The ‘new economics’ and policies for financial stability

The purpose of this paper is to consider the policy implications of the ‘new economics’. The focus will be on financial stability as an objective of policy within a more general framework of policies. The theoretical framework upon which we base our policy conclusions is summarised to provide understandings of the operation of the economy and the need for policy interventions, before the main policy implications, the focus of this paper, are discussed. In doing so we argue that an important policy dimension, which has been ignored in the past, is financial stability, a new focus of monetary policy amongst other implications. The theoretical framework upon which we base our policy conclusions tries to avoid the problems encountered by the previously dominant paradigm ‘New Consensus in Macroeconomics’. It represents in this sense ‘new thinking in economics’.     

Positive public economics: reinterpreting ‘optimal’ policies

The standard positive/normative divide fails to capture the way economists use ‘optimal’ taxation models. This paper argues that the better way to understand public economics is through a three-part division between positive, normative, and instrumental models. An instrumental model is about means and ends. Once this additional dimension is acknowledged, one can see that ‘optimal’ taxation models are closely connected to what are generally seen as purely positive models. I argue that economists have been using similar standards to assess ‘optimal’ taxation models as they use to assess positive models. Recent advances in optimal taxation theory have embraced the positive aspects of models, even about social welfare functions, something that is generally classified as a normative.     

Is newest always best? Firm-level evidence to challenge a focus on high-capability technological (product or process) innovation

This paper sets out to address a gap in the empirical literature on the importance of ‘low-capability’ innovation for firms. The study is framed around discussion of the conceptual bias that remains in policy and academic literature towards a narrow subset of technological (product or process) innovation labelled ‘high-capability’ innovation in this paper. The paper argues that this bias influences the public and business community's understanding of the term ‘innovation’ and has implications for innovation measurement, research, policy and strategy. The study uses data from an economy-wide, regional innovation survey based on the Oslo manual, and includes 648 innovative firms covering all industry sectors. The paper combines elements of both subject and object approaches to innovation measurement, using data from an open-ended survey question to explore the alignment between what firms report as their ‘most important innovation’ (MII) and firm capabilities for introducing ‘high-capability’ technological innovation. Results show that a substantial share of firms report an MII that is a ‘low-capability’ innovation, including those firms with high R&D intensity, those with novel technological innovation, and firms in more innovative sectors of manufacturing and knowledge intensive business services. The paper discusses the implications of this result for future innovation measurement and research.     

Under pressure: Evolution of the social economy institutional recognition in the EU

Social Economy encompasses a wide array of private organizations that can be situated along a continuum that ranges from civil society to the business sector, e.g., associations, foundations, cooperatives, social enterprises, social business initiatives. The social sphere populated by SE/TS organizations operates in complex and multi‐layer environments and is particularly sensitive to institutional configuration. This paper deals with the institutional policy and attitude of the EU Commission towards SE/TS organizations in the field of welfare policy. We start with an illustration of the key features of the Social Investment policy framework, that stresses the adoption of an ‘active policy’ orientation and the overriding of more traditional ‘compensatory policies’. Secondly, we analyze the regulatory eco‐system of the EU towards Social Economy in the last three decades. Thirdly, we present the main results of an European research project aimed at analyzing the ‘level of recognition’ and ‘institutionalization’ of the SE sector in ten European Countries. Then, we provide some data about the consistency of the Social Economy in EU, based on several research reports promoted  by European Institutions (EESC). Finally, the main results of the analysis are summarized in order to assess the current conjuncture of the Social Economy sector in Europe.     

The dynamics of environmental innovations: three stylised trajectories of clean technology

In this article, we explore the dynamics of environmental innovations developed by firms to comply with environmental regulations. Our analysis is based on a micro-simulation model of industrial dynamics. The question arises: how do firms competing in the same industry deal with environmental issues without altering their productive efficiency or the performance of the product? We focus on clean technology which seeks to combine environmental and productive dimensions by way of innovation offsets. Our simulations show that an innovative strategy based on a good balance between environmental and productive dimensions takes more time to develop and needs to address a ‘competence destroying effect’. Finally, we study favourable conditions for the development of this type of clean technology and draw some policy implications.     

The Ethics of Emissions Trading

This article defends three ethical arguments against emissions trading. The first argument alleges that emissions trading is morally objectionable, because it ‘commodifies’ the atmosphere. The second argument involves various objections to attaching prices to units of emissions – loosely speaking, the objection is to pricing that which is priceless or should not be priced. The third argument turns on the idea that if a large cut in emissions is to be made by society overall, everyone should ‘do their bit’ by making a particular kind of sacrifice rather than paying others to do it instead. Some general conclusions concern the limitations of confining the analysis to idealised emissions trading, the difficulty in separating ‘economistic’ thinking about policy delivery from policy choice and the need to focus questions of justice on consumers rather than on producers.     

American Overreach: Strategic Interests and Millennial Ambitions in the Middle East

This article argues that American actions in the Middle East designed to advance democracy and/or ‘moderation’ tend to yield perverse outcomes that frustrate the aspirations of local actors while undermining the values purportedly being promoted by the US. In order to explain these contradictions, we emphasise the linkage between policies of democracy promotion and long-standing American commitments both to millennialism and geographical omnipresence. As a result of these policies and geopolitical vision, we argue that ‘democracy promotion’ often devolves into a simple defence of American interest – by producing electoral outcomes intended to strengthen local agents seen as compliant with US regional priorities. In this context, the shift from democracy promotion to a policy of pursuing ‘moderation’ in the region, understood as support for American policies, is entirely coherent. Commentators tend to present this shift (particularly in the wake of the Iraq War) as recognition by US political actors of the imperial overtones embedded in more heavy-handed approaches to regime change. Yet, the call for moderation is itself profoundly intertwined with American millennial aspirations, while remaining remarkably devoid of clear content and thus equally amenable to manipulation for strategic ends. By way of conclusion, we suggest an alternative basis for a less intrusive American position in the region, one that rejects the need for an overstretched territorial presence and that is grounded in a substantive respect for local self-determination.     

Has the ‘franc fort’ exchange rate policy affected the inflationary dynamics? Theory and new evidence

Abstract

This paper examines the impact of the ‘franc fort’ policy implemented in France from 1983 on the inflationary dynamics by means of a square root Kalman filter approach. An interesting aspect of the analysis is the evidence that the ‘franc fort’ exchange rate policy had a significant impact on the inflationary dynamics in France through its credibility effects. These results confirm the imported credibility hypothesis according to which the French authorities accelerated the disinflation process by importing the German monetary policy credibility through the ‘hard peg’ of the franc–DM exchange rate. These findings show that inflation dynamics in France began to converge significantly to that in Germany after the implementation of the ‘franc fort’ policy, making more credible the plan for the final transition to the euro. Moreover, this analysis may also reveal much about the nature of potential success of the current initiative of the new member countries now in the process of joining the EU and looking eventually to adopt the euro.     

Notes on Contributors

In recent political-economic theories of ‘nature’, Mill and Marx/Engels form important reference points. Ecological economists see Mill's ‘stationary state’ as seminal, while Marxists have ‘brought capitalism back in’ to debates on growth and climate change, sparking a Marxological renaissance that has overturned our understanding of Marx/Engels' opus. This article explores aspects of Mill's and Marx/Engels' work and contemporary reception. It identifies a resemblance between their historical dialectics. Marx's communism is driven by logics of ‘agency’ and ‘structure’ (including the ‘tendency of profit rates to fall’). In Mill's dialectic a ‘thesis’, material progress, calls forth its ‘antithesis’, diminishing returns. The inevitable ‘Aufhebung’ is a stationary state of wealth and population; Mill mentions countervailing tendencies but fails to consider their capacity to postpone utopia's arrival. Today, Mill's schema lives on in ecological economics, shorn of determinism but with its market advocacy intact. It appears to contrast with the ‘productive forces expansion’ espoused by Marx/Engels. They stand accused of ‘Promethean arrogance’, ignoring ‘natural limits’ and ‘gambling on abundance’. But I find these criticisms to be ill-judged, and propose an alternative reading, arguing that their work contains a critique of the ‘growth paradigm’, and that their ‘cornucopian’ ends do not sanction ‘Promethean’ means.     

Securitising the Unconscious: The Bush Doctrine of Preemption and Minority Report

Using Minority Report as its interpretive guide, this essay considers how the securitisation of the unconscious is performed in primarily fiction (film) but also ‘fact’ (US foreign policy). The essay makes two general arguments. Implicitly, it argues that American moralities and what I call US moral grammars of war are not only formulated in traditional realms of politics but in geopolitical moral imaginaries in which US foreign policy intersects with popular (often filmic) imaginaries as well as with narratives about the family. Elaborating on this final point about the family, the essay explicitly argues that the feminine is the keystone of the US moral grammar of war in the war on terror because it is the foundational figure upon whom a specific articulation of a moral US ‘we’ is constructed. What this means is that as the US ‘we’ looks ahead to who a future moral American US ‘we’ might become (which is the theme of Minority Report and a theme in everyday post-11 September American life), it ought to begin by understanding how the feminine both secures and insecures the complex relationship between justice and security, particularly as it functions in relation to the present-day Bush administration’s policies of securitising the unconscious.     

Provincial business cycles and fiscal policy in China

We characterize the cyclical properties of fiscal policy in China along two related dimensions. First, we estimate the sign and size of the fiscal policy multiplier. Second, we assess whether fiscal policy is conducted pro‐ or counter‐cyclically. To account for the challenges posed by China's vast geography, we use data at the provincial level. We find that (i) fiscal policy generally has ‘Keynesian’ effects, and (ii) fiscal policy is mostly conducted pro‐cyclically. This means that fiscal policy is more an element of destabilization than a tool for stabilization.     

Stabilization policy in a Keynes–Goodwin model with debt accumulation

In this paper, we investigate the macroeconomic impact of government's stabilization policy by using an analytical framework of Keynes–Goodwin model of growth cycle with debt accumulation. Formally, our model is formulated as a five-dimensional system of non-linear differential equations. We consider both of private debt and public debt, and we explicitly formulate the budget constraint of the ‘consolidated government’ including the central bank. We mainly study the case of ‘liquidity trap’ under money and debt financing of the government deficit.We study the local stability/instability of the system and the conditions for the existence of cyclical fluctuations analytically by means of the linear approximation method. We show that the sufficiently active monetary/fiscal policy can stabilize the intrinsically unstable economy if the inflation targeting by the central bank is sufficiently credible. We also present some numerical examples, which support our analysis.     

A History of Violence: Mearsheimer and Walt's Writings from ‘An Unnecessary War’ to the ‘Israel Lobby’ Controversy

Realist academics wrote some of the most lucid critiques of the geopolitics of anger initiated after 9/11 by the Bush administration: John Mearsheimer and Stephen Walt, in particular, began to interrogate the War on Terror with lines of inquiry that lead back to the critiques of U.S. foreign policy—and the ‘fantasies’ and ‘self-deception’ of policy makers—developed in the 1960s by Hans Morgenthau and Hannah Arendt. But then Walt and Mearsheimer published controversial essays on ‘The Israel Lobby’ based on arguments developed in Walt's Taming American Power. What interests me in the paper is accounting for a curious move that occurs in the writings of Mearsheimer and Walt since 9/11. By the time that we arrive at Walt's Taming American Power and the essays on ‘The Israel Lobby’, critical commentary on the ‘self-deception’ of policy makers and the problems with neo-conservatism has largely disappeared, replaced with an anxiety over the Israel lobby that appears overstated. It is argued that the emphasis on foreign ‘penetration’ is a means of postponing a broader interrogation of the domestic, internal problems of democracy and war in the United States.     

André Gorz: Freedom,Time and Work in the Post-Industrial Economy

This article assesses the thinking behind what is perhaps the single most important attempt to depoliticise monetary policy making in postwar Britain prior to the Bank of England Act 1998 – the introduction of the minimum lending rate (MLR) in October 1972. Drawing on recently released primary sources it argues that the MLR was devised to ‘defuse’ the political implications of Bank Rate policy and thereby shield the government from the consequences of frequent upward shifts in interest rates. MLR is considered as an experiment in ‘governing through the market’ and it is argued this has implications for how postwar monetary policy is viewed and how state/market relations are analysed, empirically and theoretically, within IPE.     

The regulation of unstable growth: I'éecole de régulation and the social structure of accumulation

The economic growth condition of parallel developments in consumption and production has been placed by the French regulation school and the social structure of accumulation approach in the policy context of the distribution of class income. The implications are that there exists some unique income distribution compatible with growth, and that the post-1973 growth slowdown was the cause of labour becoming so strong as to ‘weaken’ capital. This condition of growth has close affinity with early growth theory and is presented here in terms of a Harrod-Domar ‘knife-edge’ instability. Starting from this perspective, I argue first, that the conditions of long-term growth cannot be applied to medium-term policy horizons, and secondly, that this domestic regulation is no longer dominant in an international environment in which national economies have increasingly become more open to trade and/or capital transfers. This consideration, illustrated by the instances of Canada and the NICs, suggests the existence of a different form of growth/income regulation in which the ‘knife-edge’ is exported. The policy implications for the national labour movement is then more complex and perhaps less constraining than that suggested by the two approaches under discussion.     

On Britain's Return to the Gold Standard: Was there a ‘Pigou–McKenna School’?

It is common to refer to the ‘Keynes–McKenna school’ in opposition to Britain's return to the gold standard. However, after considering A.C. Pigou's reading of Sir Reginald McKenna's testimony to the Chamberlain–Bradbury Committee and the influence of that reading on Pigou's draft of the Committee's report to the British government, the case is made for the ‘Pigou–McKenna school’ as a policy school that was supportive of a return to the gold standard but against doing so prematurely. This is perhaps more meaningful than reference to the ‘Keynes–McKenna school’, which incorrectly implies that McKenna was opposed to Britain returning to gold.     

The evolution and use of a policy and research tool: assessing the technological capabilities of firms

Firms differ widely in their technological capabilities. Innovation policies are likely to be more or less successful depending upon the level of such abilities of those firms to which a policy is aimed. Without data on the proficiencies, strengths and weaknesses of firms within the target group(s), the construction and application of innovation or industrial policies are likely to miss salient factors in the ability of firms to benefit from the support that is intended. An in-depth knowledge of firms’ capabilities can allow policy-makers to target support according to the specific needs of firms. This paper describes the Technology capability audit tool (or CAT) that was designed to assist policy-makers in differentiating between firms and in understanding their level of ‘innovation readiness’. Examples of the use of the CAT are presented from South Korea, Thailand, Ireland, Brazil and the UK.     

Is ‘new’ behavioral economics ‘mainstream’?

When comparing ‘new’ and ‘old’ behavioral economics (BE), many argue that ‘new’ BE has close ties with what is often called ‘mainstream’ economics. The aim of this paper is to reframe the ‘old’ vs. ‘new’ BE debate and investigate the nature of the relationship between psychologists, behavioral economists, and ‘mainstream’ economists. This will lead us to develop the concept of ‘space of interaction’, building on Galison’s metaphor of ‘trading zones’, to emphasize the role of outsiders, strategic thinking, and negotiation in ‘new’ BE. By discussing some often implicit arguments in an otherwise disconnected literature, we seek to bring new arguments to the discussions through a careful study of those relationships in the history of ‘new’ BE and its more recent developments. Leaving aside the orthodox/heterodox contrast and comparative approaches, we hope to provide a different account of the changes in ‘new’ BE and its relationship with the ‘mainstream’.     

How to rescue a failing pension regime: the British case

Recent analysis on New Regionalism has, for Björn Hettne, raised important ontological questions over ‘what we study when we study regionalism’. The paper contributes to this debate by focusing on the shared beliefs, norms and rituals that hold a region together. Working between the New Regionalism literature and thinking on international regimes, this paper – to paraphrase Friedrich Kratochwil and John Ruggie – outlines the ‘inescapable inter-subjective quality’ of a region. This focus on inter-subjectivity seeks to improve on existing approaches that consider shared social structures as already fixed, and/or as autonomous constructs operating over and above regional actors. In order to appreciate how inter-subjective structures and regional agents interact with each other, the paper explores the social construction of Latin America. Specifically, it examines the politics of regionness – understood here in relation to identity, space and agents – to demonstrate how various regional actors operate within, and reconstruct, shared meaning. In so doing, it interrogates the practices that govern and continually produce the region.     

Varieties of paternalism and the heterogeneity of utility structures

A principal source of interest in behavioral economics has been its advertised contributions to policies aimed at ‘nudging’ people away from allegedly natural but self-defeating behavior toward patterns of response thought more likely to improve their welfare. This has occasioned controversies among economists and philosophers around the normative limits of paternalism, especially by technical policy advisors. One recent suggestion has been that ‘boosting,’ in which interventions aim to enhance people’s general cognitive skills and representational repertoires instead of manipulating their choice environments behind their backs, avoids the main normative challenges. A limitation in most of this literature is that it has focused on relatively sweeping policy recommendations and consequently on strong polar alternatives of general paternalism and strict laissez faire. We review a real instance, drawn from a consulting project we conducted for an investment bank, of a proposed intervention that is more typical of the kind that economists are more often actually called upon to offer. In this example, the sophistication of current tools for preference attribution, combined with philosophical externalism about the semantics of preferences that makes it less plausible to attribute their literal self-conscious representation to people as propositional attitude content becomes more tightly refined, blocks applicability of the distinction between nudging and boosting. This seems to call for irreducible, context-specific ethical judgment in assessing the appropriateness of the forms of paternalism that economists must actually wrestle with in going about their everyday business.