Working Papers

Budget cuts can be dangerous. Inspired by the wrenching experience in Greece, increasing attention is now being paid to the fact that austerity may fail to reduce the government deficit if the economy declines in response, as is likely in a liquidity trap (Delong and Summers 2012).

These are truly testing times. The world economic order – capitalism – is being called into question following the Lehman crisis. The world’s best form of societal organization – democracy – is being challenged by the economic success of autocratic countries such as China and Singapore.

In modern economies, individuals and companies engage in innovative activities, discovering new ways to use existing physical and human capital, and new technologies in which to invest. The institutional and broader social context within which these activities take place also changes in novel ways.

With my remarks today on financial markets and the financial crisis, I do not make any claims to originality. Rather, they are intended as a reminder of certain circumstances that are already familiar to us, in one form or another.

The crisis has exposed the failure of economic models to deal sensibly with endogenously generated crises propagating from the financial sectors to the real economy, and back again.

In a classic book and subsequent articles, Obstfeld and Taylor (2004) have shown how the broad contours of international financial history over the past century and a half can be well understood by appealing to the famous economictrilemma which emerges from the standard Mundell-Fleming model many of us still teach our undergraduates.

The euro area’s sovereign debt crisis continues though significant steps have been taken to resolve it.

In preparing this paper I have decided not to embark upon the decades-old issue of optimal-currency areas and governance as such. I assume that one of my colleagues on the panel will do that. Instead I will present an historical case of over-indebtedness of parts of a common-currency area somewhat similar to the present challenge of Europe, or rather of the Euro area with its common currency.

Investment in productive capabilities provides the foundation for economic growth.

Our shared concern – 20 years after Rio, yet poor progress towards wellbeing

Globalization has improved the living standards of hundreds of millions of people – but growing resource scarcity means it risks becoming a victim of its own success.

Government intervention is often perceived as a constraint on market forces and thereby on economic growth.

All cultural narratives, worldviews, religious doctrines, political ideologies, and academic paradigms are ‘social constructs.’

At a time when China is the favored investment destination in the global market, it seems unlikely that it would ever face capital flight.

This is a small paper on a big subject: the polarization of American politics since the mid-1970s. In its early stages this process bore more than a passing resemblance to the opening scenes of a Grade B disaster movie: With almost everyone’s attention focused elsewhere, a series of tiny, seemingly insignificant departures from long standing routines took place.

The theme of this session is very timely and controversial, on the ability of sovereign governments to supervise Large Complex Financial Institutions (LCFIs), now officially described as G-SIFIs, global systemically important financial institutions.

After the inception and, hopefully, the passing of the most dangerous phase of the international financial crisis, economists have returned to the long favoured subject of global imbalances.

The presentation explains that Indian Economy is basically a market-oriented economy with constant rebalancing between state andmarket.

Many companies around the world have discovered they can benefit financially from integrating environmental, social and governance (ESG) targets in their daily operations and strategy.

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

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

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

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

Some questions can only be answered by educated guess. The question at the centre of this round table pertains to this category. We should not be ashamed of this kind of limitation of our capacity to predict the future.

In directing panelists to distinguish between what governments “can” and “will” do, this session’s title frames economic policymaking as a balancing act. Principled efforts to define and pursue the public interest are contested and repeatedly knocked off course by conflictingpersonal, bureaucratic, and political concerns that impinge on government decisionmakers.

Financial crises are staggeringly costly. Only major wars rival them in the burdens they place on public finances.

The crisis of the export led model in the EMU countries and its monetary and financial consequences on European integration.

This paper describes the broad evolution of inequality in the world economy over the past four decades, and provides a summary account of the relationship between inequality, economic development, political regimes and the functional distribution of income.

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

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

Human economic interactions spontaneously express themselves in the quantitative form of prices and transactions quantities. Thismakes it difficult to avoid quantitative reasoning in political-economic research altogether

Modern economics can benefit significantly both from a radical reorientation at the level of method, as well as from a greater input from appropriate branches of philosophy.

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

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

Since the outbreak of the Asian financial crisis more than a decade ago, world leaders have been searching for ways to make the global financial system more resilient, less crisis-prone, and better able to play its essential role in supporting broadly-shared growth.

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

The current debate on new Global Financial Architecture is, in a way, the continuation of the debate that was intensified consequent upon the Asian crisis.

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

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

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

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

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

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

An autobiographical paper by William J. Baumol, in which he recounts his academic life and career.  The paper is a contribution to a series of recollections and reflections on the professional experiences of distinguished economists which the Banca Nazionale del Lavoro Quarterly Review (now PSL Quarterly Review) started in 1979.