WASHINGTON, April 21, 2014 — The Institute for New Economic Thinking was established in 2009 to tackle economic issues and weaknesses exposed by the global financial crises of 2007 – 2012. It was established with initial funding from George Soros and further funding from James Balsille and William Janeway.
The institute recently held a conference in Toronto, Canada, titled “Human After All: Innovation, Disruption, Society.” The theme makes one wonder whether people were something more than human before the financial crisis and the period that Larry Summers calls “secular stagnation.” Summers gave the closing presentation, titled “Secular Stagnation? The Future Challenge for Economic Policy” in the form of an interview by Canadian MP Chrystia Freeland. (The interview starts at minute 43 of the linked video clip.)
Summers is now a big proponent of activist fiscal policy in the industrial world. He says that there is an “overwhelming case for borrowing to finance public investment … there is such a space in largest part in the industrial world.” Summers explains that there should be no real concern about this as public investments will pay for themselves in terms of increased capacity to support future output.
To those who worry about the morality of leaving debt to their children, Summers says that it is better fix the infrastructure now, while costs (interest rates) are cheap, than later. He would rather help the future by making sure research in science continues, and infrastructure capacity is increased. He challenges his opponents to produce the research that will prove him wrong.
Summers believes in big government. The concept of too much seems beyond him. He believes that if government is to interfere in the economy, it should be by fiscal policy, not by intervening to save particular firms. By bailing out banks, government creates conditions for a few to rake in super normal profits, not by deeds but by government favor.
Fiscal policy should be a rare case, the exception rather than the rule. Trillions of dollars in debt suggests fiscal policy is the rule rather than the exception
At the conference, one got the sense that modern economists have lost their way. There is too much reliance on mathematics, but mathematics alone will not answer questions about things like the innovation process. People who understand the limitations of mathematics are not necessarily afraid of mathematics, but believe that innovation involves far more than mathematical rigor. To understand innovation, we must understand history, culture and legal systems, as well as modelling.
This INET seeks to solve by taking a multi-disciplinary approach to further understanding economics. This is a good thing, but there would be no harm for INET to acknowledge that the Austrian school of economics has been saying for years that there are limitations to mathematics. Because Summers likes to challenge people to produce research that proves him wrong, what could possibly be the problem with challenging establishment economics?
If establishment economists are unable to provide a genuinely scientific explanation of economic forces — for instance, if the work of the next two Nobel laureates in economics offers, like past Nobel laureates, no principles that can be used in the other sciences — then it might be wise to accord ideas influenced by the Austrian school some space.
We should be glad, for the sake of liberty, that mainstream economists have failed to produce truly scientific economic models. If a man like Paul Krugman or Jeffrey Sachs had discovered an economic principle useful in mathematics, physics or other natural sciences while researching an economic problem, liberty would be dead. The mainstream would have concluded that the central role of the state in economic life was as beyond discussion as evolution and global warming.
Although mathematics are crucial to the discipline of economics, the logic behind the mathematics is what is genuinely important. Economists need a space for both deductive and inductive reasoning in their work.
INET president Rob Johnson is not a great fan of central banks. A man like him knows the weaknesses of central banks; he and George Soros exploited these weakness to make huge fortunes for themselves through currency trading. So there is a start at the least; maturity allows those who love dropping the name Marx to sit with practical people like Johnson who know the system by getting their hands dirty and not sitting in ivory towers.
In a recent BBC article entitled, “Study: is America an oligarchy, not a democracy,” Eric Zuess discussed a recent study done by Princeton professor Martin Gilens and Northwestern University professor Benjamin Page. Their research concludes that the U.S. is dominated by a rich and powerful elite.
Zuess says, “American democracy is a sham, no matter how much it’s pumped by the oligarchs who run the country (and who control the nation’s ‘news’ media). The US, in other words, is basically similar to Russia or most other dubious ‘electoral democratic’ countries. We weren’t formerly, but we clearly are now.” For INET to succeed it must acknowledge this fact: Governments create oligarchies, and society will become less dynamic with such powers existing.
As INET seems to accept intellectuals from all walks and wants to create a civilized debate informed — but not dominated — by scientific thinking, it might just succeed. Too many other groups have shut out those who do not think like themselves, making themselves inbred and sterile.