that is, as an extraordinary event that nobody could have predicted. But it was, in fact, just the most recent installment in a recurrent pattern of financial overreach, taxpayer bailout, and subsequent Wall Street ingratitude. And all indications are that the pattern is set to continue.

Jeff Madrick’s Age of Greed: The Triumph of Finance and the Decline of America, 1970 to the Present is an attempt to chronicle the emergence and persistence of this pattern. It’s not an analytical work, which, as we’ll explain later, sometimes makes the book frustrating reading. Instead, it’s a series of vignettes—and these vignettes are both fascinating and, taken as a group, deeply disturbing. For they suggest not just that we’re seeing a repeating cycle, but that the busts keep getting bigger. And since it seems that nothing was learned from the 2008 crisis, you have to wonder just how bad the next one will be.

The first thing you need to know about the cycle of financial overreach, crisis, and bailout is that it was not always thus. (read more)

Global Governance in a Multipolar World Economy

What will the world economy look like in 10 years? How will the growth of China, India, Brazil, and Russia affect the power relations with the United States, Western Europe, and Japan? What will governance in a mulipolar world economy look like? Will global governance operate at the national, regional, or international levels? These questions are fundamental to anyone interested in economics, development, and economic sociology. According to Justin Yifu Lin, the chief economist at the World Bank, and colleagues their research suggests that by 2025 the increasingly multipolar global economy is likely to change the way the world conducts and governs international business.

WASHINGTON, DC – At a time when the global economy is suffering from a crisis of confidence, structural imbalances, and subdued growth prospects, looking ahead ten years to predict the course of development requires careful modeling and something beyond sagacity. What is needed is a multifaceted approach that combines a sense of history with careful analysis of current forces such as the shift in the balance of global growth toward the emerging world.

Such forecasting also requires an understanding of how advanced economies are coming to grips with that shift, and how the international monetary system will adjust as a result. Having studied these factors, we believe that the world economy is on the verge of a transformative change – the transition to a multipolar world economic order.

Throughout history, paradigms of economic power have been drawn and redrawn according to the rise and fall of those countries best equipped to drive global growth and provide stimulus to the global economy. Multipolarity, meaning more than two dominant growth poles, has at times been a key feature of the world economy. But at no time in modern history have developing countries been at the forefront of a multipolar economic system.

This pattern is set to change. By 2025, six emerging economies – Brazil, China, India, Indonesia, South Korea, and Russia – will collectively account for about one-half of global growth. The international monetary system is likely to cease being dominated by a single currency over the same years. As they pursue growth opportunities abroad and are encouraged by improved polices at home, emerging-market corporations will play an increasingly prominent role in global business and cross-border investment, while large pools of capital within their borders will allow emerging economies to become key players in financial markets.

As dynamic emerging economies evolve to take their place at the helm of the world economy, a rethink of the conventional approach to global economic governance is needed. The current approach rests on three premises: the link between concentrated economic power and stability; the North-South axis of capital flows; and the centrality of the US dollar.

Since the end of World War II, the US-centered global economic order has been built on a complementary set of tacit economic and security arrangements between the United States and its core partners, with emerging economies playing a peripheral role. In exchange for the US assuming the responsibilities of system maintenance, serving as market of last resort, and accepting the international role of the dollar, its key economic partners, Western Europe and Japan, acquiesced in the special privileges enjoyed by the US – seigniorage gains, domestic macroeconomic-policy autonomy, and balance-of-payments flexibility.

Broadly, this arrangement still holds today, though hints of its erosion became evident some time ago. The benefits that emerging economies have reaped from expanding their presence in international trade and finance are but one example of this.

An increasingly multipolar global economy is likely to change the way the world conducts international business. A number of dynamic emerging-market firms are on a path toward dominating their industrial sectors globally in the coming years – much in the same way that companies based in advanced economies have done for the past half-century. In the years ahead, such firms are likely to press for economic reforms at home, serving as a force for increased integration of their home countries into global trade and finance.

So the time may be ripe to move forward with the sort of multilateral framework for regulating cross-border investment that has been derailed several times since the 1920’s. In contrast to international trade and monetary relations, no multilateral regime exists to promote and govern cross-border investment.

For now, the US dollar remains the most important international currency. But this dominance is waning, as evidenced by its declining use as an official reserve currency, as well as for invoicing goods and services, denominating international claims, and anchoring exchange rates.

The euro represents the dollar’s strongest competitor, so long as the eurozone successfully addresses its current sovereign-debt crisis through bailouts and longer-term institutional reforms that safeguard the gains from a long-running single-market project. But developing countries’ currencies will undoubtedly become more prominent in the longer term.

The size and dynamism of China’s economy, and the rapid globalization of its corporations and banks, makes the renminbi especially likely to take on a more important international role. In Global Development Horizons 2011, the World Bank presents what it believes to be the most probable global currency scenario in 2025 – a multicurrency arrangement centered on the dollar, euro, and renminbi. This scenario is buttressed by the likelihood that the US, the eurozone, and China will constitute the three major growth poles at that time.

Finally, the international financial community must live up to its responsibility to ensure that the development agenda remains a priority. Countries with global economic clout have a special responsibility to accept that their policy actions have important spillover effects on other countries. Monetary-policy initiatives that emphasize increased collaboration among central banks to achieve financial stability and sustainable growth in global liquidity thus would be particularly welcome.

Despite the considerable progress that developing countries have made in integrating themselves into international trade and finance channels, there is still much work to be done to ensure that they share the burden of maintaining the global system in which they have a rapidly growing stake. At the same time, it is critical that major developed countries craft policies that take into account their growing interdependency with developing countries. More and more, global governance will depend on leveraging that interdependency to strengthen international cooperation and boost worldwide prosperity.

Complex Technology In Tightly Coupled Financial Markets

Donald MacKenzie, professor at the University of Edinburgh and one of the leading minds in the sociology of markets (social studies of finance), has a great new article in the London Review of Books that examines how the use of complex technology in tightly coupled financial markets potentially leads to an unstable and flawed economic system.

LONDON: What goes on in stock markets appears quite different when viewed on different timescales. Look at a whole day’s trading, and market participants can usually tell you a plausible story about how the arrival of news has changed traders’ perceptions of the prospects for a company or the entire economy and pushed share prices up or down. Look at trading activity on a scale of milliseconds, however, and things seem quite different.

When two American financial economists, Joel Hasbrouck and Gideon Saar, did this a couple of years ago, they found strange periodicities and spasms. The most striking periodicity involves large peaks of activity separated by almost exactly 1000 milliseconds: they occur 10-30 milliseconds after the ‘tick’ of each second. The spasms, in contrast, seem to be governed not directly by clock time but by an event: the execution of a buy or sell order, the cancellation of an order, or the arrival of a new order. Average activity levels in the first millisecond after such an event are around 300 times higher than normal. There are lengthy periods – lengthy, that’s to say, on a scale measured in milliseconds – in which little or nothing happens, punctuated by spasms of thousands of orders for a corporation’s shares and cancellations of orders. These spasms seem to begin abruptly, last a minute or two, then end just as abruptly.

Little of this has to do directly with human action. None of us can react to an event in a millisecond: the fastest we can achieve is around 140 milliseconds, and that’s only for the simplest stimulus, a sudden sound. The periodicities and spasms found by Hasbrouck and Saar are the traces of an epochal shift. As recently as 20 years ago, the heart of most financial markets was a trading floor on which human beings did deals with each other face to face. The ‘open outcry’ trading pits at the Chicago Mercantile Exchange, for example, were often a mêlée of hundreds of sweating, shouting, gesticulating bodies. Now, the heart of many markets (at least in standard products such as shares) is an air-conditioned warehouse full of computers supervised by only a handful of maintenance staff.

The deals that used to be struck on trading floors now take place via ‘matching engines’, computer systems that process buy and sell orders and execute a trade if they find a buy order and a sell order that match. The matching engines of the New York Stock Exchange, for example, aren’t in the exchange’s century-old Broad Street headquarters with its Corinthian columns and sculptures, but in a giant new 400,000-square-foot plain-brick data centre in Mahwah, New Jersey, 30 miles from downtown Manhattan. Nobody minds you taking photos of the Broad Street building’s striking neoclassical façade, but try photographing the Mahwah data centre and you’ll find the police quickly taking an interest: it’s classed as part of the critical infrastructure of the United States.

Human beings can, and still do, send orders from their computers to the matching engines, but this accounts for less than half of all US share trading. The remainder is algorithmic: it results from share-trading computer programs. Some of these programs are used by big institutions such as mutual funds, pension funds and insurance companies, or by brokers acting on their behalf. The drawback of being big is that when you try to buy or sell a large block of shares, the order typically can’t be executed straightaway (if it’s a large order to buy, for example, it will usually exceed the number of sell orders in the matching engine that are close to the current market price), and if traders spot a large order that has been only partly executed they will change their own orders and their price quotes in order to exploit the knowledge. The result is what market participants call ‘slippage’: prices rise as you try to buy, and fall as you try to sell. (read more)

"Nudging" Markets Towards Efficiency

A very interesting initiative is being done within the US and Britain that attempts to improve our lives by making markets more useful, productive, empowering, and efficient--based on the theoretical models of leading behavioral economists. These initiatives are excellent examples of how governments and private market actors can work in cooperation to create an economic system that benefits society, not just a small group of dominant actors. Below is an article from Richard H. Thaler, professor of economics at University of Chicago GSB, describing a number of these initiatives.

NEW YORK: Governments have learned a cheap new way to improve people’s lives. Here is the basic recipe: Take data that you and I have already paid a government agency to collect, and post it online in a way that computer programmers can easily use. Then wait a few months. Voilà! The private sector gets busy, creating Web sites and smartphone apps that reformat the information in ways that are helpful to consumers, workers and companies.

Not surprisingly, San Francisco, with its proximity to Silicon Valley, has been a pioneer in these efforts. For some years, Bay Area transit systems had been tracking the locations of their trains and buses via onboard GPS. Then someone got the bright idea to post that information in real time. Thus the delightful app Routesy was born. Install it on a smartphone and the app can tell you that your bus is stuck in traffic and will be 10 minutes late — or it can help you realize that you are standing on the wrong street, dummy. It gives consumers a great new way to find out when and where the bus is coming, and all at minimal government expense.

Another example involves weather data produced by the National Oceanographic and Atmospheric Administration. The forecasts you find on the Weather Channel, or on the evening news or online, use the agency’s information. Again, the government produces and releases raw data, and the private sector transforms it into something useful for the public.

Several other departments in the Obama administration are looking to expand the use of such techniques. On data.gov, you will find huge amounts of downloadable data that had heretofore been inaccessible. As a sign of the importance that President Obama has attached to this approach, he put it on the government’s agenda on Jan. 21, 2009, his second day in office. (Disclosure: My book, “Nudge,” published in 2008, advocated this broad idea; Cass R. Sunstein, co-author of the book, is now administrator of the White House Office of Information and Regulatory Affairs.)

Now the administration is pushing to use this concept as a tool for regulation, and as a method of avoiding more heavy-handed rule making. The idea is that making things more transparent can immediately turn consumers into better shoppers and make markets work better. One might think that such an initiative would receive nearly universal support — after all, who could be against openness and transparency? But it turns out that some people are.

Two cases are under discussion right now.

First, the Department of Transportation is considering a new rule requiring airlines to make all of their prices public and immediately available online. The postings would include both ticket prices and the fees for “extras” like baggage, movies, food and beverages. The data would then be accessible to travel Web sites, and thus to all shoppers.

The airlines would retain the right to decide how and where to sell their products and services. But many of them are insisting that they should be able to decide where and how to display these extra fees. The issue is likely to grow in importance as airlines expand their lists of possible extras, from seats with more legroom to business-class meals served in coach.

Electronic disclosure of all fees can make it much easier for consumers to figure out what a trip really costs, and thus make markets more efficient, without requiring new rules and regulations. (As someone who once bought two tickets on a discount airline from London to Dublin for the advertised price of £1 each, then ended up paying hundreds of dollars for the privilege of bringing along two heavy suitcases, I acknowledge having a sore spot on this issue.)

Another initiative has been proposed by the Consumer Product Safety Commission. In 2008, Congress overwhelmingly passed and President George W. Bush signed legislation mandating an online database of reported safety issues in products, at saferproducts.gov. The Web site ran for a few months in a “soft launch” and went into full operation on Friday.

But a majority in the House of Representatives passed an amendment last month that might have stopped this initiative in its tracks. The amendment, sponsored by Representative Mike Pompeo, a Kansas Republican, would have prohibited the agency from spending any further money to start the site. One goal, of course, was to cut the budget, although proponents of the amendment also argue that the Web site might include information that is erroneous and damaging to the businesses that sell children’s products.

Yet several provisions in the final rules protect manufacturers from false or malicious statements. Consumers have to include identifying information and sign an affidavit testifying to the truth of their complaints. Furthermore, manufacturers will be able to see complaints before they are posted, and can then correct mistakes or add comments.

ALTHOUGH this amendment was passed in the name of deficit reduction, the requested money for the site is a puny $3 million a year. If we want to reduce the cost of government regulation, this is exactly the kind of effort we should be applauding and expanding.

Compared with the tiny costs, the benefits of this program could be enormous. Thirteen years ago, two of my dear friends experienced the nightmare that parents dread most. They were called at work by their child-care provider and told that their 18-month-old son had died in a crib accident. Imagine their anguish when they later learned that other children had died in this model of crib, and that still others had died in cribs with similar design. Yet there was no easy way for any parent or child-care provider to know that.

In a recent three-year span, some 265 children under the age of 5 died in accidents related to nursery products, the government has reported. If this program could reduce that number even slightly, the cost would seem amply justified.

Moving the government into the 21st century should be applauded. In a future column, I will explain how the release of some kinds of data can even help consumers better understand themselves. (read more)

Man vs. Machine on Wall Street: How Computers Beat the Market

William D. Cohan--the author of House of Cards: A Tale of Hubris and Wretched Excess on Wall Street (2007) and Money and Power: How Goldman Sachs Came to Rule the World--has an insightful article in The Atlantic that investigates the increasing role of computer modeling by quants in the financial markets. The ubiquitous use of technology and complex algorithmic modeling--which are often executed by computers themselves--to beat the market brings a number of socio-logically interesting questions to mind: 1) are computer driven models more likely to experience large swings; 2) are computer driven models more likely to exhibit social contagion and cause negative effects for the larger society; 3) can this technology be regulated by the State; and 4) can technology be guided so as to benefit capital allocation throughout the market, and the broader society.

The Atlantic--With the winter's second blizzard raging outside, Cliff Asness sat in his relatively modest office in Greenwich, Connecticut, surrounded by three of his partners, his PR guru, an impressive collection of unread books, and a sea of foot-tall hard-plastic replicas of Spiderman, the Incredible Hulk, and friends. "Let me be technical," he said. "It all sucked."

Asness--intense, bald, and bearded, with a $500 million fortune and a doctorate in finance--was reflecting on the dark days of 2008, when capitalism seemed to be imploding, when Bear Stearns and Lehman Brothers had collapsed and the government had hastily arranged bailouts of Merrill Lynch, Morgan Stanley, Goldman Sachs, and AIG, among others.

His own business, Applied Quantitative Research--one of the world's leading quantitative-investment, or "quant," funds--had also suffered painfully. The money his team managed fell to $17.2 billion in March 2009, from a peak of $39.1 billion in September 2007, as clients headed for the exits with what was left of their cash. Such losses can be fatal for fund managers like AQR, since sophisticated investors pay them big fees for exceptional performance and, understandably, have little patience for anything less. As AQR's founders felt the tremors from Wall Street rippling through their offices, Asness said, "we worried about the stability of the financial sector, the stability of the economy, and the stability of society." To Bloomberg Markets magazine, last fall, he was even more explicit: "I heard the Valkyries circling. I saw the Grim Reaper at my door."

Yet they survived. And AQR--which makes its fortune, like other quants, by using high-speed computers and financial models of extraordinary complexity--has made a stupendous recovery in the past two years. At the end of 2010, AQR had $33 billion in assets under management. Its funds' performance was up nearly 20 percent last year, after being up 38 percent in 2009.

This is all the more striking because many analysts believe the quants helped cause, or at least exacerbated, the meltdown by giving traders a false sense of security. The risk-control models these firms pioneered encouraged Wall Street to take on excessive leverage. Their trading strategies, which deliver excellent returns in normal times, functioned poorly in the irrationality of a financial panic, and reinforced a frenzy of selling. Although predictions of the death of AQR and its ilk, by the writer and investor Nassim Taleb, among others, turned out to have been greatly exaggerated, worries linger, even as some high-profile quants have surged back. Taleb and the other critics think their overreliance on computers gives quants excessive confidence and blinds them to the possibility of seemingly rare economic catastrophes--which seem to be not so rare these days. (This was the theme of Taleb's best-selling book, The Black Swan, which examined the effect of the "highly 
improbable" on markets, and on life.) As Exhibit A, they point to the extraordinary events of May 6, 2010, when the Dow dropped by nearly 1,000 points in a few minutes after an algorithmic program executed by the investment firm Waddell & Reed, in Kansas, triggered a terrifying blitz of automated buying and selling by other financial computers. The market quickly recovered, but many worry that the episode was a preview of greater turbulence ahead as machines gain control of more and more trading.

Scott Patterson, a former Wall Street Journal reporter and the author of the 2010 book The Quants, told me he can envision a world, not too far away, in which artificial intelligence could vanquish human trading altogether, just as it has Garry Kasparov on the chessboard. "I'm not totally against quants at all, because I think they are a very powerful way of investing," Patterson said. But, like a number of other critics, he thinks they might encourage a cycle of booms and busts, and possibly intensify the next crisis. "Go to a trading room, it's just guys on computers," he said. "And a lot of times it's not even guys, it's just the computer running the machine. I don't want to demonize it. I think there has to be a happy medium. But I'm personally worried that it can run off the rails."

As much as anyone else, Cliff Asness has shaped and 
embodied this world of automated high finance. And though his experience--from academia to Wall Street to Greenwich--has been marked by recurring crises, and though he admits that no one can predict when the next big one will hit, he's more confident than ever in the power of data and mathematical models, in his hands, to beat the market consistently over the long term. And, once again, the data are telling him he's right. (read more)

Offshore Banking and Tax Havens are Central to the Global Economy

As millions of Americans prepare to file their income taxes ahead of Monday’s deadline, this report looks at how corporations and the wealthy use offshore banks and tax havens to avoid paying taxes and other governmental regulations. "Tax havens have grown so fast in the era of globalization, since the 1970s, that they are now right at the heart of the global economy and are absolutely huge," says British journalist Nicholas Shaxson. "There are anywhere between $10 and $20 trillion sitting offshore at the moment. Half of world trade is processed in one way or another through tax havens." Shaxson is the author of the new book, Treasure Islands: Uncovering the Damage of Offshore Banking and Tax Havens. (read more)

The Post-Crash: Wall Street Won

The April 18th issue of New York Magazine titled "The Post-Crash: Wall Street Won...
So why is it so worried?" investigates the effects of the 2008 financial crisis on the minds of Wall Street bankers, financiers, and money managers. Three articles, in particular, shed light into the ecstatic, neurotic, and perhaps deluded psychology of the post-crash financier. The articles raise a number of interesting points, which in-turn lead to a number of interesting questions: 1) what have financial organizations and entrepreneurs learned from the 2008 financial crisis?; 2) will there be any changes in the cultural norms on Wall Street?; 3) how can regulators attempt to reign in a financial sector that has return to its pre-crisis power?; and 4) if individuals on Main Street once again see that their pensions and retirement portfolios are increasing in value, then will they support strong legislation that restricts the financial sector?

The following is an excerpt from "The Wall Street Mind: Triumphant…" At the end of March, Neil Barofsky, on his final day as the special inspector general of the Troubled Asset Relief Program (TARP), published a scathing indictment of the program over which he’d served as watchdog since its inception in that awful, apocalyptic autumn of 2008. On the op-ed page of the New York Times, Barofsky argued that TARP had “failed to meet some of its most important goals”: protecting home values, easing the foreclosure crisis, alleviating the credit crunch—helping Main Street, in other words. Indeed, only when it came to aiding Wall Street had TARP worked like a charm. “Billions of dollars in taxpayer money allowed institutions that were on the brink of collapse not only to survive but even to flourish,” he wrote. “These banks now enjoy record profits and the seemingly permanent competitive advantage that accompanies being deemed ‘too big to fail.’ ”

Without necessarily intending to, Barofsky’s op-ed provided the perfect coda for the era of bailout rage—a two-and-a-half-year spasm of populist fury that promised, or threatened, to inflict enormous changes on the financial sector. In the political realm, Wall Street faced the prospect of root-and-branch reregulation, up to and including the potential nationalization of the industry’s largest players, and in the cultural realm its transfiguration into a kind of pariah state. Once upon a time, the Street’s leading lights had been glamorized and admired to the point of worship; now the likes of Robert Rubin, Lloyd Blankfein, and Richard Fuld were relentlessly pilloried and demonized. Once the megabanks were seen as indomitable powerhouses and sources of “financial innovation” (whatever the hell that was); now the greatest and most fearsome of them all, Goldman Sachs, was recast—by a famous and infamous Rolling Stone screed—as a “great vampire squid.”

Yet today on Wall Street, all of that seems a very long time ago. Not only are the banks rolling in dough again, but their denizens’ customs and sense of self-esteem have largely reverted to the status quo ante. With the enactment of a ­financial-­reform law that is widely seen as toothless, the peril posed by government intervention has receded, and with it the industry’s concerns about the vicissitudes of public opinion. Vampire squids? That’s so 2009—an eon ago in Wall Street time. We won, you lost, get over it, is the prevailing attitude.

A mixture of indifference to and disdain for the views of outsiders has, of course, always been a feature of Wall Street culture—an inevitable outgrowth of the industry’s profound insularity. “Most bankers haven’t a clue what the rest of the world thinks of them,” says Henry Blodget, the fallen ­Merrill Lynch analyst now reborn as a bumptious web entrepreneur. “Wall Street is its own world, with its own tribes, its own customs, and its own pay scales, which are otherworldly. Once you’re in that world, what matters most is your place in that world, not what the rest of the world thinks of you. Given their druthers, bankers would not choose to be loathed and ridiculed. But in the hierarchy of priorities, this concern comes at the end of a long list of concerns that starts with this year’s bonus.”

Now, you might think that, given the gargantuan havoc they wreaked on the global economy and the vicious backlash it inspired, the bankers might have engaged in a modicum of self-scrutiny over these past months—and in the process arrived at, if not enlightenment, then at least a mildly less exalted conception of their own value and virtue. But this supposition presumes at once a degree of reflectiveness never much in evidence on Wall Street and a sense of culpability for the crash that was equally unapparent even at its depths.

“This is a profession with a lot of smart people, but who aren’t necessarily terribly introspective,” says one of the city’s most prominent private-equity kingpins. “They think they actually deserve to make all this money. [And] they created for themselves a narrative where the irrational actions by a few people caused the meltdown. None of them were sitting there saying to themselves, ‘I was responsible for this crisis. Shame on me.’ ”

None of which is to say that the bankers were utterly impervious to the loud calls for their decapitation. “The crisis momentarily alerted Wall Streeters to the fact that the rest of world is flabbergasted and appalled by how much money everyone makes,” Blodget says. “This revelation was startling to Wall Street, and with the threat of incarceration [and reregulation] on the table, it led to a temporary focus on relative decorum. But that’s all over now, so Wall Street has cheerfully gone back to doing what it’s great at.” (read more)

A Shifting Economics Paradigm?

The 2008 financial crisis shook the foundations of our society and how we think about the interconnectedness of economy and society. An important force in shaping how we think of the economic system is the economics discipline. Economics has historically built the conceptual and theoretical models that have influenced economic policy by our nation's leaders and central banks, and firm's strategies in the market. These dominant ways of thinking--paradigms--hindered most economists from accurately predicting the near-collapse of the financial markets and the broader shocks to the credit and housing markets. As a result, many argue that the profession is partly responsible for the crisis and must re-evaluate how it approaches the study of the economy. The dominant paradigm of the economics profession has been called into question. There is, however, a new community of scholars who are trying to nudge the economic's profession in a new direction and to shift the dominant paradigms that underlie it forward--The Institute for New Economic Thinking.

INETeconomics--It’s time everybody recognized that our 20th century economic thinking is not fit for life as we know it in the 21st century.

The prevailing thinking, that the economy is an idealized system of perfectly rational, optimizing individuals and institutions, who, by trading in markets, bring the economy to a balanced, efficient equilibrium has been rendered obsolete by developments in recent years.

Markets are global. Money moves instantaneously 24/7, and is now a raw material for financial innovations. Regulators are fallible and market participants frequently fall below the standard of being perfectly rational.

Economic thinking has not kept up with these and other developments that now define us, and that fact deeply affects everyone – as we learned in our most recent global financial crisis.

Spurred by the financial crisis and recent developments in the economics field, a far more realistic view of the economy is emerging that takes into account imperfections in individuals, institutions, and information, as well as the existence of complex global networks of interaction, and the dynamism of innovation.

This “new economic thinking” has the potential to profoundly impact society in areas ranging from government policy and financial system reform, to solving climate change, poverty and inequality, and driving sustainable growth in the long run. In other words, new economic thinking can enable a better world for all.

The Institute for New Economic Thinking’s mission is to nurture a global community of next-generation economic leaders, to provoke new economic thinking, and to inspire the economics profession to engage the challenges of the 21st century.