Eric Beinhocker — New economic thinking and the potential to transform politics

A new narrative of politics could develop out of such a shift. For example, Eric Liu and Nick Hanauer, in their book the Gardens of Democracy advocate a move from mechanistic ‘machine-brain’ narratives in politics towards a ‘gardener’ mind-set, with the state playing the role of a gardener, helping create the conditions in which the private sector and civil society can flourish.

Chauncey Gardiner (Peter Sellers) was right (Being There).

The Independent (UK) | Blogs
New economic thinking and the potential to transform politics
 Eric Beinhocker | Executive Director, The Institute for New Economic Thinking at the Oxford Martin School, University of Oxford

(h/t Carla Yengo-Kahn at Harvard Business Review)

Bill Mitchell — The New Economy cannot flourish with fiscal austerity

I support the New Economy initiatives but implore the leading lights to educate themselves about MMT and why macro matters.

Read it at Bill Mitchell — billy blog
The New Economy cannot flourish with fiscal austerity
by Bill Mitchell

"The New Economy" is the latest hot thing among progressives. Bill has that it is basically a good idea but needs to be better informed economically. MMT does that.

Noah Smith — DSGE vs. Weather Forecasting

Why would "disequilibrium dynamics" be important? I can think of several reasons.

Reason 1: The equilibrium may shift at about the same speed that convergence happens. If the economy is trying to hit a moving target, chaos will result. See this paper by Andrew Lo for a semi-technical explanation of why this true. (In math-speak, this happens when the rate of convergence, k, may be of the same order as the parameters governing the time-scale of the shock process.)

Reason 2: The equilibrium may not be stable. See this blog post by Jonathan Schlefer (whosebook I just ordered off of Amazon):In 1960 Herbert Scarf of Yale showed that [even the most ideal kind of] economy can cycle unstably. The picture steadily darkened. Seminal papers in the 1970s, one authored by [General Equilibrium inventor] Debreu, eliminated "any last forlorn hope," as the MIT theorist Franklin Fisher says, of proving that markets would move an economy toward equilibrium. Frank Hahn, a prominent Cambridge University theorist, sums up the matter: "We have no good reason to suppose that there are forces which lead the economy to equilibrium."In other words, the smooth convergence equation that Lucas wrote down may simply not be true.

Reason 3 (the biggie): There may be multiple equilibria. You rarely see famous and influential DSGE papers with multiple equilibria, and when you do see them, there are usually only two equilibria. But I know of absolutely no reason why the real economy should have a unique equilibrium. And I know of absolutely no reason why the number of equilibrium in the economy should be small! But there seems to be a huge publication bias in favor of smaller number of equilibria (Roger Farmer's efforts notwithstanding). This annoys me.

Read the whole thing at Noahpinion

DSGE vs. Weather Forecasting

by Noah Smith
(ht Mark Thoma)

In Economics, You Are What You Model

Jonathan Schlefer’s new book, “The Assumptions Economists Make,” is a welcome attempt to sort through some of this confusion. Mr. Schlefer, a research associate at Harvard Business School, is a political scientist by training, with an undergraduate degree in math and a long-standing engagement with economics. He is, in other words, well equipped to serve as a translator.

“This book is about what economists do in their secret lives as economists, when they aren’t dashing off op-eds to tell everybody else what to believe, pulling the wool over undergraduates’ eyes in textbooks, or otherwise engaging in public relations,” he writes. “What economists otherwise do is make simplified assumptions about our world, build imaginary economies based on those assumptions – otherwise known as models – and use them to draw practical lessons.”

Read it at The New York Times | Economix
In Economics, You Are What You Model

By Binyamin Appelbaum

(h/t Mark Thoma)

Good post on debunking mainstream macro. Stephanie Kelton and Bill Black have commented. I submitted a comment on the Godley model that predicted the crisis, but it is not up yet.

An interview with Amartya Sen: “There is a democratic failure in Europe”

Rhetorical question. Sen proves that all Harvard professors aren't morons.

Read it at Economics Intelligence
An interview with Amartya Sen: “There is a democratic failure in Europe”

Japanese economic minister — requirements for a new growth model

At the individual level we have seen unambiguous signs that the economic climate is contributing to discontent. Public sentiment has undergone a distinct shift, and we can be far less certain that a return to previous levels of economic growth can erase this dissatisfaction. Through the Occupy Wall Street movement and other demonstrations, we have heard not only a message of anger at the current situation, but the desire for something else; for something more. The search is underway, particularly among the young people of the world, for a new model of growth.

A fundamental assertion for any new growth model, that is, dynamic and inclusive growth, is that three basic elements -- the economy, society, and the environment -- are each integral and must all contribute to overall improvement. Such thinking is not superfluous or a luxury that can only be afforded during periods of strong economic performance. It is critical to recognize that we must seek to provide not only prosperity, but also leave behind a healthy social and natural environment for future generations.

The new growth model must, in other words, impart more than economic gain. In recent years governments around the world, including Japan, have quietly turned their attention to research into the question of happiness and quality of life. How do we measure, or even define, such a concept? What factors contribute? In an era when so many people face stark economic challenges, does it even matter? Fundamentally, how do we meet the needs of society, and of future generations?

Research and, one could argue, the message from demonstrations around the world, would indicate that the contribution made by society and the environment play an integral role in ensuring our citizens realize their personal goals. Such factors are therefore critical to both prosperity and sustainability; an important part of the new growth model.

Read it at The Huffington Post
The Search for a New Growth Model
Motohisa Furukawa | Japanese Economic Minister

Looks like at least some of the TPTB are listening to the voice of protest and getting the message that globalization is not working based on the model in terms of which it is being applied.

Furukawa also talks about introducing quality rather than only considering quantity, which is border on superstition for most mainstream economists.

He also introduces the economy, society, and the environment as macroeconomic trifecta requiring resolution instead of only the traditional growth of production, employment, and price stability.