tag:theconversation.com,2011:/us/topics/economists-11266/articlesEconomists – The Conversation2024-02-13T13:23:15Ztag:theconversation.com,2011:article/2210812024-02-13T13:23:15Z2024-02-13T13:23:15ZWhy is free time still so elusive?<figure><img src="https://images.theconversation.com/files/574720/original/file-20240209-18-ge59pz.jpg?ixlib=rb-1.1.0&rect=17%2C0%2C5946%2C3943&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Massive gains in productivity haven't led to more time free from work.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/photo/time-flies-conceptual-image-royalty-free-image/1743874416?adppopup=true">J Studios/DigitalVision via Getty Images</a></span></figcaption></figure><p>There have been massive gains in productivity over the past century. </p>
<p>So why are people still working so hard for so long? </p>
<p>Output per worker <a href="https://stacker.com/business-economy/how-us-labor-productivity-has-changed-1950">increased by almost 300% between 1950 and 2018</a> in the U.S. The standard American workweek, meanwhile, has remained unchanged, at about 40 hours. </p>
<p>This paradox is especially notable in the U.S., where the <a href="https://data.oecd.org/emp/hours-worked.htm">average work year is 1,767 hours compared with 1,354 in Germany</a>, a difference largely due to Americans’ <a href="https://www.justworks.com/blog/average-vacation-days-by-country#which-country-has-the-least-vacation-days-how-the-us-compares">lack of vacation time</a>.</p>
<p>Some might argue that Americans are just more hardworking. But shouldn’t more productive work be rewarded with more time free from work? </p>
<p>This is the central theme of my new book, “<a href="https://nyupress.org/9781479813087/free-time/">Free Time: The History of an Elusive Ideal</a>.” </p>
<h2>Keynes misses the mark</h2>
<p>Many economists <a href="https://archive.nytimes.com/www.nytimes.com/books/business/9806schor-overworked.html">see the status quo mostly as a choice</a>: People would simply rather have more money. So they prioritize work over free time. </p>
<p>However, in the past, many economists assumed that people’s need for more stuff would eventually be met. At that point, they would choose more free time. </p>
<p>In fact, one of the most famous economists of the 20th century, John Maynard Keynes, <a href="https://www.aspeninstitute.org/wp-content/uploads/files/content/upload/Intro_and_Section_I.pdf">confidently predicted in 1930</a> that within a century, the normal workweek would decrease to 15 hours. Yet Americans in their prime working age are still on the job 41.7 hours per week. </p>
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<img alt="Man with white mustache and thinning hair sits for a portrait." src="https://images.theconversation.com/files/574715/original/file-20240209-24-kbpzmh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/574715/original/file-20240209-24-kbpzmh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=751&fit=crop&dpr=1 600w, https://images.theconversation.com/files/574715/original/file-20240209-24-kbpzmh.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=751&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/574715/original/file-20240209-24-kbpzmh.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=751&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/574715/original/file-20240209-24-kbpzmh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=944&fit=crop&dpr=1 754w, https://images.theconversation.com/files/574715/original/file-20240209-24-kbpzmh.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=944&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/574715/original/file-20240209-24-kbpzmh.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=944&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">John Maynard Keynes.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/british-economist-and-financier-john-maynard-keynes-news-photo/640460459?adppopup=true">Library of Congress</a></span>
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<p>Why was Keynes wrong?</p>
<p>Obviously, people’s needs or wants were not fully met. In the first half of the 20th century, <a href="https://theconversation.com/the-manipulation-of-the-american-mind-edward-bernays-and-the-birth-of-public-relations-44393">advertising shifted</a> in ways that emphasized emotions over utility, making consumers feel like they needed to buy more stuff; <a href="https://daily.jstor.org/the-birth-of-planned-obsolescence/">planned obsolescence</a> shortened how long products remained functional or fashionable, spurring more frequent purchases; and new, exciting – but costly – goods and services kept consumerism churning. </p>
<p>So workers continued to labor for long hours to earn enough money to spend. </p>
<p>Furthermore, as wages rose, the opportunity cost of time spent away from work also grew. This made more free time less economically appealing. In a consumption-saturated society, time spent neither producing nor consuming goods increasingly appeared as wasted time. </p>
<p>Interest in slower, cheaper activities – reading a book, meeting a friend to catch up over coffee – started to seem less important than buying a pickup truck or spending an hour at the casino, pursuits that demand disposable income.</p>
<h2>Forced labor</h2>
<p>It’s still important to consider whether there’s even any choice to be made. </p>
<p>Almost everyone who works 40 hours a week or more does so because they have to. There are bills to pay, health insurance coverage to maintain and retirement to squirrel away money for. Some jobs are more precarious than others, and many workers even forego <a href="https://www.bbc.com/worklife/article/20211209-why-its-so-hard-for-some-workers-to-ask-for-time-off">earned vacation time for fear of losing promotions</a>.</p>
<p>This hardly makes for a free choice.</p>
<p>But the 40-hour week isn’t the result of a personal calculation of costs and benefits. Rather, it’s the result of a hard-fought political battle that culminated in the <a href="https://en.wikipedia.org/wiki/Fair_Labor_Standards_Act_of_1938">Fair Labor Standards Act of 1938</a>, which established the standard 40-hour workweek, along with a minimum wage. </p>
<p>Pressed by a labor movement <a href="https://theconversation.com/1-in-10-us-workers-belong-to-unions-a-share-thats-stabilized-after-a-steep-decline-221571">that was far more powerful than today’s</a>, the government implemented a range of progressive economic policies during the 1930s to help the nation emerge from the Great Depression.</p>
<p>Many government officials viewed setting a standard workweek as a way to curtail exploitation and unfair competition among employers, who would otherwise be motivated to push their employees to work for as long as possible. It was an emergency measure, not a choice of more time over more personal income. Nor was it a step toward the progressive reduction of hours worked, as Keynes had envisioned. </p>
<p>In fact, it was hardly a radical measure.</p>
<p>Labor leaders had initially proposed a 30-hour week, which government officials resoundingly rejected. Even New Deal liberals saw a shortening of working hours as a <a href="https://tupress.temple.edu/books/work-without-end">potential threat to economic growth</a>. </p>
<p>So the 40-hour week ended up as the compromise, and the standard hasn’t been updated since.</p>
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<img alt="Young women raise their fists and smile. Two of them hold a sign reading 'SIT-DOWN STRIKE - HELP US WIN 40 HOUR WEEK.'" src="https://images.theconversation.com/files/574714/original/file-20240209-24-2ol17u.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/574714/original/file-20240209-24-2ol17u.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=473&fit=crop&dpr=1 600w, https://images.theconversation.com/files/574714/original/file-20240209-24-2ol17u.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=473&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/574714/original/file-20240209-24-2ol17u.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=473&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/574714/original/file-20240209-24-2ol17u.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=595&fit=crop&dpr=1 754w, https://images.theconversation.com/files/574714/original/file-20240209-24-2ol17u.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=595&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/574714/original/file-20240209-24-2ol17u.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=595&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Woolworth’s employees strike for a 40-hour workweek in 1937.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/female-employees-of-woolworths-holding-a-sign-indicating-news-photo/140427674?adppopup=true">Underwood Archives/Getty Images</a></span>
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<p>For most Americans, this was an acceptable trade-off. They might be working long hours, but they could afford television sets, cars and homes in the suburbs. Many families could live on the wages of the full-time work of the father, making the 40-hour week seem reasonable, since the mother had time to care for the family and home. </p>
<p>But this consensus has long since been undermined. Since the 1970s, inflation-adjusted <a href="https://www.epi.org/publication/charting-wage-stagnation/">wages haven’t risen with economic growth</a>. In many households that include married or partnered couples, a single wage earner has been replaced by two earners, both of whom find themselves working at least 40 hours per week.</p>
<p>It’s almost as if the 40-hour week has been replaced by an 80-hour week – at least in <a href="https://gitnux.org/two-income-families-statistics/">terms of hours worked per household</a>. </p>
<p>Who has time to raise kids? Who can afford them? It’s no wonder <a href="https://www.vox.com/23971366/declining-birth-rate-fertility-babies-children">the birth rate has declined</a>.</p>
<h2>Separating economic growth from well-being</h2>
<p>For decades, the amount of work we do has been talked about as “just the way things are” – an inevitability, almost. It doesn’t seem possible for society to take a different tack and, like flipping a switch, work less.</p>
<p>To me, this resignation points to a need to reconsider the social contracts of the past. Most Americans will not abandon their work ethic and their insistence that most people work. Fair enough. </p>
<p>Many people prefer working over having vast stores of free time, and that’s OK. And there’s still immense value in work that doesn’t produce a paycheck – caregiving and volunteering, for example.</p>
<p>But reducing the standard workweek, perhaps by transitioning to a four-day week, could ease stress for overworked families.</p>
<p>These changes require political action, not just individuals making the personal choice to arrive at a better work-life balance. And yet a national reduction in the standard workweek seems almost impossible. Congress can’t even <a href="https://www.cnn.com/2022/08/12/politics/inflation-reduction-children-families/index.html">pass legislation for paid family leave</a> or guaranteed vacation time.</p>
<p>It doesn’t help that elected leaders continue to insist that well-being be measured mostly by economic growth, and when the U.S. media breathlessly reports quarterly economic growth data, with increases deemed “good” and decreases deemed “bad.” </p>
<p>Why shouldn’t free time and its benefits be included in the equation? Why aren’t figures on the social costs of unlimited growth publicized? Does it even matter that <a href="https://www.wsj.com/finance/stocks/the-dow-jones-industrial-average-is-back-these-are-the-stocks-driving-it-to-new-highs-a7d01b17">the Dow Jones Industrial Average</a> has doubled in less than a decade when economic security is so fragile and <a href="https://thehill.com/opinion/healthcare/4162682-americas-in-a-united-state-of-stress-and-disillusionment/">so many people are overstressed</a>?</p>
<p>The idea that stratospheric increases in productivity can allow for more time for life is not simply a romantic or sentimental idea. Keynes viewed it as entirely reasonable.</p>
<p>Opportunities like the one that led to the 40-hour workweek in the 1930s rarely appear. But some sort of paradigm shift is urgently needed.</p>
<p>Something has to give.</p><img src="https://counter.theconversation.com/content/221081/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Gary Cross does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>In 1930, economist John Maynard Keynes famously predicted that within a century, the normal workweek would decrease to 15 hours. Why was he wrong?Gary Cross, Distinguished Professor of Modern History, Penn StateLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1979862023-06-05T12:08:29Z2023-06-05T12:08:29ZSudan’s war is wrecking a lot, including its central bank – a legacy of trailblazing African American economist and banker Andrew Brimmer<figure><img src="https://images.theconversation.com/files/529893/original/file-20230602-21-j7j4xr.jpeg?ixlib=rb-1.1.0&rect=4%2C267%2C1333%2C1656&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Andrew Brimmer gets sworn in as a member of the Federal Reserve Board. President Lyndon Johnson, right, Brimmer's wife and daughter look on.
</span> <span class="attribution"><a class="source" href="https://commons.wikimedia.org/wiki/File:Andrew_Brimmer_Swearing_In.jpg">Robert L. Knudsen via Wikimedia Commons</a></span></figcaption></figure><p>The war in Sudan between two rival generals for control of the country is devastating in so many ways. <a href="https://www.ohchr.org/en/press-releases/2023/05/civilians-bear-devastating-brunt-fighting-sudan-un-experts">Hundreds of civilians have been killed</a>, thousands injured and <a href="https://www.cnn.com/2023/05/28/africa/sudan-displaced-people-gender-violence-intl-hnk/index.html">more than 1 million people are now homeless</a>. The fighting is even wreaking havoc on the country’s central bank.</p>
<p>In late April 2023, a video <a href="https://www.bbc.com/news/av/world-africa-65444503">surfaced of a branch of the Central Bank of Sudan in Khartoum on fire</a>. And on May 31, Sudan’s <a href="https://www.bloomberg.com/news/articles/2023-05-31/sudan-s-central-bank-is-latest-battleground-in-deadly-conflict#xj4y7vzkg">army bombed a central bank printing press</a> to keep opposition forces from printing the money it needs to fund its fight.</p>
<p>What many people may not know is that, in 1956, <a href="https://aacb.org/fr/book/export/html/406">three U.S. economists laid the groundwork for the Central Bank of Sudan</a>. And Andrew Brimmer, the first African American <a href="https://www.federalreservehistory.org/people/andrew-f-brimmer">to serve on the Board of Governors</a> of the U.S. Federal Reserve System, was one of them. </p>
<p>Brimmer’s resume was replete with high-level appointments and other professional accomplishments. After his death in 2012, he was lauded as having demonstrated a deep concern for “<a href="https://www.boston.com/news/national-news/2012/10/13/andrew-f-brimmer-86-sharecroppers-son-who-rose-to-sit-on-federal-reserve-board/">the economic conditions of poor, powerless, uneducated black people</a>.” That interest dated back to his own childhood in the Jim Crow South where he <a href="https://www.federalreserve.gov/aboutthefed/files/andrew-f-brimmer-interview-20070713.pdf">watched his father navigate</a> a system stacked against Black people and his early work helping found the Central Bank of Sudan.</p>
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<a href="https://images.theconversation.com/files/529817/original/file-20230602-27-6eoyjg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Three men in suits sit side by side at a conference table while four men, also wearing suits, stand behind them. A large map of the US hangs on a wall in the background." src="https://images.theconversation.com/files/529817/original/file-20230602-27-6eoyjg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/529817/original/file-20230602-27-6eoyjg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=418&fit=crop&dpr=1 600w, https://images.theconversation.com/files/529817/original/file-20230602-27-6eoyjg.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=418&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/529817/original/file-20230602-27-6eoyjg.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=418&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/529817/original/file-20230602-27-6eoyjg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=526&fit=crop&dpr=1 754w, https://images.theconversation.com/files/529817/original/file-20230602-27-6eoyjg.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=526&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/529817/original/file-20230602-27-6eoyjg.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=526&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Members of the Board of Governors of the Federal Reserve System, including Andrew Brimmer, standing, second from right, pose for a group photo.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/members-of-the-board-of-governors-of-the-federal-reserve-news-photo/516482880?adppopup=true">Bettmann via Getty Images</a></span>
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<p>As an <a href="https://history.washington.edu/people/christopher-tounsel">African American historian of Sudan</a>, I have been drawn to the ways that Black Americans have participated in the development of modern Sudan. I’m particularly fascinated by the way Brimmer, a graduate of the University of Washington, where I teach, figures into this history. </p>
<p>My forthcoming book examines African American involvement in Sudan and their impact on this transnational relationship.</p>
<h2>Brimmer’s road to economics</h2>
<p>Brimmer was one of six children – three girls and three boys. His father alternated between manual jobs, from chopping cotton to shipping out grain to support the family, and his mother grew much of the food the family ate.</p>
<p>“So we were typically poor, but not dirt-poor,” <a href="https://www.federalreserve.gov/aboutthefed/files/andrew-f-brimmer-interview-20070713.pdf">Brimmer told interviewers for a Federal Reserve Board oral history project</a> in 2007. </p>
<p>He was born in 1926 in Newellton, Louisiana, just five miles from the plantation where some of his ancestors had been enslaved. And he was educated in a segregated school system that had a shorter school year for Black children than white children and only went to the seventh grade. Brimmer had to leave town for additional education.</p>
<p>He was <a href="https://www.federalreservehistory.org/people/andrew-f-brimmer">drafted into the Army</a> near the end of World War II and was honorably discharged in 1946. Brimmer then earned undergraduate and graduate degrees in economics in 1950 and 1951 from the University of Washington and in 1957 <a href="https://www.thehistorymakers.org/biography/andrew-f-brimmer-39">earned a Ph.D. in economics</a> from Harvard. </p>
<h2>Mr. Brimmer Goes to Sudan</h2>
<p>When Sudan became independent of British colonial rule in 1956, it <a href="https://www.state.gov/u-s-relations-with-sudan/">established diplomatic relations with the United States</a> and <a href="https://doi.org/10.1111/j.1813-6982.1960.tb01848.x">requested U.S. help in setting up a central bank</a>.</p>
<p>That July, <a href="https://www.federalreserve.gov/aboutthefed/files/andrew-f-brimmer-interview-20070713.pdf">officials at the U.S. State Department asked Brimmer</a>, who had been <a href="https://www.federalreservehistory.org/people/andrew-f-brimmer">working as an economist</a> with the Federal Reserve Bank of New York since June 1955, and two senior-level Federal Reserve members to participate in a <a href="https://onlinelibrary.wiley.com/doi/full/10.1111/j.1813-6982.1960.tb01848.x">technical mission to Sudan</a> to help with that request.</p>
<p>Brimmer and his colleagues – <a href="https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1813-6982.1960.tb01848.x">Oliver Wheeler</a>, vice president of the Federal Reserve Bank of San Francisco and head of the mission, and <a href="https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1813-6982.1960.tb01848.x">Alan Holmes</a>, a senior economist and economic adviser at the Federal Reserve Bank of New York – <a href="https://www.federalreserve.gov/aboutthefed/files/andrew-f-brimmer-interview-20070713.pdf">arrived in Sudan in December 1956</a> and stayed until the following March.</p>
<p>Charged with <a href="https://hollisarchives.lib.harvard.edu/repositories/11/top_containers/74088?&filter_fields%5b%5d=child_container_u_sstr&filter_values%5b%5d=folder+6">developing a blueprint for a central bank</a>, the team <a href="https://hollisarchives.lib.harvard.edu/repositories/11/top_containers/74088?&filter_fields%5b%5d=child_container_u_sstr&filter_values%5b%5d=folder+2">interviewed commercial bankers, government officials</a>, business owners and community members before drafting a <a href="https://definitions.uslegal.com/b/bank-charter/">central bank charter</a>. The document laid out the bank’s rights and authorized its operation. <a href="https://doi.org/10.1111/j.1813-6982.1960.tb01848.x">The government of Sudan established the central bank</a> in July 1959 based on their work.</p>
<h2>A familiar face in an unfamiliar land</h2>
<p>Brimmer’s <a href="https://hollisarchives.lib.harvard.edu/repositories/11/resources/7306">diary from the trip</a> — housed at Harvard University — offers a glimpse into some of his other experiences. He attended festivities marking Sudan’s first anniversary of independence and attended the first match of <a href="https://www.britannica.com/sports/African-Cup-of-Nations">the inaugural African Cup of Nations</a> soccer tournament.</p>
<p>He <a href="https://hollisarchives.lib.harvard.edu/repositories/11/top_containers/74090?&filter_fields%5b%5d=child_container_u_sstr&filter_values%5b%5d=folder+7">took pictures of the University of Khartoum</a> and sites along the Blue Nile, and also attended a flower show by the Horticultural Society of the Sudan.</p>
<p>Perhaps his diary’s most interesting moments concern his recollection of how Sudanese perceived him. One woman, Brimmer wrote, “wanted to know why I could not speak Arabic!” She was apparently in disbelief that he was not Sudanese. “When I told her how I got to be in the U.S. and that she and I may be cousins, she laughed.” </p>
<h2>A path to the Federal Reserve Board of Governors</h2>
<p>Back in the U.S., Brimmer went on to work in the administrations of Presidents John F. Kennedy and Lyndon B. Johnson. And in a historic move, <a href="https://www.npr.org/sections/thetwo-way/2012/10/12/162797020/remembering-andrew-brimmer-first-black-on-federal-reserves-board">Johnson nominated him to the Federal Reserve Bank’s Board of Governors</a> on Feb. 26, 1966. That <a href="https://www.federalreserve.gov/aboutthefed/structure-federal-reserve-board.htm#:%7E:text=The%20Board%20of%20Governors%20guides,Reserve%20that%20sets%20monetary%20policy">body oversees the 12 Reserve banks</a> in the system and works to promote a fair consumer financial services market. </p>
<p>After his Senate confirmation, Brimmer joined the board on March 9, 1966, <a href="https://www.federalreservehistory.org/people/andrew-f-brimmer">becoming the first Black member</a> in its history. There, he earned a reputation as the <a href="https://www.nytimes.com/1973/01/07/archives/feds-man-of-fervor-brimmers-comments-on-blacks-stir-waves.html">resident expert on international monetary policy</a>.</p>
<p>He was also considered an authority on Black economic issues who <a href="https://www.blackpast.org/african-american-history/brimmer-andrew-f-1926/">often advocated</a> for affirmative action, <a href="https://www.blackpast.org/african-american-history/brimmer-andrew-f-1926/">co-chaired</a> the Interracial Council for Business Opportunity and <a href="https://www.blackpast.org/african-american-history/brimmer-andrew-f-1926/">argued that racial discrimination </a> hurt the U.S. economy by effectively sidelining potentially productive workers. He also maintained that racial discrimination in education was responsible for Black people earning lower incomes than white people.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/529820/original/file-20230602-19-u5tyfe.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="A seated man wearing a suit and glasses is photographed as he speaks." src="https://images.theconversation.com/files/529820/original/file-20230602-19-u5tyfe.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/529820/original/file-20230602-19-u5tyfe.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=397&fit=crop&dpr=1 600w, https://images.theconversation.com/files/529820/original/file-20230602-19-u5tyfe.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=397&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/529820/original/file-20230602-19-u5tyfe.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=397&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/529820/original/file-20230602-19-u5tyfe.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=499&fit=crop&dpr=1 754w, https://images.theconversation.com/files/529820/original/file-20230602-19-u5tyfe.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=499&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/529820/original/file-20230602-19-u5tyfe.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=499&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Andrew F. Brimmer speaks before the Senate Subcommittee on Financial Institutions of the Committee on Banking, Housing and Urban Affairs in 1971.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/washington-dc-andrew-f-brimmer-member-of-the-board-of-news-photo/515982070?adppopup=true">Bettmann via Getty Images</a></span>
</figcaption>
</figure>
<p>From his various wage analyses in the early 1970s, <a href="https://www.nytimes.com/1973/01/07/archives/feds-man-of-fervor-brimmers-comments-on-blacks-stir-waves.html">Brimmer determined that the median income for Black families</a> was just over 60% of the median white family income. </p>
<p>“I do feel that the economic plight of blacks is a serious matter,” <a href="https://www.nytimes.com/1973/01/07/archives/feds-man-of-fervor-brimmers-comments-on-blacks-stir-waves.html">Brimmer said to The New York Times in 1973</a>. “So I bring the same economist’s tool kit to that subject as other economists bring to examine other national economic problems.”</p>
<p>Brimmer resigned from the Fed in 1974 <a href="https://www.hbs.edu/news/releases/Pages/baker-library-adds-andrew-brimmer-papers.aspx">to teach at Harvard</a>.</p>
<p>He went on to found his own consulting firm, <a href="https://www.jstor.org/publisher/asalh">led the Association for the Study of Afro American Life and History</a>, which preserves and promotes information about African American culture, history and life, and served on Tuskegee University’s board of directors from 1965 to 2010.</p>
<p>When he died in 2012, The Washington Post noted that Brimmer used his position to warn about the <a href="https://www.washingtonpost.com/local/obituaries/andrew-f-brimmer-fed-governor-and-head-of-dc-control-board-dies-at-86/2012/10/10/50928a26-12f8-11e2-a16b-2c110031514a_story.html">economic dangers of racial discrimination</a> and to call for broader educational opportunities in urban areas. That was unlike other members of the Federal Reserve Board.</p><img src="https://counter.theconversation.com/content/197986/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Christopher Tounsel has previously received research funding from the Woodrow Wilson National Fellowship Foundation, Andrew W. Mellon Foundation, Social Science Research Council, Council of Overseas American Research Centers, and Doris G. Quinn Foundation.</span></em></p>Andrew Brimmer, the first African American on the Board of Governors of the US Federal Reserve, helped develop the blueprint for the Central Bank of Sudan.Christopher Tounsel, Associate Professor of History, University of WashingtonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1958082022-12-15T15:56:25Z2022-12-15T15:56:25ZWhat do politicians really think of economists? Our new research explains why relations fell apart after 2008<figure><img src="https://images.theconversation.com/files/501110/original/file-20221214-13666-u73s9p.jpg?ixlib=rb-1.1.0&rect=22%2C0%2C3721%2C2453&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/close-conference-meeting-microphones-businessman-82082848">ESB Professional / Shutterstock</a></span></figcaption></figure><p>As countries across Europe and around the world grapple with high living costs and impending recession, voters are <a href="https://redfieldandwiltonstrategies.com/latest-gb-voting-intention-13-november-2022/">concerned about the economy</a> and how their elected representatives will fix it. </p>
<p>For many, it’s tempting to call on politicians to cede some of their power to economic experts. Politicians might be more able to make difficult or unpopular (but necessary) decisions if they could argue they were following expert advice, as they did <a href="https://www.ft.com/content/1efbd3ac-8af3-11ea-a01c-a28a3e3fbd33">during the pandemic</a>.</p>
<p>But our new research reveals what politicians, when asked in private, really think about economists. Our team at UCL conducted <a href="https://www.agendapub.com/book/detail/politicians-and-economic-experts-by-anna-killick/?k=9781788215640">nearly 100 in-depth interviews</a> with economic ministers, opposition spokespeople and economic committee members. They were from five countries – France, Germany, Denmark, the UK and US – and across the party spectrum from the right-wing Alternative fur Deutschland to the French Communist party.</p>
<p>Across the board, politicians reported declining respect for economists since the 2008 financial crisis. And they were concerned that any increased reliance on such experts would alienate voters. </p>
<p>Very few politicians saw economists as experts in the way public health or other “hard scientists” are experts. They usually supported one specific group of economists rather than the discipline as a whole. Centre-left politicians tended to say the only economists they respect are “Keynesian”. They argued that John Maynard Keynes’s approach “allows us politicians to intervene” to promote greater socioeconomic equality. </p>
<p>Far-left politicians proclaimed the value only of non-mainstream economists, such as environmentalist <a href="https://www.kateraworth.com/doughnut">Kate Raworth</a>, who argues the planet’s resources are finite and growth not always desirable.</p>
<p>Centre-right politicians mentioned <a href="https://www.britannica.com/biography/F-A-Hayek">Friedrich Hayek</a> most often, best-known for defending free-market capitalism. They also described having respect for other “free market economists”. </p>
<h2>Losing usefulness</h2>
<p>Even politicians who had the utmost respect for mainstream economists most of their working lives found them less “useful” since the 2008 financial crisis. One British centrist politician told us that until 2008, “the economy worked almost like clockwork”. After the crash, people’s trust in the standard economic model was shattered, not just by the crisis itself, but by economists’ failure to predict it.</p>
<p>Those in office during the crisis consulted economists who were often divided. After they left the room, the politicians felt they were alone in “shouldering responsibility”. Very often they felt their greater knowledge of their constituents’ everyday circumstances meant they had a surer sense than the experts of whether something like a <a href="http://news.bbc.co.uk/1/hi/business/8135717.stm">car scrappage scheme</a> would restore confidence. They felt similarly alone as they charted how to get economies out of lockdown or through the supply chain crisis.</p>
<p>As well as viewing economists as less united and therefore less “scientific” than other experts, politicians complained they are often impractical, operating at too abstract a level and relying on mathematical modelling rather than real-world conditions. They may seek out an economist working on a specific policy area they need to explore. But only if the work they have done has been tested in the real world, and the economist is one of the rare breeds that can explain in accessible terms. </p>
<p>We found a greater integration of politicians and economists in Denmark’s consensual political system, where many parties share the same commitment to a Scandinavian welfare model of the economy and coalition is the norm. But in the US (where we might expect high levels of respect for economists, having pioneered the field) politicians had arguably the lowest respect for them. They labelled them by political party – “Republican” or “Democrat” – and said they use them to add value to their arguing points.</p>
<figure class="align-center ">
<img alt="Donald Trump, as US president, gestures while speaking at a podium outside the White House" src="https://images.theconversation.com/files/500675/original/file-20221213-12689-oswirn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/500675/original/file-20221213-12689-oswirn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/500675/original/file-20221213-12689-oswirn.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/500675/original/file-20221213-12689-oswirn.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/500675/original/file-20221213-12689-oswirn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/500675/original/file-20221213-12689-oswirn.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/500675/original/file-20221213-12689-oswirn.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">US politicians are concerned that reliance on experts has made voters turn to populism.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/washington-dc-june-12-2019-president-1424043059">Evan El-Amin / Shutterstock</a></span>
</figcaption>
</figure>
<p>The politicians we interviewed also worried that turning to economic experts would make voters more distrustful. They thought past attempts to separate economics from the political arena – for instance, giving more power to central banks – confused and estranged voters who then turned to populist politicians offering simplistic solutions. </p>
<p>In the US, Republicans were privately horrified that President Donald Trump had “demagogued” economic issues. They had spent decades carefully crafting consistent and coherent economic messaging on the virtues of free trade and balancing the budgets, only for him to <a href="https://www.pbs.org/newshour/economy/making-sense/trump-says-he-launched-an-economic-boom-heres-what-we-know">tell voters</a> that protectionism would bring back rust belt production jobs and cutting their taxes could be paid for out of increased borrowing.</p>
<h2>Meeting voters where they are</h2>
<p>As economic issues rise up the agenda for voters, many politicians welcomed the prospect of turning away from more cultural issues like immigration. But they recognised that if they are not prepared to outsource economic policy problems to economists they will have to explain their own policies more effectively to voters. They need to economically educate voters – not in a formal sense, but at least by being more in-depth and open. </p>
<p>Voters find economic issues more technical than social and cultural ones. As one French Socialist put it, they “turn off” because they doubt they will be able to understand. But, he said, politicians have to appeal to voters’ intelligence and urge them to make the effort to understand. His ideal situation would be if voters were informed enough to “qualify” their judgements more, saying things like “well, it could have been worse”. </p>
<p>Politicians have to prepare the ground by starting where voters are. One free trade Republican described using chocolates to illustrate how Trump’s tariffs made aluminium wrappers more expensive. Another said he regularly visited factory workers in their lunch hour for a question and answer session to explain his economic thinking.</p>
<p>Another often overlooked barrier is that politicians often have moral economic goals, whether left-wing visions of social justice or right-wing visions of the value of unleashed markets. But they are inhibited in describing them to voters because they think there is a gulf between them and voters, who they see as narrowly self-interested. Our research urges them nevertheless to be more open about their thinking with voters. If they want to earn trust on economic policy, they will have to be more honest about what they are trying to achieve.</p><img src="https://counter.theconversation.com/content/195808/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The UCL based research Anna Killick conducted for this book was funded by the UKRI Future Leaders Fellowship MR/ S015280/
1 to study “mental models in political economy”.</span></em></p>Since the 2008 financial crisis, politicians from a range of parties and countries have reported losing respect for experts.Anna Killick, Research Fellow, Political Science, UCLLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1914092022-11-01T12:45:59Z2022-11-01T12:45:59ZMen don’t trust female central bankers on inflation or the economy, survey data shows<figure><img src="https://images.theconversation.com/files/491393/original/file-20221024-25-falo6d.jpg?ixlib=rb-1.1.0&rect=80%2C80%2C3489%2C2526&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Photo ops of the world's central bankers and finance ministers typically involve a woman or two surrounded by men, such as this image from the G-7 in Germany in 2015.
</span> <span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/GermanyG7FinanceMinisters/cf67f8f5114d4b4ebf5525db88de75dc/photo?Query=g7%20canada%20finance%20minister&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=Anytime&totalCount=53&currentItemNo=36">AP Photo/Jens Meyer</a></span></figcaption></figure><p><em>The <a href="https://theconversation.com/us/topics/research-brief-83231">Research Brief</a> is a short take about interesting academic work.</em> </p>
<h2>The big idea</h2>
<p>Americans <a href="http://dx.doi.org/10.2139/ssrn.4186248">are less likely to trust statements</a> from the Federal Reserve about interest rates when a U.S. central bank official portrayed as a woman delivers the information as opposed to a man, according to our new study. </p>
<p>Women filled just <a href="https://doi.org/10.1016/j.ejpoleco.2022.102192">11% of the seats</a> on the boards of central banks around the world from 2000 to 2015. <a href="https://doi.org/10.1016/j.ejpoleco.2022.102192">Our previous work suggested</a> a key reason for this was that women are seen by lawmakers who fill those seats as less trusted to prioritize inflation fighting, as opposed to men, who are <a href="https://dx.doi.org/10.2139/ssrn.3441659">perceived as monetary policy</a> “hawks.”</p>
<p>To better understand how gender shapes public reactions to central bankers, we conducted a survey experiment in January 2022 in which we gave easy-to-understand summaries of contemporary Fed statements to a random sample of about 11,000 Americans, evenly split between men and women. </p>
<p>We randomly attributed those summaries to real people – either <a href="https://www.clevelandfed.org/people/profiles/m/mester-loretta-j">Loretta Mester</a>, president of the Cleveland Fed, or <a href="https://www.chicagofed.org/people/e/evans-charles">Charles Evans</a>, who heads the Chicago branch. This allowed us to gauge whether the words of a female central banker would be perceived differently than those of a male colleague. We also tweaked their titles, randomly referring to the male or female Fed official as either “President of a Federal Reserve Bank and a Ph.D. Economist” or simply as a “Federal Reserve Economist.” This allowed us to see if highlighting credentials minimized any gender bias as studies suggest that it can in <a href="https://www.jstor.org/stable/2096136">professional settings</a>. </p>
<p>We then asked participants a series of general questions, such as their level of education and self-reported economic literacy, as well as their level of trust in state and federal institutions. We followed with our main questions about trust in the Federal Reserve specifically, optimism about the economy and their concern about inflation and unemployment. </p>
<p>As expected, we found strong evidence of bias against female central bankers among male survey takers. Gender bias was most significant when we asked about confidence in the Fed. For example, 53% of male respondents said they had confidence in the central bank when Evans was cited as the source – with the full Fed title – compared with just 43% who said the same about a similarly credentialed Mester. Similarly, 32% said they were optimistic about the economy when the summary came from Evans, double the share for Mester.</p>
<p>We could also see this bias in the ability of male respondents to remember the gender of the official. Only 60% accurately recalled at the end of the survey the gender of the official when it was a woman, while 97% accurately recalled the gender of the man. </p>
<p>The results from female survey takers showed little or no gender bias – though women showed more confidence in Mester when they were given her full title. </p>
<figure class="align-center ">
<img alt="A white woman with gray hair and a blue shirt is seen next to a white man with gray hair, glasses and a dark suit and purple tie" src="https://images.theconversation.com/files/490977/original/file-20221020-16-akv9yn.jpg?ixlib=rb-1.1.0&rect=62%2C134%2C6857%2C4481&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/490977/original/file-20221020-16-akv9yn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/490977/original/file-20221020-16-akv9yn.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/490977/original/file-20221020-16-akv9yn.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/490977/original/file-20221020-16-akv9yn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/490977/original/file-20221020-16-akv9yn.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/490977/original/file-20221020-16-akv9yn.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Janet Yellen was the first woman to become Fed chair.</span>
<span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/FinancialStability/27f6518c197e46ddb268958ac9461200/photo?Query=janet%20yellen%20federal%20reserve&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=Anytime&totalCount=1872&currentItemNo=21">Kevin Dietsch/Pool via AP</a></span>
</figcaption>
</figure>
<h2>Why it matters</h2>
<p>Women have made inroads in recent years into the male-dominated leadership roles of central banks around the world. </p>
<p>The <a href="https://doi.org/10.1016/j.ejpoleco.2022.102192">share of women on central bank boards</a> has increased from negligible in the late 1990s to over 15% in recent years. In the United States, half of the six members of the Fed’s <a href="https://www.federalreserve.gov/aboutthefed/bios/board/default.htm">Board of Governors</a> are currently women. And women, including Mester, serve as presidents of five of the 12 <a href="https://www.federalreserve.gov/aboutthefed/structure-federal-reserve-banks.htm">regional Federal Reserve banks</a>. And in 2014, Janet Yellen <a href="https://www.theguardian.com/business/2020/nov/23/janet-yellen-fed-chair-treasury-secretary">became the first woman</a> to serve as chair of the Fed.</p>
<p>In <a href="https://doi.org/10.1016/j.ejpoleco.2022.102192">one of our papers</a> we suggested that a big reason for these gains is that developed countries like the U.S. <a href="https://www.frbsf.org/economic-research/publications/economic-letter/2019/july/why-is-inflation-low-globally/">experienced very low inflation</a> for much of the 21st century, which negated the need to consider a nominee’s perceived inflation-fighting credentials as part of the appointment to a central bank. </p>
<p>That era is over as inflation soars across the globe. In the U.S., for example, <a href="https://www.bls.gov/news.release/cpi.nr0.htm">consumer prices are rising at about the fastest pace in 40 years</a>, forcing the Fed and other central banks to wage a global battle against inflation. </p>
<p>Since a key element of reducing inflation is convincing investors, companies and consumers to trust that the central bank can succeed, our study suggests female central bankers like Mester are at a disadvantage in generating public trust, which hurts their efficacy as communicators. This may also put the trend of more female central bankers at risk unless perceptions change.</p>
<h2>What’s next</h2>
<p>We have ongoing Japanese and European surveys underway to understand if we see the same types of gender bias in other countries.</p><img src="https://counter.theconversation.com/content/191409/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Men were significantly less likely to express confidence in the Federal Reserve and optimism about the economy when monetary policy information came from a woman versus a man.Cristina Bodea, Professor of Political Science, Michigan State UniversityAndrew Kerner, Assistant Professor of Political Science, Michigan State UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1851162022-06-24T11:51:22Z2022-06-24T11:51:22ZWealth of nations: Why some are rich, others are poor – and what it means for future prosperity<figure><img src="https://images.theconversation.com/files/470570/original/file-20220623-52178-k6m80x.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">What makes a nation wealthy?</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/photo/many-currency-royalty-free-image/589422272?adppopup=true">Getty Images</a></span></figcaption></figure><p>Why are some nations rich and others poor? Can the governments of poor nations do something to ensure that their nations become rich? These sorts of questions have long fascinated public officials and economists, at least since Adam Smith, the prominent Scottish economist whose famous 1776 book was titled “<a href="https://www.adamsmith.org/the-wealth-of-nations/">An Inquiry into the Nature and Causes of the Wealth of Nations</a>.”</p>
<p>Economic growth matters to a country because it can raise living standards and <a href="https://www.cbpp.org/research/economy/economic-growth-causes-benefits-and-current-limits">provide fiscal stability</a> to its people. But getting the recipe consistently right has eluded both nations and economists for hundreds of years. </p>
<p>As <a href="https://www.rit.edu/directory/aabgsh-amit-batabyal">an economist who studies</a> regional, national and international economics, I believe that understanding an economic term called total factor productivity can provide insight into how nations become wealthy.</p>
<h2>Growth theory</h2>
<p>It is important to understand what helps a country grow its wealth. In 1956, Massachusetts Institute of Technology economist Robert Solow <a href="https://doi.org/10.2307/1884513">wrote a paper</a> analyzing how labor – otherwise known as workers – and capital – otherwise known as physical items such as tools, machinery and equipment – can be combined to produce goods and services that ultimately determine people’s standard of living. Solow later went on to win a <a href="https://www.nobelprize.org/prizes/economic-sciences/1987/solow/biographical/">Nobel Prize for his work</a>.</p>
<p>One way to increase a nation’s overall quantity of goods or services is to increase labor, capital or both. But that doesn’t continue growth indefinitely. At some point, adding more labor only means that the goods and services these workers produce is divided between more workers. Hence, the output per worker – which is one way of looking at a nation’s wealth – will tend to go down. </p>
<p>Similarly, adding more capital such as machinery or other equipment endlessly is also unhelpful, because those physical items tend to wear out or depreciate. A company would need frequent financial investment to counteract the negative effect of this wear and tear. </p>
<p>In a <a href="https://doi.org/10.2307/1926047">later paper in 1957</a>, Solow used U.S. data to show that ingredients in addition to labor and capital were needed to make a nation wealthier.</p>
<p>He found that only 12.5% of the observed increase in American output per worker – the quantity of what each worker produced – from 1909 to 1949 could be attributed to workers becoming more productive during this time period. This implies that 87.5% of the observed increase in output per worker was explained by something else.</p>
<h2>Total factor productivity</h2>
<p>Solow called this something else “technical change,” and today it is best known as total factor productivity.</p>
<p><a href="https://www.doi.org/10.1057/9780230280823_32">Total factor productivity</a> is the portion of goods and services produced that is not explained by the capital and labor used in production. For example, it could be technological advancements that make it easier to produce goods. </p>
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<iframe width="440" height="260" src="https://www.youtube.com/embed/Au2bs7NVT78?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
<figcaption><span class="caption">Another way to understand total factor productivity.</span></figcaption>
</figure>
<p>It’s best to think of total factor productivity as a recipe that shows how to combine capital and labor to obtain output. Specifically, growing it is akin to creating a cookie recipe to ensure that the largest number of cookies – that also taste great – are produced. Sometimes this recipe gets better over time because, for example, the cookies can bake faster in a new type of oven or workers become more knowledgeable about how to mix ingredients more efficiently. </p>
<h2>Will total factor productivity continue to grow in the future?</h2>
<p>Given how important total factor productivity is to economic growth, asking about the future of economic growth is basically the same as asking whether total factor productivity will continue to grow – whether the recipes will always get better – over time.</p>
<p>Solow assumed that TFP would grow exponentially over time, a dynamic explained by the economist Paul Romer, who <a href="https://www.nobelprize.org/prizes/economic-sciences/2018/romer/facts/">also won a Nobel Prize</a> for his research in this field. </p>
<p>Romer argued in a <a href="https://www.jstor.org/stable/1833190">prominent 1986 paper</a> that investments in research and development that result in the creation of new knowledge can be a key driver of economic growth. </p>
<p>This means that each earlier bit of knowledge makes the next bit of knowledge more useful. Put differently, knowledge has a spillover effect that creates more knowledge as it spills out.</p>
<p>Despite Romer’s efforts to provide a basis for the assumed exponential growth of TFP, research shows that productivity growth in the world’s advanced economies <a href="https://www.imf.org/en/Publications/Staff-Discussion-Notes/Issues/2017/04/03/Gone-with-the-Headwinds-Global-Productivity-44758">has been declining</a> since the late 1990s and is now at historically low levels. There are concerns that the <a href="https://www.nber.org/system/files/working_papers/w28233/w28233.pdf">COVID-19 crisis may exacerbate</a> this negative trend and further reduce total factor productivity growth.</p>
<p><a href="https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7539064/#bib1">Recent research</a> shows that if TFP growth falls, then this can negatively affect living standards in the U.S. and in other rich countries.</p>
<p>A very recent paper by the economist Thomas Philippon analyzes a large amount of data for 23 countries over 129 years, finding that TFP <a href="https://pages.stern.nyu.edu/%7Etphilipp/papers/AddGrowth_macro.pdf">does not actually grow exponentially</a>, as Solow and Romer had thought. </p>
<p>Instead, it grows in a linear, and slower, progression. Philippon’s analysis suggests that new ideas and new recipes do add to the existing stock of knowledge, but they don’t have the multiplier effect previous scholars had thought.</p>
<p>Ultimately, this finding means that economic growth used to be quite fast and is now slowing down – but it’s still occurring. The U.S. and other nations can expect to get wealthier over time but just not as quickly as economists once expected.</p><img src="https://counter.theconversation.com/content/185116/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Amitrajeet A. Batabyal does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Economic growth of countries needs many ingredients. Getting the recipe just right is important.Amitrajeet A. Batabyal, Distinguished Professor and Arthur J. Gosnell Professor of Economics, Rochester Institute of TechnologyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1826982022-05-10T12:36:43Z2022-05-10T12:36:43ZFive things that economists know, but sound wrong to most other people<figure><img src="https://images.theconversation.com/files/462244/original/file-20220510-26-k003fh.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Should have been listening. </span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-vector/funny-drawing-man-empty-pockets-85740775">Mijatmijatovich</a></span></figcaption></figure><p>Economists have shaped the modern world in many ways. Governments make policy choices in response to the data that we produce about things like GDP and inflation. Social media companies use our insights about human behaviour to create features that encourage people to use their platforms. And we’re at the heart of everything from incentivising renewables developers to build more wind farms to regulating the behaviour of tech giants like <a href="https://theconversation.com/google-loses-appeal-against-2-4-billion-fine-tech-giants-might-now-have-to-re-think-their-entire-business-models-171628">Google</a> or <a href="https://theconversation.com/facebook-latest-court-case-shows-how-europe-is-clamping-down-on-big-tech-173100">Facebook</a>. </p>
<p>Yet this is only one side of the story. A curious thing about our profession is that when we academic economists largely agree with each other on something important, the rest of the world often completely ignores our conclusions. Are these findings too counter-intuitive, too impractical, or something else? Here are five examples so that you can decide for yourself:</p>
<h2>1. A lowest price guarantee means you will end up paying too much</h2>
<p>Retailers make these kinds of price pledges all the time: if you find this item cheaper somewhere else, we will match the price. I see it everywhere from <a href="https://querysprout.com/does-tesco-price-match/">grocery stores</a> to <a href="https://www.furniturevillage.co.uk/pricing-promise.html">furniture shops</a> to <a href="https://www.boots.com/electrical/electrical-shop-all">pharmacies</a>. Yet while such a guarantee seems at first sight to benefit consumers, decades of evidence – from <a href="https://www.sciencedirect.com/science/article/pii/S0167718706000415">tyre retailers</a> to <a href="https://onlinelibrary.wiley.com/doi/full/10.1111/joie.12154">grocery stores</a> – shows that they are mostly a subtle way for retailers to collude on maintaining high prices.</p>
<p>When a retailer offers a low price, it mainly does it to attract consumers by being cheaper than its competitors. But by committing to a price match, each time your competitor offers a discount to your price, your customers know they can come to you and benefit from the same price. The competitor therefore has nothing to gain from offering a discount and prices remain high. Interestingly, <a href="https://www.gov.uk/cartels-price-fixing/types-of-anticompetitive-activity">it’s illegal</a> for competitors to collude with one another to fix prices – yet price-matching effectively does exactly that, and it’s legal everywhere. </p>
<h2>2. Housing subsidies given to tenants often benefit landlords</h2>
<p>One of the first principles a student of economics learns is that people receiving a subsidy are not necessarily the ones who benefit from it. For example, in a <a href="https://www.sciencedirect.com/science/article/pii/S0927537106000029">study in France</a> back in 2006, property owners were found to be pocketing more than three-quarters of housing subsidies being given to tenants. </p>
<p>The reason was that the subsidies motivated families to move into larger houses, and for students in those families to become independent earlier. Since the number of houses on the market remained fairly constant, the main effect of this extra demand was to increase rental prices both for larger homes and for student accommodation – thus transferring taxpayer money to those who needed it the least. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/462245/original/file-20220510-14-tw0gjt.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Cartoon of landlord hand and tenant hand swapping money for a house and key" src="https://images.theconversation.com/files/462245/original/file-20220510-14-tw0gjt.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/462245/original/file-20220510-14-tw0gjt.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=427&fit=crop&dpr=1 600w, https://images.theconversation.com/files/462245/original/file-20220510-14-tw0gjt.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=427&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/462245/original/file-20220510-14-tw0gjt.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=427&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/462245/original/file-20220510-14-tw0gjt.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=536&fit=crop&dpr=1 754w, https://images.theconversation.com/files/462245/original/file-20220510-14-tw0gjt.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=536&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/462245/original/file-20220510-14-tw0gjt.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=536&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">‘Much obliged.’</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-vector/hand-gives-home-key-other-money-1990115099">yelosmiley</a></span>
</figcaption>
</figure>
<p>Compare this <a href="https://www.sciencedirect.com/science/article/pii/S0094119019300750">with a study</a> of the effects of cuts to housing benefits in the UK in 2011-12. Households renting larger houses – in a reverse of what happened in France – demanded smaller ones, and this drove prices down and hurt landlords the most. On the other hand, the poorest households already lived in rental accommodation that was too small for their needs so could not realistically move to something smaller. For this reason, they had no choice but to absorb the benefits cut themselves. </p>
<p>In both the French and UK examples, instead of housing subsidies, the government should have simply given the renters money and let them decide what to do with it. That way, people would have chosen the most suitable accommodation and spent anything left over on other things, such as better food, education or <a href="https://www.ft.com/content/dbf166ce-1ebb-4a67-980e-9860fd170ba2">healthcare</a>. </p>
<h2>3. Cost of living concerns are never a valid reason to avoid taxing pollution</h2>
<p>Gas and fuel prices have soared following the Russian invasion of Ukraine. Motorists are having to pay much more to fill their tanks, while many households are struggling with their power bills.</p>
<p>To fight this crisis, European countries such as France have been offering <a href="https://www.bloomberg.com/news/articles/2022-03-12/france-plans-2-2-billion-fuel-rebate-in-bid-to-help-motorists">fuel rebates</a> to consumers. This helps people, but it is also great news for energy suppliers. In many cases the supplier is Russia, so it feeds directly into Vladimir Putin’s <a href="https://arxiv.org/abs/2204.03318">military budget</a> and does nothing to help carbon emissions. </p>
<p>Most economists would instead place new tariffs on <a href="https://www.bruegel.org/2022/04/how-a-european-union-tariff-on-russian-oil-can-be-designed/">Russian oil</a> to price in the cost of financing the war and induce businesses and consumers to switch to other energy sources whenever possible. The revenues raised by the tariffs can then be used to <a href="https://www.nature.com/articles/s41558-021-01217-0">help people directly</a>, be it by lowering other taxes or by <a href="https://voxeu.org/article/recycling-revenue-improve-political-feasibility-carbon-pricing-uk">financing social security</a>. </p>
<p>In the UK, we are doing the exact opposite to this. Consumers are having to <a href="https://www.bbc.com/news/business-60996174">pay more national insurance</a> while <a href="https://www.gov.uk/government/publications/changes-to-fuel-duty-rates/fuel-duty-rates-2022-23">fuel duties</a> are being cut. </p>
<h2>4. Politicians are often more credible when they delegate</h2>
<p>To convince people to trust you to do something, one solution is to take <a href="https://www.stlouisfed.org/publications/regional-economist/january-2003/rules-vs-discretion-the-wrong-choice-could-open-the-floodgates">out of your hands</a> the possibility of changing your mind later. This is why <a href="https://www.nobelprize.org/prizes/economic-sciences/2004/summary/">central banks are independent</a> of governments: so that investors believe they are not playing with interest rates for electoral gains. </p>
<p>In most matters, however, governments <a href="https://www.sciencedirect.com/science/article/pii/S0014292121001392?casa_token=_zOqUK5cnzwAAAAA:7Ih12KDqmGwCYfe8DbuJti56jSNtj7TP3FH9-P27JBsp7_N2hteUngCb5CNnVH2zUCPN3r8">are reluctant</a> to delegate decision-making to independent institutions. In France, for instance, several governments <a href="https://www.franceinter.fr/emissions/secrets-d-info/secrets-d-info-27-mai-2017">spent billions of euros</a> between 2009 and 2017 on the infrastructure needed to implement a tax on trucking, only to back down entirely in the run-up to the presidential election. Had the implementation of the tax been delegated to an independent agency, the fiasco would never have happened.</p>
<p>In another example, the UK recently launched the <a href="https://commonslibrary.parliament.uk/research-briefings/cbp-8527/">shared prosperity fund</a> to replace EU-allocated funds to its poorest regions. The new system is <a href="https://www.ft.com/content/bf8fa303-c1c5-4307-89c5-7ae1e20f1cbb">much more centralised</a> than before and it is <a href="https://www.ft.com/content/bf8fa303-c1c5-4307-89c5-7ae1e20f1cbb">hard to know</a> how much previous funding will be matched. Centralised regional development funds can also be prone to <a href="https://www.econstor.eu/handle/10419/243265">favouritism and political patronage</a>, which in the UK would reduce the <a href="https://www.bbc.co.uk/news/uk-politics-49883367">credibility of the government</a> in its plans to “level up” the country.</p>
<h2>5. Investors consistently beating the market are probably doing something illegal</h2>
<p>There is <a href="https://www.nobelprize.org/prizes/economic-sciences/2013/summary/">no magic formula</a> to predict short-term changes in the value of a financial asset. Sure, some investments return more money than others, and financial bubbles certainly exist, but anyone asking you to trust them to make more money than the market in the long run is either lying or knows something the rest of the world does not. </p>
<p>If it’s the latter, we call it insider trading. This is illegal, although <a href="https://onlinelibrary.wiley.com/doi/abs/10.1111/jofi.12899">it still happens</a>. During the 2008 financial crisis, for instance, politically connected investors who knew where the government would intervene made much more money than others did. Stories about financial geniuses may be <a href="https://psycnet.apa.org/buy/1988-20051-001">much more appealing</a> than these kinds of realities, but that doesn’t mean they are true.</p><img src="https://counter.theconversation.com/content/182698/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Renaud Foucart does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Economists shape the world in many ways, but some of their conclusions are counter-intuitive to say the least.Renaud Foucart, Senior Lecturer in Economics, Lancaster University Management School, Lancaster UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1656162021-08-06T02:20:41Z2021-08-06T02:20:41ZVital Signs: If you want predictions, ask an astrologer. Economists have better things to do<p>If you ask most people what economists do, they might tell you it has something to do with money. Or perhaps forecasting what the economy will look like a year from now. Most of the other comparisons would be less charitable. I’ve heard plenty that can’t be printed.</p>
<p>The reality is very different. </p>
<p>For example, my UNSW colleague Pauline Grosjean and her economist co-authors published <a href="https://web.stanford.edu/%7Esaumitra/papers/Heroes.pdf">a paper in 2020</a> that asked “can heroes legitimise strongly proscribed and repugnant political behaviours?” and answered the question using recently declassified intelligence data on nearly 100,000 soldiers serving under French Field Marshall Philippe Petain at the battle of Verdun in 1916. </p>
<p>It turns out the home municipalities of these soldiers ended up producing 7% more Nazi collaborators during the Petain-led Vichy government from 1940-44.</p>
<p>While there are “market economists” whose job it is to try to produce credible forecasts, academic economists largely use an economic lens — and often very rich data sources — to understand and describe the world in which we live, and how to improve it.</p>
<p>Ironically, it is the “ivory-tower” types who do some of the most interesting work — on a range of social and economic issues that might surprise you in its breadth.</p>
<h2>#whateconomistsdo</h2>
<p>As is often the case, social media has amplified misunderstandings about the role of economists and laced it with a good dose of bile. In reaction to this misconception, prominent economists in Europe and the United States began tweeting about <a href="https://twitter.com/hashtag/whateconomistsdo?lang=en">#whateconomistsdo</a>.</p>
<p>If you check out that hashtag you will see an avalanche of academic papers on all sorts of interesting topics. What they have in common is the use of economic theory to inform analysis of incredibly rich data to answer big, social-scientific questions.</p>
<p>Questions such as: </p>
<ul>
<li><a href="https://scholar.harvard.edu/fryer/publications/production-human-capital-developed-countries-evidence-196-randomized-field">what works in education</a>? </li>
<li><a href="https://www.nber.org/papers/w20256">does gender diversity on corporate boards lead to better outcomes for those beyond the board</a>? </li>
<li><a href="https://academic.oup.com/qje/article/136/3/1887/6217436">does increasing sleep among the urban poor improve cognition or productivity</a>? </li>
<li><a href="https://academic.oup.com/qje/article-abstract/113/4/1055/1916970">why do new technologies complement skills</a>?</li>
</ul>
<h2>The identification revolution</h2>
<p>The big ideas in economics involve formal (i.e. mathematical) theory.</p>
<p>Think of things like supply and demand, when and why markets are an efficient way to allocate resources, how asymmetric information can lead markets to break down, and the role of innovation and capital accumulation in driving economic growth.</p>
<p>Economic theory of this kind is incredibly important and influential. But most of what most economists do most of the time, involves working with data.</p>
<p>As I wrote in June (in discussing teenage driving accidents), empirical economics is basically about the so-called “identification problem” — figuring out how to identify the true causal effect of a policy intervention.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/vital-signs-how-to-halve-serious-injuries-and-deaths-from-teenage-driving-accidents-163351">Vital Signs: how to halve serious injuries and deaths from teenage driving accidents</a>
</strong>
</em>
</p>
<hr>
<p>Developing and applying a set of empirical techniques to do this is what MIT economist Joshua Angrist has called “the credibility revolution”. </p>
<p>I personally prefer the term “identification revolution”. It’s an important part of what many of us <a href="https://www.business.unsw.edu.au/degrees-courses/course-outlines/ECON2403">teach in undergraduate economics classes</a>, but with applications to political science, law and other fields beyond economics.</p>
<p>It’s a “revolution” because scholars have developed ways to credibly identify the causal effect of all manner of policy interventions. That allows us researchers to provide sensible policy prescriptions based on empirical evidence. </p>
<p>This is the true spirit of the oft-abused term “evidence-based policy”; and because public policy covers a lot of territory — from social policy to economic policy —these techniques have been applied to lots of important policy questions.</p>
<p>Take three that might seem quite disparate. </p>
<ul>
<li><a href="https://watermark.silverchair.com/111-2-319.pdf?token=AQECAHi208BE49Ooan9kkhW_Ercy7Dm3ZL_9Cf3qfKAc485ysgAAAtwwggLYBgkqhkiG9w0BBwagggLJMIICxQIBADCCAr4GCSqGSIb3DQEHATAeBglghkgBZQMEAS4wEQQMhxpdw0EQEzYyK0VZAgEQgIICjyXPKxoYDfgCJE6Tseb9vml3Vibs_E8kyKMRv2OpUIDe6WZJbE8c4YkC0usw82bri87lj2LLMoem3Jl976FwIBTtcqn2noGT6hJAA4jcJDqbmPYqtlC5mfyy72W7IGrZ6TBAZszIJZ0AJJWXn8ht-lu06TMrrYtgWrh__FCl-FFgYQ24sGIf_I8plk1K3l3KIOSLuONqcvS_KB1dlXwXeQwFQByQeYRYkasV5X-uWV2i1yEJ3JAdzGl5MdS-Ne193v1g6XvbFvOpI5T48OyBOwMOv6peaF0jZdTt2PsN1Nmq1KI-ZrByjV2CQYDgm8f_JzbY7x1LyXpWUeXLPnRxez507RlHwxvtbtTFzyMCkzHeoWzaFU-fIjcJwxynxWE0QgiRqekAVvQHU1Xiavj7P9yY3bK7BmUypmO8Q8nDsjet8i-buIAoMXa3pfBVqJvJ8m5aMQUQs4pflU3hPMAEQ6ZccVpDAjeqKYWA8lEBV-AD2b9H3nwqXPCbufisSwLkaws9v-pcqyfRFhe-2AsB_utolYHtdLvuFPQiQMITpKJlJFJx3byXhfUqZa0FRPavd0MuXe5ArH0qgwPsw0JO8mpYIKVQffaizt-PjikPXEurlICvgakv-ssQacmhWA3nNS9uuo4edAOGD7E7UvvaYlYc7k9qjTyglj_OVxggm3obU_3JVr6-3-HGL358A1fdzXp3nD16-TspEas_AtyDeT2QTMFgaTFCQCzyoipLyjT0rCc01uZVw-OrvMMu6h5jjxt4OfJexeQUlvLbMxQMswwiTtH24bz_tyb4icqqC-DzG9gDqx8nVuMCBntNBLsajZ1Z_tCWmjA41HzOe8PlBYLnvsLR2YXdBPBN3EZ672w">the effect of incarceration on crime rates</a></li>
<li><a href="https://onlinelibrary.wiley.com/doi/pdf/10.3982/QE1296">peer effects on the United States Supreme Court</a></li>
<li><a href="https://eml.berkeley.edu/%7Esdellavi/wp/FoxVoteQJEAug07.pdf">whether media bias affects how people vote</a> </li>
</ul>
<p>Each of these are policy-relevant topics where economists have brought modern techniques and good data to bear. This, in turn, provides useful, factual input into important political debates.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/is-economists-view-of-people-as-rational-still-credible-64338">Is economists' view of people as rational still credible?</a>
</strong>
</em>
</p>
<hr>
<h2>What to ask economists</h2>
<p>It has been suggested that economics isn’t very useful because, for example, few economists predicted the financial crisis of 2008, and forecasts of things such as GDP, unemployment or house prices are usually pretty lousy.</p>
<p>It’s true that economic forecasting is a mug’s game. In the words of that great line <a href="https://quoteinvestigator.com/2013/10/20/no-predict/">typically attributed</a> to American baseball legend Yogi Berra, it’s tough to make predictions, especially about the future. </p>
<p>So if you want to know what the dollar will be worth two years from now, the best answer is probably “whatever it is today”. If you want to ask anyone, ask an astrologer, not an economist.</p>
<p>But since the identification revolution, economists around the world have contributed to a vastly richer understanding of important public-policy questions by combining rich data with clever empirical methods.</p>
<p>It also makes for much more interesting dinner party conversation than macroeconomic forecasting.</p>
<p>That’s #whateconomistsdo.</p><img src="https://counter.theconversation.com/content/165616/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Richard Holden is President-elect of the Academy of the Social Sciences in Australia.</span></em></p>Ironically, it is the “ivory-tower” economists who tend to do the most interesting, and valuable, work.Richard Holden, Professor of Economics, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1642392021-07-09T05:38:11Z2021-07-09T05:38:11ZWhy most economists continue to back lockdowns<p>With the prospect of a lengthier lockdown looming over Sydney, the idea of “living with the virus” <a href="https://www.smh.com.au/national/the-great-lie-at-the-heart-of-australia-s-de-facto-covid-19-strategy-is-about-to-be-exposed-20210706-p58782.html">has resurfaced</a>. </p>
<p>NSW’s health minister, Brad Hazzard, raised the prospect of abandoning the lockdown and accepting that “the virus has a life which will continue in the community” at a press conference <a href="https://www.abc.net.au/news/2021-07-07/nsw-delta-variant-may-never-be-controlled/100273956">on Wednesday</a>. NSW Premier Gladys Berejiklian and Prime Minister Scott Morrison have rejected that idea, but many voices in the media have been pushing it.</p>
<p>As with pandemic policy in general, much of the discussion of the Sydney outbreak has framed the problem as one pitting <a href="https://www.smh.com.au/business/the-economy/health-versus-economy-trade-off-isn-t-a-solvable-equation-20200808-p55jvq.html">health against the economy</a>. In this framing, epidemiologists and public health experts are seen as the advocates of saving lives, while economists are seen as the advocates of saving money. </p>
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<em>
<strong>
Read more:
<a href="https://theconversation.com/open-letter-from-265-australian-economists-dont-sacrifice-health-for-the-economy-136686">Open letter from 265 Australian economists: don't sacrifice health for 'the economy'</a>
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</em>
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<p>In reality, <a href="http://covid19openletter.net">the great majority</a> of Australian economists support policies of aggressive suppression or elimination — that is, keeping case numbers close to zero, and clamping down when an outbreak threatens. </p>
<h2>Broad agreement</h2>
<p>As with epidemiologists, that broad agreement encompasses a range of views about the appropriate response in any particular case. </p>
<p>Some economists, and some epidemiologists, supported the NSW government’s decision to delay a lockdown, while others wanted earlier action. But only a minority in either group support the idea of ending restrictions and waiting for herd immunity to protect us.</p>
<p>Unfortunately, as we have already seen in the case of climate change, many media outlets thrive on conflict. It is more interesting to present a debate between a pro-lockdown public health expert and an anti-lockdown economist than to present a nuanced discussion of the best way to suppress the virus, taking into account insights from a range of disciplines. </p>
<h2>Understanding exponential growth</h2>
<p>Why have economists endorsed the policy of suppression with more enthusiasm than, for example, political and business leaders? </p>
<p>First, because economists understand the concept of exponential growth. </p>
<p>While economics’ stress on growth is rightly contested, its centrality to economic concepts means related concepts from epidemiology, such as the reproduction number (R), are immediately comprehensible to us. </p>
<p>Once you understand how rapidly exponential processes can grow, the idea that lockdowns are “disproportionate responses to a handful of cases”, as The Australian <a href="https://www.theaustralian.com.au/commentary/editorials/moving-vaccine-goalposts-amid-lockdown-confusion/news-story/d92744e8611b0b6a566af660f5caed95">has editorialised</a>, loses its superficial attraction.</p>
<p>A clear majority of economists surveyed by <a href="https://theconversation.com/economists-back-social-distancing-34-9-in-new-economic-society-conversation-survey-138721">The Conversation in May 2020</a> (after the end of the national lockdown) supported strong social distancing measures to keep R below 1. Most of those who disagreed felt alternative measures could hold R below 1 at lower costs. Only a handful supported a “let it rip” strategy.</p>
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<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/335528/original/file-20200517-138629-5ucdrp.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/335528/original/file-20200517-138629-5ucdrp.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/335528/original/file-20200517-138629-5ucdrp.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=577&fit=crop&dpr=1 600w, https://images.theconversation.com/files/335528/original/file-20200517-138629-5ucdrp.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=577&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/335528/original/file-20200517-138629-5ucdrp.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=577&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/335528/original/file-20200517-138629-5ucdrp.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=725&fit=crop&dpr=1 754w, https://images.theconversation.com/files/335528/original/file-20200517-138629-5ucdrp.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=725&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/335528/original/file-20200517-138629-5ucdrp.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=725&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="attribution"><span class="source">The Conversation</span>, <a class="license" href="http://creativecommons.org/licenses/by-nd/4.0/">CC BY-ND</a></span>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/economists-back-social-distancing-34-9-in-new-poll-138721">Economists back social distancing 34-9 in new poll</a>
</strong>
</em>
</p>
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<h2>Considering counterfactuals</h2>
<p>Second, economists understand counterfactuals — that is, the need to specify what would have happened under an alternative policy. </p>
<p>It is easy to make the point that lockdowns are both economically costly and psychologically traumatic. But the counterfactual is not a situation where the economy is unaffected and everyone is happy. Living in fear of the virus, and watching family and friends suffer and die from it, is psychologically traumatic. </p>
<p>As regards the economic costs, the steps people take to reduce their exposure to risk are themselves costly, as is the need to allocate medical resources to treat the sick.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/yes-lockdowns-are-costly-but-the-alternatives-are-worse-163572">Yes, lockdowns are costly. But the alternatives are worse</a>
</strong>
</em>
</p>
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<h2>Weighing trade-offs</h2>
<p>Third, and most importantly, economists understand about trade-offs. </p>
<p>There are always trade-offs within the space of policy choices. Should we lock down at the first sign of an outbreak and risk unnecessary costs, or wait until later and risk a longer and harsher lockdown? Should we incur the costs of purpose-built quarantine facilities, or accept the greater risk of leakage from hotel quarantine?</p>
<p>Economists also understand that not all choices involve trade-offs. Sometimes one policy is unequivocally worse than another, on all relevant criteria. While there are always trade-offs somewhere in policy space, it’s often the case that, of the live options, one dominates the other in all important dimensions. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/vital-signs-the-cost-of-lockdowns-is-nowhere-near-as-big-as-we-have-been-told-142710">Vital Signs: the cost of lockdowns is nowhere near as big as we have been told</a>
</strong>
</em>
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<hr>
<p>On the central question of suppression versus herd immunity, there was no trade-off, as countries like Sweden found out.</p>
<p>The evidence points strongly to one conclusion. Allowing the virus to spread uncontrolled would have done more economic damage than temporary lockdowns, as well as causing thousands of avoidable deaths and tens of thousands to suffer severe, and possibly long-lasting, illness.</p>
<h2>Risk and uncertainty</h2>
<p>Finally, economists understand the complexities of risk and uncertainty. </p>
<p>One implication is the benefit of diversification by “backing every horse in the race”, as opposed to “putting all your eggs in one basket”, or even a few. </p>
<p>The federal government’s vaccine policy relied heavily on a limited range of options — primarily AstraZeneca, and the University of Queensland’s vaccine venture — both of which ran into problems. If we had followed the logic of diversification, we would be much better placed than we are now.</p>
<p>Economics doesn’t have all the answers. No one knows that better than economists. Dealing with the pandemic requires insights from a range of disciplines. But lazy stereotypes, pitting one profession against another, don’t help.</p><img src="https://counter.theconversation.com/content/164239/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Richard Holden is President-elect of the Academy of the Social Sciences in Australia.</span></em></p><p class="fine-print"><em><span>John Quiggin does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Pitting health against the economy is a false dichotomy.John Quiggin, Professor, School of Economics, The University of QueenslandRichard Holden, Professor of Economics, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1525132021-01-22T20:37:44Z2021-01-22T20:37:44ZWhat does the economy need now? 4 suggestions for Biden’s coronavirus relief bill<figure><img src="https://images.theconversation.com/files/380377/original/file-20210125-19-bnbil0.jpg?ixlib=rb-1.1.0&rect=449%2C143%2C5164%2C3844&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Biden has made fixing the economy one of his top priorities. </span> <span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/Biden/64002a97aea34463aaf8c0e86eb7ee2b/photo?Query=biden%20AND%20economy&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=Anytime&totalCount=303&currentItemNo=14">AP Photo/Evan Vucci</a></span></figcaption></figure><p><em>Editor’s note: The Biden administration has made it clear it wants to inject more money into the U.S. economy and provide more aid for priorities like vaccines, reopening schools and state governments. We asked four economists to share what’s on the top of their wish lists for Biden and Congress, and why.</em></p>
<h2>A better way to save businesses while helping workers</h2>
<p><strong>Steven Pressman, Colorado State University</strong></p>
<p>Since March, <a href="https://www.chicagotribune.com/business/ct-biz-coronavirus-small-business-failure-20200812-6u5ju4hvcnhv3cbnvslesuvnvq-story.html">20,000 U.S. businesses have failed every month</a>, on average. Small companies, which employ <a href="https://cdn.advocacy.sba.gov/wp-content/uploads/2019/04/23142719/2019-Small-Business-Profiles-US.pdf">nearly half of all workers</a>, have been <a href="https://www.businesswire.com/news/home/20201008005232/en/Small-Businesses-Feel-Biggest-Impact-of-Coronavirus-Pandemic">hit hardest</a>. The U.S. economy will struggle to recover without significant support for small businesses and their workers. </p>
<p>One way Congress addressed these problems back in March is by <a href="https://taxfoundation.org/sba-paycheck-protection-program-cares-act">offering small companies forgivable loans</a> if they kept workers on their payroll for 10 weeks. While helpful, the Paycheck Protection Program came with major flaws, such as a design that led to <a href="https://www.wsj.com/articles/ppp-was-a-fraudster-free-for-all-investigators-say-11604832072?mod=hp_lead_pos2">lots of fraud</a>. In addition, <a href="https://www.usatoday.com/story/news/politics/2020/09/01/coronavirus-relief-small-businesses-improperly-received-ppp-loans/5681021002/">billions of dollars went</a> to <a href="https://www.washingtonpost.com/business/2020/12/01/ppp-sba-data/">companies that didn’t need it</a>, while some of those in greatest need <a href="https://www.nytimes.com/2021/01/11/business/small-businesses-ppp-covid.html">couldn’t secure adequate funds</a>. </p>
<p>The U.K. had a different solution. Its government created the <a href="https://www.shrm.org/resourcesandtools/hr-topics/global-hr/pages/uk-furlough-scheme.aspx">Coronavirus Job Retention Scheme</a>, a form of wage and job insurance for workers. The government pays up to 80% of usual wages – subject to an income cap – to furloughed workers that companies retain as employees. Companies cover another 20% of usual wages. Low-income workers also receive additional monthly payments of up to the equivalent of about US$500. </p>
<p>Workers can be partially furloughed, working three or four days per week rather than five. This solves the problem of what to do about workers whose hours get cut or who go from full-time to part-time status. </p>
<p>The plan has helped companies reduce their labor costs, while maintaining flexibility to bring workers back when conditions allow. Importantly, aid goes to workers – not companies – which <a href="https://www.businesswest.co.uk/blog/coronavirus-job-retention-scheme-hugely-successful-how-will-it-end">has ensured workers and their incomes have been protected</a> throughout the crisis. And aid goes only to workers whose companies experience problems due to the coronavirus pandemic.</p>
<p>Unemployment rates in the two countries tell part of the British success story. In the U.K., unemployment <a href="https://www.ons.gov.uk/employmentandlabourmarket/peoplenotinwork/unemployment/timeseries/mgsx/lms">increased gradually last year</a> from 4% pre-pandemic to 4.9% in October. U.S. unemployment, in contrast, <a href="https://fred.stlouisfed.org/series/UNRATE">almost doubled</a> from 3.5% to 6.7% in the that same period, peaking at nearly 15% in April. </p>
<p>The U.K. program <a href="https://theconversation.com/covid-lockdowns-spring-will-see-finances-hit-as-economic-impact-kicks-in-151786">has provided support to workers</a> throughout the pandemic’s ups and downs. The Paycheck Protection Program was meant to be temporary, although <a href="https://www.wsj.com/articles/ppp-loans-everything-we-know-about-latest-small-business-protection-11608645691">more funds were added in December</a>. </p>
<p>In the U.K., fraud has been limited because companies don’t get the money. And the government <a href="https://www.crosslandsolicitors.com/site/media/coronavirus-hub/furlough-fraud-coronavirus-lockdown">has encouraged workers to become whistleblowers</a>, while imposing large penalties on the officers of companies engaged in fraud.</p>
<p>Rather than continuing to fund the Paycheck Protection Program, Congress and the president should switch gears and enact a program like the U.K.’s that will see America through the crisis, however long it lasts.</p>
<figure class="align-center ">
<img alt="Protesters display placards during a demonstration to support for tenants and homeowners at risk of eviction in Boston on Oct. 11." src="https://images.theconversation.com/files/380267/original/file-20210122-17-t3yiu1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/380267/original/file-20210122-17-t3yiu1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/380267/original/file-20210122-17-t3yiu1.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/380267/original/file-20210122-17-t3yiu1.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/380267/original/file-20210122-17-t3yiu1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/380267/original/file-20210122-17-t3yiu1.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/380267/original/file-20210122-17-t3yiu1.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">An eviction crisis looms for the Biden administration.</span>
<span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/EvictionBan/af06e3a060ec433cad1c20faf6b6cf03/photo?Query=eviction%20AND%20crisis&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=Anytime&totalCount=1197&currentItemNo=2">AP Photo/Steven Senne</a></span>
</figcaption>
</figure>
<h2>Addressing the eviction crisis</h2>
<p><strong>Melanie Long, College of Wooster</strong></p>
<p>The sharp rise in unemployment due to the pandemic has left many Americans <a href="https://www.cbpp.org/research/poverty-and-inequality/tracking-the-covid-19-recessions-effects-on-food-housing-and">struggling to pay the bills</a>. Renters have been among the most vulnerable. </p>
<p>Compared with homeowners, renters are <a href="https://www.jchs.harvard.edu/sites/default/files/ahr2011-3-demographics.pdf">more likely</a> to be poor, young and either Black or Hispanic – <a href="https://fas.org/sgp/crs/misc/R46554.pdf">the exact same demographic</a> of those who have suffered the most from the pandemic’s economic fallout.</p>
<p>The result has been a <a href="https://www.cnbc.com/2020/06/10/how-to-prevent-the-coming-coronavirus-tsunami-of-evictions.html">looming eviction crisis</a> that has been staved off by a <a href="https://evictionlab.org/covid-policy-scorecard">patchwork of federal, state and local moratoriums</a>. <a href="https://www.vox.com/21569601/eviction-moratorium-cdc-covid-19-congress-rental-assistance-rent-crisis">Millions of renters</a> could face homelessness once existing moratoriums expire and accumulated back rent comes due. </p>
<p>About <a href="https://www.washingtonpost.com/business/2020/12/07/unemployed-debt-rent-utilities/">9 million households</a> have fallen behind on rent payments, with <a href="https://www.marketplace.org/2020/12/09/millions-renters-face-holiday-evictions-long-term-debt/">over 1 million</a> estimated to owe $5,000 or more. This could also worsen the <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3739576">public health situation</a> and <a href="https://ighhub.org/understanding-homelessness/causes-intersections/unemployment-underemployment">slow the economic recovery</a>.</p>
<p>To address this crisis, I believe Congress needs to both provide short-term solutions and long-term fixes.</p>
<p>For starters, it’s vital that the Centers for Disease Control and Prevention’s eviction moratorium continue. On Jan. 20, Biden <a href="https://www.forbes.com/advisor/personal-finance/biden-plan-eviction-moratorium-rent-relief/">extended the moratorium – which was set to expire at the end of January – to March 31</a>. But that will likely need to be extended further. </p>
<p>Another critical need is rental and housing assistance. Biden’s proposed stimulus package already <a href="https://www.housingwire.com/articles/how-bidens-1-9t-stimulus-plan-impacts-housing/">includes $30 million</a> to help renters and support <a href="https://www.cnn.com/2020/12/17/success/landlords-struggling-rent-eviction/index.html">struggling landlords</a>. Adding even more assistance could have major economic benefits as low-income beneficiaries especially are likely to spend every extra penny on food and other goods, stimulating the economy.</p>
<p>Access to affordable housing has been worsening for years, especially in communities of color. The <a href="https://www.urban.org/policy-centers/housing-finance-policy-center/projects/reducing-racial-homeownership-gap">gap between black and white homeownership rates</a> has widened since the 1960s. The fact that only 42% of Black Americans own their homes, compared with 72% of their white peers, means most of them are renters, making them more <a href="https://inequality.stanford.edu/sites/default/files/Pathways_SOTU_2017_housing.pdf">vulnerable</a> to losing their homes. It’s also largely to blame for the <a href="https://www.brookings.edu/blog/up-front/2020/02/27/examining-the-black-white-wealth-gap/">stark racial wealth gap</a> in the U.S., which in turn <a href="https://www.mckinsey.com/industries/public-and-social-sector/our-insights/the-economic-impact-of-closing-the-racial-wealth-gap">reduces economic growth</a>. </p>
<p>Congress could begin to address these deeper problems by <a href="https://archive.curbed.com/2019/7/8/20686095/kamala-harris-homeownership-plan-2020-election-democratic-primary">providing down payment assistance</a> in historically <a href="https://www.investopedia.com/terms/r/redlining.asp">redlined</a> communities, which would help households that are not currently on the edge of a financial cliff take advantage of <a href="https://www.forbes.com/advisor/mortgages/low-mortgage-rates-high-home-prices/">historically low interest rates</a> as <a href="https://www.marketwatch.com/story/heres-how-homeowners-and-new-buyers-are-taking-advantage-of-record-low-mortgage-rates-2020-09-11">so many others have</a>. </p>
<figure class="align-center ">
<img alt="A woman tries to work on her computer while two young girls try to get her attention." src="https://images.theconversation.com/files/380268/original/file-20210122-13-1uxjhtk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/380268/original/file-20210122-13-1uxjhtk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/380268/original/file-20210122-13-1uxjhtk.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/380268/original/file-20210122-13-1uxjhtk.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/380268/original/file-20210122-13-1uxjhtk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/380268/original/file-20210122-13-1uxjhtk.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/380268/original/file-20210122-13-1uxjhtk.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Women have borne the brunt of increased child care needs during the pandemic.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/photo/mother-working-from-home-with-children-in-royalty-free-image/1273890998">MoMo Productions/DigitalVision via Getty Images</a></span>
</figcaption>
</figure>
<h2>Helping women get back to work</h2>
<p><strong>Veronika Dolar, SUNY Old Westbury</strong></p>
<p>During the pandemic, unemployment <a href="https://theconversation.com/women-risk-losing-decades-of-workplace-progress-due-to-covid-19-heres-how-companies-can-prevent-that-145073">has been felt most acutely</a> by women. </p>
<p>Women in the U.S. <a href="https://www.thecut.com/2021/01/all-jobs-lost-in-december-2020-were-held-by-women-report.html">lost a total of 156,000 jobs</a> in December, even as men gained 14,000. There were <a href="https://www.bls.gov/news.release/empsit.nr0.htm">nearly 2.1 million fewer</a> women in the labor force at the end of 2020 than there were pre-pandemic.</p>
<p>One reason for this is that women are more heavily represented in sectors that saw the biggest job losses in December, such as hospitality and private education. But another important one is that women generally have been <a href="https://www.nytimes.com/2020/05/06/upshot/pandemic-chores-homeschooling-gender.html">expected to increase</a> their <a href="https://www.americanprogress.org/issues/early-childhood/reports/2019/03/28/467488/child-care-crisis-keeping-women-workforce/">already disproportionate share</a> of household child care duties after COVID-19 shut down schools. </p>
<p>All of this could lead to a significant decline in women’s total wages over time – <a href="https://www.americanprogress.org/issues/women/reports/2020/10/30/492582/covid-19-sent-womens-workforce-progress-backward/">one estimate puts it at $64.5 billion a year</a>. This would result in a sharp drop in economic activity and billions in lost tax revenue for state and federal budgets.</p>
<p>But Congress could help offset this outcome in several ways.</p>
<p>One of the most critical is helping parents find affordable child care facilities. <a href="https://www.cnbc.com/2020/12/30/many-child-care-centers-nationwide-still-remain-closed.html">More than a quarter of child care centers in the U.S. remain closed</a> because of the pandemic, and those that are open <a href="https://www.theatlantic.com/ideas/archive/2019/11/why-child-care-so-expensive/602599/">are often unaffordable</a>. Child care costs <a href="https://www.americanprogress.org/issues/early-childhood/reports/2020/09/03/489900/true-cost-providing-safe-child-care-coronavirus-pandemic/">have increased 47% during the pandemic</a>. </p>
<p><a href="https://www.washingtonpost.com/us-policy/2021/01/14/biden-stimulus-covid-relief/">Biden wants to address this</a> by providing $25 billion to directly support child care providers and $15 billion to <a href="https://www.ffyf.org/issues/ccdbg/">help low-income families afford care</a>. </p>
<p>While this funding would go a long way to ensuring mothers have access to affordable child care, the lack of flexibility at most providers means women with uncertain work hours or who need other accommodations will still struggle. A more comprehensive plan should include some support to hire babysitters or even child support vouchers that could be spent as needed. </p>
<p>The other side of this issue is ensuring new mothers and fathers can take time off work to care for their children themselves. <a href="https://www.huffpost.com/entry/joe-biden-covid-relief-proposal-women_n_6001f056c5b62c0057bce58f">Biden’s proposal includes</a> up to 14 weeks of paid family and medical leave, which will help ensure women don’t have to choose between a new baby and their career.</p>
<h2>Unemployment insurance reform</h2>
<p><strong>R. Andrew Butters, Indiana University</strong></p>
<p><a href="https://fred.stlouisfed.org/series/PAYEMS#0">Millions of Americans</a> who have lost their jobs as a result of the pandemic have relied on the <a href="https://www.nytimes.com/2020/11/11/business/economy/unemployment-benefits-cutoff.html">unemployment insurance system to pay for bills, rent and food</a>. </p>
<p>But that system, in terms of <a href="https://www.nytimes.com/2020/03/19/business/coronavirus-unemployment-states.html">staffing</a> and <a href="https://www.wsj.com/articles/states-struggle-with-coronavirus-unemployment-claims-surge-11588239004">technology</a>, <a href="https://www.wsj.com/articles/the-long-run-of-american-job-growth-has-ended-11585215000">wasn’t designed to handle</a> the unprecedented need seen today. About 5 million people made <a href="https://fred.stlouisfed.org/series/CCSA">continuing claims for jobless benefits</a> in January. That’s down from a record 25 million in May but still near the highest the figure had ever been previously. </p>
<p>Aid packages passed in <a href="https://home.treasury.gov/policy-issues/cares">March</a> and <a href="https://www.natlawreview.com/article/federal-covid-relief-bill-passed-congress-december-2020">December</a> extended the benefits to people who don’t normally receive them – such as gig workers and part-time employees – and included a federal supplement. But these changes <a href="https://indianapublicmedia.org/news/dwd-awaiting-more-guidance-to-roll-out-unemployment-benefit-changes.php">added strain to the system</a> and made it more difficult to <a href="https://www.wsj.com/articles/wave-of-attempted-fraud-hits-state-unemployment-claims-programs-11608633000">prevent fraud</a> and <a href="https://www.latimes.com/california/story/2021-01-07/california-stops-payments-unemployment-claims-fraud-edd">process legitimate claims</a>.</p>
<p>[<em>Deep knowledge, daily.</em> <a href="https://theconversation.com/us/newsletters/the-daily-3?utm_source=TCUS&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=deepknowledge">Sign up for The Conversation’s newsletter</a>.]</p>
<p>Keeping unemployment benefits flowing to people out of work due to the pandemic is essential to the economic recovery, both so that the unemployed can afford to live and also for the broader economy, which <a href="https://www.thebalance.com/consumer-spending-definition-and-determinants-3305917">depends on consumer spending</a>. </p>
<p>But this requires ensuring the system is effective and reaches everyone who needs help. Lawmakers could begin to do this by making some temporary changes permanent. </p>
<p>For example, traditionally, independent contractors, part-time employees and some other categories have been ineligible for unemployment benefits. In March, Congress <a href="https://www.investopedia.com/pandemic-unemployment-assistance-pua-definition-4802064">created</a> <a href="https://www.investopedia.com/pandemic-emergency-unemployment-compensation-peuc-definition-4802046">two programs</a> that specifically provide them with benefits. But those programs expire in March. Lawmakers shouldn’t simply extend them again but ensure <a href="https://www.cnbc.com/2020/02/04/gig-economy-grows-15percent-over-past-decade-adp-report.html">these growing</a> <a href="https://wol.iza.org/articles/why-does-part-time-employment-increase-in-recessions/long">segments</a> of the workforce always have access to benefits. </p>
<p>Lawmakers could also make sure extended benefits – that is, allowing the unemployed to receive up to 50 rather than <a href="https://oui.doleta.gov/unemploy/docs/factsheet/UI_Program_FactSheet.pdf">only 26 weeks</a> of insurance – don’t expire in the March. </p>
<p>And I believe the relief package should also consider investing to help state offices hire more workers, update their technology infrastructure and coordinate more effectively with other states. This should lead to timelier and more accurate payments and protect against the most sophisticated attempts at fraud.</p><img src="https://counter.theconversation.com/content/152513/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Biden proposed $1.9 trillion in new coronavirus relief spending to help with the economic fallout of COVID-19. Four economists have a few ideas for him.Steven Pressman, Professor of Economics, Colorado State UniversityMelanie G. Long, Assistant Professor of Economics, The College of WoosterR. Andrew Butters, Assistant Professor of Business Economics, Indiana UniversityVeronika Dolar, Assistant Professor of Economics, SUNY Old WestburyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1503642020-11-29T00:39:55Z2020-11-29T00:39:55ZTop economists want JobSeeker boosted $100+ per week, tied to wages<figure><img src="https://images.theconversation.com/files/371797/original/file-20201128-14-80upwc.png?ixlib=rb-1.1.0&rect=371%2C5%2C3502%2C1988&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Wes Mountain/The Conversation</span>, <a class="license" href="http://creativecommons.org/licenses/by-nd/4.0/">CC BY-ND</a></span></figcaption></figure><p>Once about as high as the pension, the JobSeeker (Newstart) unemployment payment has fallen shockingly low compared to living standards.</p>
<p>It’s now only two thirds of the pension, just 40% of the full-time minimum wage and <a href="https://www.tai.org.au/sites/default/files/P997%20Poverty%20and%20a%20reduced%20coronavirus%20supplement%20%5BWEB%5D.docx.pdf">half way below</a> the poverty line.</p>
<p>JobSeeker has fallen relative to other payments because while the pension and wages have climbed faster than prices, JobSeeker (previously called Newstart) has increased <a href="https://theconversation.com/its-newstart-pay-rise-day-youre-in-line-for-24-cents-which-is-peanuts-123856">only in line with prices</a> since 1991.</p>
<p>In an apparent acknowledgement that JobSeeker had fallen too low, the government roughly doubled it during the coronavirus crisis, introducing a supplement to enable people to “<a href="https://ministers.treasury.gov.au/ministers/josh-frydenberg-2018/transcripts/interview-karl-stefanovic-and-allison-langdon-today-5">meet the costs of their groceries and other bills</a>”.</p>
<p>But that supplement is being wound down, from <a href="https://theconversation.com/scalable-without-limit-how-the-government-plans-to-get-coronavirus-support-into-our-hands-quickly-134353">A$225</a> per week to <a href="https://ministers.treasury.gov.au/ministers/josh-frydenberg-2018/media-releases/jobkeeper-payment-and-income-support-extended">$125</a> on September 25, and again to <a href="https://www.servicesaustralia.gov.au/individuals/services/centrelink/coronavirus-supplement">$75</a> on January 1, before expiring on March 31.</p>
<p>After March, the single rate of JobSeeker (including the $4.40 per week energy allowance) will drop back to about <a href="https://www.servicesaustralia.gov.au/individuals/services/centrelink/jobseeker-payment/how-much-you-can-get">$287.25 per week</a>.</p>
<hr>
<p><strong>JobSeeker vs age pension</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/371424/original/file-20201126-25-1hrhd0f.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/371424/original/file-20201126-25-1hrhd0f.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/371424/original/file-20201126-25-1hrhd0f.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=240&fit=crop&dpr=1 600w, https://images.theconversation.com/files/371424/original/file-20201126-25-1hrhd0f.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=240&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/371424/original/file-20201126-25-1hrhd0f.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=240&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/371424/original/file-20201126-25-1hrhd0f.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=301&fit=crop&dpr=1 754w, https://images.theconversation.com/files/371424/original/file-20201126-25-1hrhd0f.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=301&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/371424/original/file-20201126-25-1hrhd0f.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=301&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="source" href="https://www.servicesaustralia.gov.au/individuals/services/centrelink/age-pension/how-much-you-can-get">Source: Ben Phillips ANU, Services Australia</a></span>
</figcaption>
</figure>
<hr>
<p>Ahead of a decision about any permanent increase expected early next year, The Conversation and the Economic Society of Australia asked 45 of Australia’s leading economists where they thought JobSeeker should settle.</p>
<p>Only four think it should revert to $287.25 per week. </p>
<p>All but eight want a substantial increase. More than half (24 out of 45) want an increase of at least $100 per week.</p>
<hr>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/371647/original/file-20201127-23-1d5smrw.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/371647/original/file-20201127-23-1d5smrw.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=514&fit=crop&dpr=1 600w, https://images.theconversation.com/files/371647/original/file-20201127-23-1d5smrw.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=514&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/371647/original/file-20201127-23-1d5smrw.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=514&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/371647/original/file-20201127-23-1d5smrw.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=645&fit=crop&dpr=1 754w, https://images.theconversation.com/files/371647/original/file-20201127-23-1d5smrw.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=645&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/371647/original/file-20201127-23-1d5smrw.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=645&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption"></span>
<span class="attribution"><span class="source">Economic Society of Australia/The Conversation</span>, <a class="license" href="http://creativecommons.org/licenses/by-nd/4.0/">CC BY-ND</a></span>
</figcaption>
</figure>
<hr>
<p>The results suggest the economists would be dissatisfied with a decision to merely increase JobSeeker by $75 per week in line with the supplement that is due to expire at the end of March. </p>
<p>The 45 members of the society’s 57-member panel who responded include Australia’s preeminent experts in the fields of microeconomics, macroeconomics economic modelling, labour markets and public policy.</p>
<p>Among them are former and current government advisers, a former member of the Reserve Bank board and a former member of the Fair Work Commission’s minimum wage panel.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/top-economists-back-boosts-to-jobseeker-and-social-housing-over-tax-cuts-146914">Top economists back boosts to JobSeeker and social housing over tax cuts</a>
</strong>
</em>
</p>
<hr>
<p>Many want an increase of about $150 a week to bring JobSeeker close to the age pension and 50% of median income.</p>
<p>Curtin University’s Harry Bloch asked (rhetorically) whether unemployed people had “lower needs than those on the aged pension”.</p>
<p>Labour market specialist Sue Richardson said keeping payments so low that people lost dignity and hope and suffered material deprivation hurt not only the people who were unemployed, but also the thousands of children who grew up in their households.</p>
<h2>A scant incentive to shirk</h2>
<p>She knew of no evidence that suggested a low rate of JobSeeker increased the likelihood of an unemployed person getting a job.</p>
<p>Jeff Borland said even if JobSeeker was increased by $125 per week, those on it would still earn less than all but 1% of full-time adult workers and would face plenty of remaining financial incentives to get paid work. </p>
<p>In research to be published in The Conversation on Monday he examines a real-life experiment: the temporary near-doubling on JobSeeker between March and September, and finds it played <a href="https://theconversation.com/new-finding-boosting-jobseeker-wouldnt-keep-australians-away-from-paid-work-150454">no role in creating unfilled vacancies</a>.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/new-finding-boosting-jobseeker-wouldnt-keep-australians-away-from-paid-work-150454">New finding: boosting JobSeeker wouldn't keep Australians away from paid work</a>
</strong>
</em>
</p>
<hr>
<p>Emeritus Professor Margaret Nowak said JobSeeker had been driven to the point where it denied unemployed Australians the shelter, food and transport they needed to find work.</p>
<p>Former Liberal party leader John Hewson described the failure to adjust JobSeeker for three decades as “immoral”, and a national disgrace driven by “little more than prejudice”.</p>
<p>Going forward, there was overwhelming agreement among those surveyed that once JobSeeker was restored to an acceptable level, it should be linked to wages (in line with the pension) rather than increase with prices as before.</p>
<hr>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/371656/original/file-20201127-21-zazdc3.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/371656/original/file-20201127-21-zazdc3.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=525&fit=crop&dpr=1 600w, https://images.theconversation.com/files/371656/original/file-20201127-21-zazdc3.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=525&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/371656/original/file-20201127-21-zazdc3.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=525&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/371656/original/file-20201127-21-zazdc3.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=660&fit=crop&dpr=1 754w, https://images.theconversation.com/files/371656/original/file-20201127-21-zazdc3.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=660&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/371656/original/file-20201127-21-zazdc3.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=660&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption"></span>
<span class="attribution"><span class="source">Economic Society of Australia/The Conversation</span>, <a class="license" href="http://creativecommons.org/licenses/by-nd/4.0/">CC BY-ND</a></span>
</figcaption>
</figure>
<hr>
<p>Two thirds of those surveyed want JobSeeker increase in line with wages, and of those who do not, several want the pension to increase more slowly in order to ensure the two move in sync.</p>
<p>Gigi Foster and Geoffrey Kingston propose a half-way house – increases in both the pension and JobSeeker halfway between increases in the consumer price index and wages.</p>
<h2>Wages determine living standards</h2>
<p>Others suggest practical measures to make JobSeeker better at getting Australians into jobs. Beth Webster suggests reducing the rate at which JobSeeker cuts out with hours worked to encourage part-time workers to take on more hours. </p>
<p>Tony Makin suggests a relocation allowance to help people take on jobs distant from their current place of residence. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/if-jobseeker-was-cut-the-unemployed-would-be-picking-fruit-why-thats-not-true-145951">'If JobSeeker was cut, the unemployed would be picking fruit'? Why that's not true</a>
</strong>
</em>
</p>
<hr>
<p>None of the economists surveyed expressed concern about the budgetary cost of restoring the relative position of JobSeeker, estimated by the Parliamentary Budget Office to be <a href="https://www.aph.gov.au/-/media/05_About_Parliament/54_Parliamentary_Depts/548_Parliamentary_Budget_Office/Costings/Publicly_released_costings/Increase_JobSeeker_Payment_-_PDF.pdf?la=en&hash=59041CBFEEC774088C1A01C00E49D639A79D9E2A">$4.8 billion</a> per year for an increase of $95 per week.</p>
<p>Several expressed a desire to put the issue behind them, increasing JobSeeker to a reasonable proportion of the pension or median wage and leaving it there so that, in the words of Saul Eslake, “this issue never arises again”.</p>
<hr>
<p><em>Individual responses</em></p>
<p><iframe id="tc-infographic-549" class="tc-infographic" height="400px" src="https://cdn.theconversation.com/infographics/549/06d5035bc9e0e4f1a7b7d0a0a56d9d8442f23fcd/site/index.html" width="100%" style="border: none" frameborder="0"></iframe></p><img src="https://counter.theconversation.com/content/150364/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter Martin does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Two-thirds of those surveyed want it linked to wages.Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1366862020-04-19T20:02:14Z2020-04-19T20:02:14ZOpen letter from 265 Australian economists: don’t sacrifice health for ‘the economy’<p>In recent weeks a growing chorus of Australian commentators has called for social distancing measures to be eased or radically curtailed. </p>
<p>Some have <a href="https://www.theaustralian.com.au/business/economics/coronavirus-lockdown-hysteria-is-ruining-10-million-lives/news-story/fd5307f58302cf1ab928decb07b2619c">claimed </a>the lives saved by the lockdowns are not worth the damage they are causing to the economy. </p>
<p>Others have <a href="https://www.smh.com.au/national/baby-boomers-won-t-like-it-but-next-step-after-lockdown-is-herd-immunity-20200415-p54k0t.html">claimed</a> the case for easing is strengthened by the fact many of the hardest hit by COVID-19 are elderly or suffering from other conditions.</p>
<p>Some might expect economists, of all people, to endorse this calculus. </p>
<p>But as economists we categorically reject these views, and we believe they do not represent the majority of our profession. </p>
<p>We believe a callous indifference to life is morally objectionable, and that it would be a mistake to expect a premature loosening of restrictions to be beneficial to the economy and jobs, given the rapid rate of contagion. </p>
<p><a href="https://theconversation.com/newsletter"><img src="https://images.theconversation.com/files/320030/original/file-20200312-116261-a6ugi0.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=90&fit=crop&dpr=2" alt="Sign up to The Conversation" width="100%"></a></p>
<p>It is wishful thinking to believe we face a choice between a buoyant economy without social distancing and a deep recession with social distancing. </p>
<p>In a world with COVID-19, there are no good choices. </p>
<p>The best we can do is limit the spread of COVID-19 as much as practicable and rely on the strength of the government’s balance sheet to cushion the impact on the workers and businesses hardest hit.</p>
<p>Our success to date is a direct result of the measures taken, but we cannot afford to be complacent. </p>
<p>We recognise there are trade-offs on some margins, but we urge the government to work closely with public health experts to carefully determine at what time, in what ways, and in which sectors, to begin lifting restrictions. </p>
<p>There should be no doubt the cost of getting this wrong is very high.</p>
<h2>Open Letter from Australian Economists</h2>
<p><em>19 April, 2020</em></p>
<p><em>Dear Prime Minister and Members of the National Cabinet,</em></p>
<p><em>The undersigned economists have witnessed and participated in the public debate about when to relax social-distancing measures in Australia. Some commentators have expressed the view there is a trade-off between the public health and economic aspects of the crisis. We, as economists, believe this is a false distinction.</em></p>
<p><em>We cannot have a functioning economy unless we first comprehensively address the public health crisis. The measures put in place in Australia, at the border and within the states and territories, have reduced the number of new infections. This has put Australia in an enviable position compared to other countries, and we must not squander that success.</em></p>
<p><em>We recognise the measures taken to date have come at a cost to economic activity and jobs, but believe these are far outweighed by the lives saved and the avoided economic damage due to an unmitigated contagion. We believe strong fiscal measures are a much better way to offset these economic costs than prematurely loosening restrictions.</em></p>
<p><em>As has been foreshadowed in your public remarks, our borders will need to remain under tight control for an extended period. It is vital to keep social-distancing measures in place until the number of infections is very low, our testing capacity is expanded well beyond its already comparatively high level, and widespread contact tracing is available.</em></p>
<p><em>A second-wave outbreak would be extremely damaging to the economy, in addition to involving tragic and unnecessary loss of life.</em></p>
<p><em>Sincerely,</em></p>
<p><em><a href="https://theconversation.com/profiles/alison-booth-153308">Professor Alison Booth</a>, Australian National University</em></p>
<p><em><a href="https://theconversation.com/profiles/jeff-borland-1079">Professor Jeff Borland</a>, University of Melbourne</em></p>
<p><em><a href="https://theconversation.com/profiles/lisa-cameron-986169">Professorial Research Fellow Lisa Cameron</a>, Melbourne Institute, University of Melbourne</em></p>
<p><em><a href="https://theconversation.com/profiles/efrem-castelnuovo-145615">Professor Efrem Castelnuovo</a>, University of Melbourne</em></p>
<p><em><a href="https://theconversation.com/profiles/deborah-ann-cobb-clark-729631">Professor Deborah Cobb-Clark</a>, University of Sydney</em></p>
<p><em><a href="https://scholar.harvard.edu/ashley-craig/home">Assistant Professor Ashley Craig</a>, University of Michigan</em></p>
<p><em><a href="https://theconversation.com/profiles/chris-edmond-673265">Professor Chris Edmond</a>, University of Melbourne</em></p>
<p><em><a href="https://nisvanerkal.net/">Professor Nisvan Erkal</a>, University of Melbourne</em></p>
<p><em><a href="https://theconversation.com/profiles/john-freebairn-90">Professor John Freebairn</a>, University of Melbourne</em></p>
<p><em><a href="https://theconversation.com/profiles/renee-fry-mckibbin-673270">Professor Renée Fry-McKibbin</a>, Australian National University</em></p>
<p><em><a href="https://theconversation.com/profiles/joshua-gans-399">Professor Joshua Gans</a>, University of Toronto</em></p>
<p><em><a href="https://theconversation.com/profiles/jacob-k-goeree-562903">Professor Jacob Goeree</a>, UNSW Business School</em></p>
<p><em><a href="https://theconversation.com/profiles/quentin-grafton-1941">Professor Quentin Grafton</a>, Australian National University</em></p>
<p><em><a href="https://www.rse.anu.edu.au/about-us/our-people/people/?profile=Simon-Grant">Professor Simon Grant</a>, Australian National University</em></p>
<p><em><a href="https://theconversation.com/profiles/pauline-grosjean-343133">Professor Pauline Grosjean</a>, UNSW Business School</em></p>
<p><em><a href="https://theconversation.com/profiles/jane-hall-1280">Distinguished Professor Jane Hall</a>, University of Technology Sydney</em></p>
<p><em><a href="https://theconversation.com/profiles/steven-hamilton-155869">Assistant Professor Steven Hamilton</a>, George Washington University</em></p>
<p><em><a href="https://theconversation.com/profiles/ian-harper-8628">Professor Ian Harper</a>, Melbourne Business School</em></p>
<p><em><a href="https://theconversation.com/profiles/richard-holden-118107">Professor Richard Holden</a>, UNSW Business School</em></p>
<p><em><a href="https://research.monash.edu/en/persons/david-johnston">Professor David Johnston</a>, Monash University</em></p>
<p><em><a href="https://theconversation.com/profiles/flavio-menezes-4124">Professor Flavio Menezes</a>, University of Queensland</em></p>
<p><em><a href="https://theconversation.com/profiles/warwick-mckibbin-9129">Professor Warwick McKibbin</a>, Australian National University</em></p>
<p><em><a href="https://economics.uchicago.edu/directory/simon-mongey">Assistant Professor Simon Mongey</a>, University of Chicago</em></p>
<p><em><a href="https://theconversation.com/profiles/james-morley-9918">Professor James Morley</a>, University of Sydney</em></p>
<p><em><a href="http://www.josephlyonmullins.com/">Professor Joseph Mullins</a>, University of Minnesota</em></p>
<p><em><a href="https://findanexpert.unimelb.edu.au/profile/140028-abigail-payne">Professor Abigail Payne</a>, Melbourne Institute, University of Melbourne</em></p>
<p><em><a href="https://theconversation.com/profiles/bruce-preston-452859">Professor Bruce Preston</a>, University of Melbourne</em></p>
<p><em><a href="https://theconversation.com/profiles/sue-richardson-552530">Emeritus Professor Sue Richardson</a>, Flinders University</em></p>
<p><em><a href="https://theconversation.com/profiles/stefanie-schurer-333154">Professor Stefanie Schurer</a>, University of Sydney</em></p>
<p><em><a href="https://fbe.unimelb.edu.au/our-people/staff/economics/kalvinder-shields">Professor Kalvinder Shields</a>, University of Melbourne</em></p>
<p><em><a href="https://theconversation.com/profiles/john-quiggin-2084">Professor John Quiggin</a>, University of Queensland</em></p>
<p><em><a href="http://www.simonrquinn.com/">Associate Professor Simon Quinn</a>, Oxford University</em></p>
<p><em><a href="https://www.philadelphiafed.org/research-and-data/economists/vickery">Economic Advisor James Vickery</a>, Federal Reserve Bank of Philadelphia</em></p>
<p><em><a href="http://tomwilkening.com/">Professor Tom Wilkening</a>, University of Melbourne</em></p>
<p><em><a href="https://theconversation.com/profiles/justin-wolfers-429743">Professor Justin Wolfers</a>, University of Michigan</em></p>
<p><em><a href="https://lens.monash.edu/@yves-zenou">Professor Yves Zenou</a>, Monash University</em></p>
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<p>Full list of signatories available on the economists open letter <a href="http://covid19openletter.net/">website</a>.</p><img src="https://counter.theconversation.com/content/136686/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Leading Australian economists in four countries have signed an open letter calling on the national cabinet to think carefully before easing restrictions ‘for the sake of 'the economy’.Steven Hamilton, Visiting Fellow, Tax and Transfer Policy Institute, Crawford School of Public Policy, Australian National UniversityBruce Preston, Professor of Economics, The University of MelbourneChris Edmond, Professor of Economics, The University of MelbourneRichard Holden, Professor of Economics, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1120602019-02-23T00:47:45Z2019-02-23T00:47:45ZEconomics needs to get real if we want more young Australians to study it<figure><img src="https://images.theconversation.com/files/260068/original/file-20190221-148523-ljife0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">If we want economics to appeal to young Australians, it needs to move away from theory and towards tackling some of the trickiest issues faced by the next generation.</span> <span class="attribution"><span class="source">www.shutterstock.com</span></span></figcaption></figure><p>When it comes to studying economics, Australian high school students are voting with their feet. According to data gathered by the Reserve Bank of Australia, year 12 enrolments in economics courses have <a href="https://www.abc.net.au/news/2018-06-13/rba-concerned-about-a-drop-in-economics-students/9865726">plunged 70% nationwide</a> over the last 25 years. Enrolments are so low, many schools are abandoning the subject altogether.</p>
<p>And it’s not just that there are fewer students taking economics. Those that do sign up seem rather … well … alike. There are now about <a href="https://www.rba.gov.au/speeches/2017/sp-so-2017-07-29.html">twice as many boys than girls</a> taking economics (compared to a 50-50 ratio in 1992). And most of those boys now come <a href="https://www.rba.gov.au/speeches/2017/sp-so-2017-07-29.html">from higher-income families</a>.</p>
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<a href="https://theconversation.com/women-are-dropping-out-of-economics-so-men-are-running-our-economy-74698">Women are dropping out of economics, so men are running our economy</a>
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<p><a href="https://www.rba.gov.au/speeches/2018/sp-so-2018-05-26.html">Economics enrolments</a> at universities haven’t done much better. The number of university students choosing economics has stagnated for a quarter-century, even as student numbers surged. They’re shunning economics in favour of other subjects: whether that’s popular science, technology, engineering and maths, and business programs or socially relevant disciplines such as political-economy and environmental studies.</p>
<p>If we really want more young Australians to study economics (and not just boys from high-income families), the profession needs to reinvent itself - and become a lot more relevant to the big issues young people care about.</p>
<h2>The problem with faith in the free market</h2>
<p>The Reserve Bank (RBA) <a href="https://www.theaustralian.com.au/national-affairs/education/focus-on-economics-rba-tells-schools/news-story/556d100126d3e226738e6cbdf2cda7b4">worries</a> about students’ lack of interest in economics, and has started a mini-campaign to encourage more young Australians to heed the call of supply and demand. The RBA is lobbying state governments to <a href="https://www.rba.gov.au/publications/submissions/education/submission-to-nsw-curriculum-review-november-2018/#fn*">update their economics curricula</a>, and it <a href="https://www.rba.gov.au/speeches/2017/sp-so-2017-07-29.html">sends ambassadors out to classrooms</a> to advocate for economics – emphasising, among other points, that economics graduates earn relatively high salaries.</p>
<p>We share the RBA’s concern about the terrible lack of diversity in economics (it’s one of the most male-dominated professions, <a href="https://www.rba.gov.au/speeches/2017/sp-so-2017-07-29.html">even worse than STEM courses</a>). But the RBA’s campaign inadvertently symbolises what’s wrong with the whole profession: emphasising high salaries in an attempt to reverse falling enrolments only confirms that economics is still infatuated with markets and incentives. This misses the whole point about the most urgent and interesting problems in the world today.</p>
<p>There is no question today’s students are a passionate, socially aware generation. <a href="https://www.abc.net.au/triplej/programs/hack/australian-attitudes-to-nature/9801778">They rightly worry</a> about the world they’re poised to inherit: scarred by climate change, inequality, angry populism, and possibly worse. Not to mention many of those students may never hold a <a href="https://www.futurework.org.au/the_dimensions_of_insecure_work">normal permanent job</a> (relegated instead to a never-ending series of “gigs”), and most can’t imagine being able to buy a house.</p>
<p>Given these critical challenges, we can’t blame today’s students for rushing into other disciplines – anything, it seems, but economics. After all, the social and environmental problems they confront are precisely the outcome of the <a href="https://www.aeaweb.org/conference/2016/retrieve.php?pdfid=405">ideological, market-worshipping canon still taught</a> in most economics textbooks.</p>
<p>Markets are efficient. Supply equals demand. Private competition is best. Workers are paid according to their productivity.</p>
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Read more:
<a href="https://theconversation.com/how-governments-have-widened-the-gap-between-generations-in-home-ownership-82579">How governments have widened the gap between generations in home ownership</a>
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<p>Young people who want to improve the world quickly reject these tenets of economic theory. We, Jim and Richard, think students actually accomplish more to fix the actual economy by studying environmental studies, gender studies or social work, rather than immersing themselves in the theoretical games of free-market economics.</p>
<p>The RBA itself shares the blame for this state of affairs. Its narrow approach to economic policy is largely focused on suppressing inflation and letting markets take care of everything else. </p>
<p>For example, the RBA still claims Australia is almost at full employment. But they define that as <a href="https://www.rba.gov.au/publications/bulletin/2017/jun/pdf/bu-0617-2-estimating-the-nairu-and-the-unemployment-gap.pdf">5% unemployment</a>, according to the <a href="https://www.files.ethz.ch/isn/128239/fmsno00.pdf">discredited theory</a> of “non-accelerating inflation unemployment”. This neglects its responsibility, explicitly enshrined in the <a href="https://www.legislation.gov.au/Details/C2015C00201">Reserve Bank Act</a> to create more jobs as its top priority. </p>
<p>It’s a great intellectual irony that neoliberal economics, based on the theory that the market always knows best, is being abandoned by its own “market” (namely, prospective students). They are rejecting its idealised vision of supply and demand in favour of any number of more relevant, interesting disciplines: from business and marketing, to international relations or public health. </p>
<p>And the response of the discipline’s true believers is that its customers (the students) are somehow uninformed and don’t know what’s best for them.</p>
<h2>Economics needs context</h2>
<p>We both studied economics for many years, we love our profession, and we fervently hope more critical-thinking, passionate young people will take up this discipline – mostly to help us save the economy (and the planet) from conventional economics. But for economics to play a more helpful, critical role, it must thoroughly reinvent itself – and fast. </p>
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Read more:
<a href="https://theconversation.com/home-ownership-falling-debts-rising-its-looking-grim-for-the-under-40s-81619">Home ownership falling, debts rising – it's looking grim for the under 40s</a>
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<p>It must abandon its ideological and self-serving faith in the efficacy of private markets. It must embrace the social, historical, and environmental context of work, production, and distribution. And it must commit to truly building a better world, rather than justifying the status quo. </p>
<p>Apologising for inequality, selfishness, and pollution rather than confronting them has been the way of free-market economics since its invention. Most young people, understandably, yearn for something else. Let’s give it to them.</p><img src="https://counter.theconversation.com/content/112060/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jim Stanford is Economist and Director of the Centre for Future Work at the Australia Institute, and is a member of the Australian Services Union.</span></em></p><p class="fine-print"><em><span>Richard Denniss does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>For economics to play a more helpful, critical role, it must abandon blind faith in the free market and embrace the social, historical, and environmental context in which economics actually happens.Jim Stanford, Economist and Director, Centre for Future Work, Australia Institute; Honorary Professor of Political Economy, University of SydneyRichard Denniss, Adjunct Professor, Crawford School of Public Policy, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1019392018-08-22T10:37:33Z2018-08-22T10:37:33ZVenezuela’s ‘desperate’ currency devaluation won’t save its economy from collapse<p><a href="https://theconversation.com/la-devaluacion-desesperada-de-la-moneda-de-venezuela-no-evitara-un-colapso-economico-102019"><em>Leer en español</em></a>.</p>
<p>Venezuela <a href="https://www.bloomberg.com/news/articles/2018-08-19/venezuela-s-95-devaluation-adds-to-turmoil-after-drone-attack">recently announced</a> one of the most dramatic currency reforms in history in a move that essentially devalues the bolivar by about 95 percent.</p>
<p>Its ironically named bolivar fuerte, meaning “strong,” first introduced 10 years ago, will be replaced by a new “sovereign” version at a conversion rate of 100,000 to one sovereign. At the same time the government’s official exchange rate will be bumped from 285,000 bolivars per dollar to 6 million.</p>
<p>In my experience as a <a href="https://scholar.google.com/citations?user=A68mHsQAAAAJ&hl=en">scholar of currencies</a>, I have rarely seen a devaluation this large. In effect, Venezuela has confessed that its money has become virtually worthless and it is time to start over. </p>
<p>But is a new start even possible? </p>
<h2>Hyperinflation on steroids</h2>
<p>The reason for the reform is clear: inflation. </p>
<p>In recent years, price increases in Venezuela have accelerated exponentially and have long since entered the realm of hyperinflation, which is like inflation on steroids. Almost all countries experience some inflation but rarely at a rate higher than low double digits. Hyperinflation is when the rate surpasses 50 percent or more and begins to accelerate uncontrollably to triple digits and beyond. </p>
<p>In today’s Venezuela, domestic prices <a href="https://www.bloomberg.com/news/articles/2018-08-19/venezuela-s-95-devaluation-adds-to-turmoil-after-drone-attack">are rising</a> at an annualized rate of 108,000 percent. And economists at the International Monetary Fund <a href="https://www.bloomberg.com/news/articles/2018-07-23/venezuela-s-inflation-to-reach-1-million-percent-imf-forecasts">estimate</a> that by the end of the year the rate could top 1 million percent – imagine the price of milk tripling every minute. </p>
<p>For families on fixed incomes, the effect of this is devastating. Money that once sufficed to put a full meal on the table suddenly cannot even buy a loaf of bread. Household essentials that were once easily affordable require wheelbarrows of cash.</p>
<p>That’s why I believe these are the desperate acts of a harried government rapidly running out of options.</p>
<h2>Odds of success</h2>
<p>Venezuela is hardly the first country to respond to out-of-control inflation with a currency redenomination. <a href="https://www.nytimes.com/1983/02/20/world/brazil-s-currency-is-devalued-30.html">Many other nations</a> over the years have found themselves in the same bind. </p>
<p>In one decade, from the mid-1980s to the mid-1990s, neighboring Brazil <a href="http://www-personal.umich.edu/%7Ekathrynd/Brazil.w06.pdf">burned</a> its way through no fewer than four currencies, from the cruzeiro to the cruzado to the cruzado novo to the cruzeiro real, each time lopping off three zeros. During the same period, Argentina <a href="https://economics.rabobank.com/publications/2013/august/the-argentine-crisis-20012002-/">did the same</a>. And more recently, in the first decade of the new millennium, Zimbabwe <a href="https://www.forbes.com/sites/stevehanke/2017/07/31/zimbabwe-from-disaster-to-disaster/">repeated the agony</a>, lopping off six and later nine zeros as one new dollar followed another.</p>
<p>Regrettably, redenomination on its own can do little to rein in inflation. Mainly, all it does is make life easier for ordinary citizens for a while.</p>
<p>In Venezuela, a cup of coffee that last week cost as much as two million bolivars will now sell for a mere 20 bolivars. Venezuelans will no longer need a calculator and a backpack or two of cash when they go out to buy groceries. Prices will descend from the stratosphere. </p>
<p>But the benefit will be short-lived if nothing else is done to slow inflation. If prices in the local café or produce market continue to rise, purchasing power will again be eaten away. Prices will return to the stratosphere.</p>
<h2>What devaluation is supposed to do</h2>
<p>The key element of a currency reform is devaluation, which in principle is meant to stimulate domestic economic growth. </p>
<p>In the conventional textbook model, a devaluation simultaneously lowers the foreign price of exports and raises the domestic price of imports, hence expanding demand for domestic exportables and import substitutes. In other words, foreigners buy more of a country’s goods because they’re suddenly cheaper. At the same time, foreign goods become more expensive, encouraging locals to buy more domestic substitutes. The greater production that results, in turn, would then be expected to ease inflationary pressures.</p>
<p>But textbook models, as any student of economics quickly learns, are simple – if not simplistic – affairs that rely on a lot of hidden assumptions that may turn out to be misleading. In the real world, complications are everywhere. </p>
<p>In Venezuela’s case, <a href="https://www.forbes.com/sites/stevehanke/2017/07/31/zimbabwe-from-disaster-to-disaster/">98 percent of export revenues</a> are derived from oil, whose price is set in world markets in dollars, not locally in bolivars. Devaluation of the bolivar will not change the price paid for Venezuelan crude. </p>
<p>This is a problem faced by many developing nations that rely extensively on commodity exports, including Brazil and Zimbabwe. Their lack of control over world market prices is ignored in standard textbook models.</p>
<p>Likewise, in an economy like Venezuela’s, which has become so specialized in terms of what it produces, there’s little domestic capacity to manufacture goods that can substitute easily for imports, regardless of their price. Venezuelans cannot suddenly start producing the vehicles or medical equipment or heavy machinery that in recent decades have been purchased abroad. That is another complication unaccounted for in conventional models.</p>
<p>Worst of all, devaluation may actually exacerbate the very problem it was meant to ease – namely, inflation. The more an economy relies on imports – as Venezuela does – the more the rising prices of imports will add to the cost of living, thus reinforcing the expectation among citizens that inflation will continue to accelerate, driving up wages and prices even more. </p>
<h2>Misery loves company</h2>
<p>Venezuela is not alone in its misery.</p>
<p><a href="https://books.google.com/books?hl=en&lr=&id=AK8JgJHYEfwC&oi=fnd&pg=PR7&dq=hyperinflation+devaluation&ots=ZI_zH2-hh6&sig=kby8lyTTroX-bM1pFiBZ3ka_fKA">Economic</a> <a href="https://www.cambridge.org/core/journals/journal-of-latin-american-studies/article/centralbank-distress-and-hyperinflation-in-argentina-198990/2DE46241D4627A2D6A28B9EBE955FA15">history</a> is <a href="https://www.tandfonline.com/doi/abs/10.1080/05775132.1989.11471303?journalCode=mcha20">littered</a> with <a href="https://www.taylorfrancis.com/books/e/9781134825837/chapters/10.4324%2F9780203030066-13">examples</a> of nations that have found themselves enmeshed in a vicious circle of inflation leading to devaluation leading to further inflation, and so on. </p>
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<img alt="" src="https://images.theconversation.com/files/232936/original/file-20180821-149478-omqi78.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/232936/original/file-20180821-149478-omqi78.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=898&fit=crop&dpr=1 600w, https://images.theconversation.com/files/232936/original/file-20180821-149478-omqi78.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=898&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/232936/original/file-20180821-149478-omqi78.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=898&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/232936/original/file-20180821-149478-omqi78.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1129&fit=crop&dpr=1 754w, https://images.theconversation.com/files/232936/original/file-20180821-149478-omqi78.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1129&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/232936/original/file-20180821-149478-omqi78.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1129&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Brazil also has a long history of hyperinflation and currency devaluation.</span>
<span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/Watchf-AP-I-F-BRA-APHS460685-Brazil-Inflation/0c95fa2e27af497eb81e573ea1fa98a1/110/0">AP Photo/Altamiro Nunes</a></span>
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<p>This happened to many European countries, especially Britain and <a href="https://onlinelibrary.wiley.com/doi/abs/10.1002/jae.610">Italy</a>, following the <a href="https://history.state.gov/milestones/1969-1976/oil-embargo">oil crisis of 1973</a>, when petroleum prices quadrupled. It happened to Brazil along with many other Latin American nations during the region’s “decade of lost growth” in the 1980s. </p>
<p>And it is <a href="https://www.reuters.com/article/us-turkey-currency/trump-vows-no-concessions-turkeys-lira-stays-under-pressure-idUSKCN1L60K7">happening today to Turkey</a>, where the Turkish lira has lost 40 percent of its value since January and inflation is rapidly accelerating. </p>
<p>To alleviate Venezuela’s inflationary spiral – and Turkey’s – it will be necessary to go to the source, which is excessive spending by the government funded by printing more money. In reality, it does not matter how the currency is denominated or how often it is devalued if the central bank keeps the printing press running night and day to satisfy fiscal appetites. </p>
<p>A saner monetary policy will not solve all of Venezuela’s economic and political problems, but it is the place to start. Without a cap on the financing of public debt, the vicious circle of inflation cum devaluation will go on without end.</p><img src="https://counter.theconversation.com/content/101939/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Benjamin J. Cohen does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Venezuela recently devalued its bolivar by 95 percent to tame rabid hyperinflation that has been sending prices on everyday goods through the roof. If history is a guide, it won’t work.Benjamin J. Cohen, Professor of International Political Economy, University of California, Santa BarbaraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/914562018-03-14T10:01:07Z2018-03-14T10:01:07ZEconomists are unfairly maligned – but they are often pretty prejudiced themselves<figure><img src="https://images.theconversation.com/files/210077/original/file-20180313-30958-kld2eu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/accounting-job-126103568">FotoYakov/Shutterstock.com</a></span></figcaption></figure><p>I am an economist, and I have spent many hours of my life trying to fight misleading stereotypes about what I do. People, for example, often assume that when I say “I’m an economist”, I mean “I worship the creed of self-righting markets”.</p>
<p>In response to such assumptions or accusations, some of the world’s leading economists are <a href="https://www.prospectmagazine.co.uk/economics-and-finance/dismal-ignorance-of-the-dismal-science-a-response-to-larry-elliot">attempting</a> to explain <a href="https://twitter.com/hashtag/WhatEconomistsReallyDo?src=hash">#WhatEconomistsReallyDo</a>. This is an important effort. But I think this discussion is also a great opportunity for economists to reflect on their own prejudices, in particular those regarding other social sciences.</p>
<p>Duncan Green, senior strategic adviser at Oxfam, <a href="https://twitter.com/fp2p/status/943927097587879936">recently wrote on Twitter</a> that, while working at the UK’s Department for International Development (DFID), he “got into trouble” at an “economics for non-economists” course for asking when the “non-economics for economists” course would be running.</p>
<p>There is something to this: it’s unhelpful when people criticise economics without understanding what economists actually do, but it is also unhelpful when economists criticise or even entirely disregard research from other disciplines simply because they use different methodologies.</p>
<p>Let’s start with “economics for non-economists”.</p>
<h2>Economists</h2>
<p>The different views on what economists actually do can be nicely <a href="https://www.ft.com/content/2389b3e0-d853-11e6-944b-e7eb37a6aa8e">captured in metaphors</a>. I find the cartography metaphor spot on: economists try to create and use maps to navigate the world of human choices.</p>
<p>If economists are cartographers, then economic models are their maps. Models, just like maps, make assumptions to abstract from unnecessary detail and show you the way.</p>
<p>Different maps are helpful in different situations. That’s what makes this metaphor helpful. If you are hiking in the Alps and you want to find your way, you will want a map that gives you a simplified perspective of the terrain – steep changes in altitude should stand out. A map with <a href="https://wiki.openstreetmap.org/wiki/File:Etna_Contours.jpg">elevation contour lines</a> will be very helpful. </p>
<p>On the other hand, if you are an engineer trying to calibrate the compass in an airplane, then a hiking map is not going to be of much use to you. Instead, you’ll want a map that gives you a simplified perspective of how magnetic fields change – a map that highlights <a href="https://en.wikipedia.org/wiki/Magnetic_declination#Declination_change_over_time_and_location">magnetic variation</a> by showing you <a href="https://en.wiktionary.org/wiki/isogonic_line">isogonic lines</a>.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/210078/original/file-20180313-30969-1y86cp8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/210078/original/file-20180313-30969-1y86cp8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=384&fit=crop&dpr=1 600w, https://images.theconversation.com/files/210078/original/file-20180313-30969-1y86cp8.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=384&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/210078/original/file-20180313-30969-1y86cp8.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=384&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/210078/original/file-20180313-30969-1y86cp8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=483&fit=crop&dpr=1 754w, https://images.theconversation.com/files/210078/original/file-20180313-30969-1y86cp8.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=483&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/210078/original/file-20180313-30969-1y86cp8.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=483&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">There are all sorts of maps.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-illustration/3d-topographic-map-background-concept-topo-727794478?src=L8wDeWoSebCKAyM7rDXPzw-1-0">Andis Rea/Shutterstock.com</a></span>
</figcaption>
</figure>
<p>Deciding whether it is a good idea to rely on a specific map in a concrete situation is difficult. You need to understand the map’s limitations, as well as the limitations and strengths of available alternatives. For your hike in the Alps, a map of magnetic forces won’t be very helpful. There is nothing wrong with mapping isogonic lines; we should just know what they are and when to use them.</p>
<p>This example illustrates a key point. When people criticise economics they are often criticising how a specific map is unhelpful to answer a specific question, rather than criticising the foundational methods of the discipline.</p>
<p>Still, criticising how economists practice the discipline is important. Economic advice often feeds into policy decisions that affect a large number of people. So if economists make mistakes, or if they are unclear or ineffective communicators of the assumptions and limitations of their models, it can have large implications.</p>
<h2>Sociologists</h2>
<p>Now let’s move to “non-economics for economists”. If economists make maps, then what do, say, sociologists do? As it turns out, they also make maps: just different kinds of maps.</p>
<p>Economists often think that they have a monopoly over this “social science cartography”. This is both wrong and counterproductive. The fact that other social scientists don’t (usually) write their theories in mathematical notation, or that they rely on qualitative rather than quantitative research methods, doesn’t mean that they can’t make helpful maps of the world, or that their maps are in some way inferior. I personally like using maths to formalise my ideas. But maths is just a language. Unfortunately, some economists sometimes forget this; they mistake the language for the message.</p>
<p>I think a big part of the bias that many economists have against qualitative research is grounded in ignorance about what rigorous qualitative research actually looks like, and how it might be successfully used in practice.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/210149/original/file-20180313-30994-1ybapvc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/210149/original/file-20180313-30994-1ybapvc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=487&fit=crop&dpr=1 600w, https://images.theconversation.com/files/210149/original/file-20180313-30994-1ybapvc.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=487&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/210149/original/file-20180313-30994-1ybapvc.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=487&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/210149/original/file-20180313-30994-1ybapvc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=612&fit=crop&dpr=1 754w, https://images.theconversation.com/files/210149/original/file-20180313-30994-1ybapvc.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=612&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/210149/original/file-20180313-30994-1ybapvc.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=612&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">A map derived from talking to people might look quite different – but it’s no less valid.</span>
<span class="attribution"><span class="source">Bardocz Peter/Shutterstock.com</span></span>
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</figure>
<p>Suppose that we are tasked with hunting for archaeological treasures buried in London. A qualitative researcher may try to make a map by relying on non-numerical data – for example, by going around the city, and interviewing people in a systematic and rigorous way.</p>
<p>If people keep on saying that there is an old folk song that tells the story of a hidden treasure in the South Bank, then that’s a sort of map. How helpful is such map? Well, who knows. It depends on the specific situation and the alternatives available. It also depends on what you ask, how you ask, who you ask. But the point is that it would be silly to dismiss the information just because it is qualitative.</p>
<h2>Working together</h2>
<p>In the hypothetical treasure hunt situation above, a simple map of the streets of London might be useless on its own. But in combination with the extra information from the folk songs, it might actually be useful – it might help us get to the South Bank treasure trove. Indeed, alternative research methods can be (and often are) complements rather than substitutes. There are many concrete real-world situations where new insights emerge from combining quantitative and qualitative research methods.</p>
<p>For example, <a href="https://www.economist.com/blogs/freeexchange/2013/12/randomised-control-trials">randomised policy evaluations</a> can be complemented with qualitative methods to help uncover the underlying mechanisms that produce quantifiable outcomes. Here’s a concrete instance: in a multi-country impact evaluation of interventions aimed at improving women’s empowerment, qualitative studies are being <a href="https://www.poverty-action.org/blog/encouraging-mixed-methods-impact-evaluations-women%E2%80%99s-empowerment-economist%E2%80%99s-perspective">used</a> to unpack the role that social norms have in perpetuating barriers to women’s empowerment.</p>
<p>There are many other fascinating examples that illustrate the power of combining methods in the social sciences. Researchers have been able to cast light on the <a href="https://pdfs.semanticscholar.org/74b3/77a99ceeae27d29dc50f9cba263e1bf96b52.pdf">economics of street prostitution</a> in Chicago by combining official arrest records with data on “tricks” (transactions) collected in cooperation with sex workers; and we have been able to learn about the workings of deliberative democracy in South India from <a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2084387">research</a> that combines data from linguistic divisions, household surveys, and transcripts from discussions in village parliaments.</p>
<p>There is plenty of evidence showing the potential of multidisciplinary research. Social scientists, economists included, would all benefit from explaining what they do better, while trying harder to identify opportunities for collaboration.</p><img src="https://counter.theconversation.com/content/91456/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Esteban Ortiz-Ospina receives funding from the project Our World in Data – all funders of this project are listed here: <a href="https://ourworldindata.org/about">https://ourworldindata.org/about</a></span></em></p>Economists try to create and use maps to navigate the world of human choices. But in some ways, these maps are limited.Esteban Ortiz-Ospina, Research Associate, University of OxfordLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/859302017-10-25T13:23:49Z2017-10-25T13:23:49ZUnraveling what’s holding back women economists in academia<figure><img src="https://images.theconversation.com/files/190832/original/file-20171018-32345-n9pxlg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Data shows gender disparities in networking.</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>When it comes to academic success female scientists are – on average – usually behind their male counterparts. They receive <a href="http://www.sciencemag.org/careers/2014/08/equally-productive-women-are-tenured-less">academic tenure</a> less often and win <a href="http://fortune.com/2015/10/12/women-nobel-prizes">fewer awards</a>. </p>
<p>This <a href="https://www.aeaweb.org/articles?id=10.1257/aer.20141734">gender gap</a> exists in the academic discipline of economics, too. In 2016, <a href="https://www.aeaweb.org/about-aea/committees/cswep/survey">less than 15%</a> of all economics professors were women. </p>
<p><a href="http://blog.central-places.net/">Data</a> I’ve collected and worked with during my PhD shows that women are also less central in the social network of informal collaboration. This refers to the process among academics of providing feedback and helping other authors to improve their work through comments and engagements. Such networks enable the global flow of knowledge, which is <a href="https://theconversation.com/how-plugging-into-well-connected-colleagues-can-help-research-fly-71223">crucial</a> for research. </p>
<p>My data suggests that men’s attitudes might be part of what’s keeping women in a subfield of economics from occupying a central position in the social network of informal collaboration.</p>
<h2>Fewer women</h2>
<p>The data focuses on financial economics, the field that deals with financial crises, inflation, banking, and corporate finance. </p>
<p>The dataset contains 14,529 researchers whose names appear in published research articles in major financial economics journals between 1997 and 2011. They are either authors, acknowledged commenters, or both. An acknowledged commenter is a person who advised the authors and helped guide or inform their thinking; their assistance is noted in the acknowledgements section of any journal article or book.</p>
<p>Across all the years, only 18% of the authors are female. This disparity between male and female authors alone exemplifies the gender gap. It’s also striking that female commenters only account for 11% of the total. This means that authors do not regularly turn to women economists for advice. </p>
<p>This low share of women commenters and authors is problematic for two reasons. The first is a lack of diversity. US Federal Reserve Governor Lael Brainard recently reiterated why <a href="https://www.federalreserve.gov/newsevents/speech/brainard20170728a.htm">diversity is so valuable</a>: it helps bringing out better ideas. </p>
<p>The second relates to the role that informal collaboration plays in the social network of financial economics as an academic discipline. People exchange information on conferences, during visits at other institutions or in phone calls. This information includes learning about unpublished results, emerging trends, new ideas, promising datasets and more. Nowadays a researcher has to be active even before their research is published. That’s why being part of the conversation matters.</p>
<p>Those who <a href="http://www.central-places.net/rankings?year=2011&rtype=com&ranking=betweenness">aren’t central</a> to such networks – in the case of my research and data, women – are simply less likely to receive relevant information than those who wield <a href="http://www.central-places.net/rankings?year=2011&rtype=com&ranking=eigenvector">great influence</a>: men. They are left out of the conversation. </p>
<p>A standard hypothesis is that women network differently – and less effectively – than men. There is anecdotal evidence that women <a href="http://www.telegraph.co.uk/women/work/why-are-women-losing-out-when-it-comes-to-networking/">shy away from networking</a> for various reasons. One is that women are often <a href="https://www.theatlantic.com/magazine/archive/2014/05/the-confidence-gap/359815/">less self-assured</a>, thinking their work will speak for their competence and that no advertising is necessary.</p>
<p>My data allowed me to test – and disprove – this hypothesis. Acknowledgements tell us a great deal about networking behaviour, because authors also use this part of an article to list conferences and seminars at universities where they presented their research. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/191591/original/file-20171024-30605-1ryld0h.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/191591/original/file-20171024-30605-1ryld0h.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/191591/original/file-20171024-30605-1ryld0h.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=472&fit=crop&dpr=1 600w, https://images.theconversation.com/files/191591/original/file-20171024-30605-1ryld0h.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=472&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/191591/original/file-20171024-30605-1ryld0h.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=472&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/191591/original/file-20171024-30605-1ryld0h.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=593&fit=crop&dpr=1 754w, https://images.theconversation.com/files/191591/original/file-20171024-30605-1ryld0h.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=593&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/191591/original/file-20171024-30605-1ryld0h.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=593&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><span class="source">Michael E Rose</span></span>
</figcaption>
</figure>
<p>As this figure shows, my data reveals that articles written by only women display more informal collaboration per author than those written exclusively by men. A group of female authors, on average, present their article more often and speak to more people than a group of male authors or a mixed-gender author group.</p>
<p>So the issue is not that women network less. Instead, they network more. Why, then, are they acknowledged less frequently?</p>
<h2>Women aren’t asked for advice</h2>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/191381/original/file-20171023-1748-1c2gq5u.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/191381/original/file-20171023-1748-1c2gq5u.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/191381/original/file-20171023-1748-1c2gq5u.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=463&fit=crop&dpr=1 600w, https://images.theconversation.com/files/191381/original/file-20171023-1748-1c2gq5u.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=463&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/191381/original/file-20171023-1748-1c2gq5u.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=463&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/191381/original/file-20171023-1748-1c2gq5u.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=582&fit=crop&dpr=1 754w, https://images.theconversation.com/files/191381/original/file-20171023-1748-1c2gq5u.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=582&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/191381/original/file-20171023-1748-1c2gq5u.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=582&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption"></span>
<span class="attribution"><span class="source">Michael E Rose</span></span>
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<p>My data shows that male authors, on average, are either not asking women for advice or are not acknowledging the advice they get from women. This might be one reason why women are participating less in the tangled networks of world-leading research.</p>
<p>We do not know at this stage why men acknowledge women less often. One plausible explanation is men’s broader attitude towards women in society and at work. Studies on women on the workplace suggest that <a href="https://hbr.org/2015/12/even-women-think-men-are-more-creative">men perceive women</a> as less creative or and that <a href="https://hbr.org/2016/07/to-seem-confident-women-have-to-be-seen-as-warm">women have to work far harder</a> than men to be seen as equally competent. This might be case here as well.</p>
<p>A recent <a href="http://blogs.nature.com/naturejobs/2017/03/20/women-arent-failing-at-science-science-is-failing-women/">Nature post</a> put it very well: “Women aren’t failing at science, science is failing at women”. In our case, it’s male scientists – financial economists – who are “failing at women”.</p>
<p><em>This article is based on <a href="http://blog.central-places.net/2017/08/15/202/">a piece</a> that originally appeared on the author’s professional blog.</em></p><img src="https://counter.theconversation.com/content/85930/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michael E. Rose does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The low share of women revealed in this data is problematic for two reasons: a lack of diversity, and what it shows about women’s participation in the social network of informal collaboration.Michael E. Rose, PhD Candidate in Economics, University of Cape TownLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/820662017-08-24T19:16:08Z2017-08-24T19:16:08ZFinkel’s Clean Energy Target plan ‘better than nothing’: economists poll<p>Few topics have attracted as much political attention in Australia over the past decade as emissions reduction policy.</p>
<p>Amid mounting concern over electricity price increases across Australia and coinciding with <a href="https://theconversation.com/what-caused-south-australias-state-wide-blackout-66268">blackouts in South Australia</a> and near-misses in New South Wales, the Australian government asked Chief Scientist Alan Finkel to provide a <a href="https://theconversation.com/the-finkel-review-finally-a-sensible-and-solid-footing-for-the-electricity-sector-79118">blueprint for reform of the electricity industry</a>, in a context in which emissions reduction policy was an underlying drumbeat.</p>
<p>In a new poll of the <a href="https://business.monash.edu/economics-forum">ESA Monash Forum</a> of leading economists, a majority said that <a href="http://www.environment.gov.au/energy/publications/electricity-market-final-report">Finkel’s suggested Clean Energy Target</a> was not necessarily a better option than previously suggested policies such as an emissions trading scheme. But many added that doing nothing would be worse still.</p>
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Read more:
<a href="https://theconversation.com/the-finkel-review-finally-a-sensible-and-solid-footing-for-the-electricity-sector-79118">The Finkel Review: finally, a sensible and solid footing for the electricity sector</a>
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<p>The Finkel Review’s <a href="http://coagenergycouncil.gov.au/publications/independent-review-terms-reference">terms of reference</a> explicitly precluded it from advising on economy-wide emissions reduction policy, and implicitly required it also to reject emission reduction policies such as an <a href="https://theconversation.com/au/topics/carbon-tax-320">emissions tax</a> or <a href="https://theconversation.com/au/topics/emissions-trading-scheme-6432">cap and trade scheme</a>.</p>
<p>One of the Finkel Review’s major recommendations was a <a href="http://www.environment.gov.au/energy/publications/electricity-market-final-report">Clean Energy Target (CET)</a>. This is effectively an extension of the existing <a href="https://theconversation.com/au/topics/renewable-energy-target-8912">Renewable Energy Target</a> to cover power generation which has a greenhouse gas emissions intensity below a defined hurdle. Such generation can sell certificates which electricity retailers (and directly connected large customers) will be required to buy.</p>
<p>The <a href="https://business.monash.edu/economics-forum">ESA Monash Forum</a> panel was asked to consider whether this approach was “preferable” to an emission tax or cap and trade scheme. As usual, responses could range from strong disagreement to strong agreement with an option to neither agree nor disagree. Twenty-five members of the 53-member panel voted, and most added commentary to their response – you can see a summary of their verdicts below, and their detailed comments at the end of this article.</p>
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<p>A <a href="https://business.monash.edu/economics-forum/polls/the-finkel-review">headline result from the survey</a> is that a large majority of the panel does not think the CET is preferable to a tax or cap and trade scheme. None strongly agreed that the CET was preferable, whereas 16 either disagreed or strongly disagreed, and four agreed.</p>
<p>Of the four who agreed, three provided commentary to their response. Stephen King preferred the CET on the grounds of its ease of implementation but otherwise would have preferred a tax or cap and trade scheme. Michael Knox agreed on the basis that the CET was preferable to the existing Renewable Energy Target. Harry Bloch unconditionally endorsed the CET. </p>
<p>Of the five who neither agreed nor disagreed, three commented and two of them (Paul Frijters and John Quiggin) said there was not much to distinguish a CET from a tax or cap and trade scheme. Warwick McKibbin, who disagreed with the proposition, nonetheless also suggested that the CET, tax and cap and trade scheme were comparably effective if applied only to the electricity sector.</p>
<p>However, closer examination of the comments suggests much greater sympathy with Finkel’s CET recommendation than the bare numbers indicate. Even for those who strongly disagreed that the CET was preferable, none suggested that proceeding with a CET would be worse than doing nothing. But eight (Stephen King, Harry Bloch, Alison Booth, Saul Eslake, Julie Toth, Flavio Menezes, Margaret Nowak and John Quiggin) commented that proceeding with the CET would be better than doing nothing. Interestingly none of these eight explained why they thought doing something was better than doing nothing. Does it reflect a desire for greater investment certainty or a conviction that reducing emissions from electricity production in Australia is important?</p>
<p>Seven respondents (Stephen King, Alison Booth, Saul Eslake, Julie Toth, Gigi Foster, Lin Crase and John Quiggin) alluded to the political constraints affecting the choice, of which several drew attention to Finkel’s own observations. None of these seven suggested that the political constraint invalidated proceeding with the CET.</p>
<p>Of the 19 economists who provided comments on their response, 16 thought a tax or cap and trade scheme better than a CET. Numbers were equally drawn (three each) as to whether a tax or cap and trade was better than the other, with the remaining 10 invariant between a tax or cap and trade.</p>
<p>My overall impression is that in judging Dr Finkel’s CET recommendation, most of the panel might agree with the proposition that the “the perfect is the enemy of the roughly acceptable”. I surmise that in a decade past, many members of the panel would have held out for greater perfection, but now they think prevarication is more cost than benefit, and it is better to move on and make the best of the cards that have been dealt.</p>
<p>In emissions reduction policy the mainstream advice from Australia’s economists has not been persuasive. But this is hardly unique to Australia, as the pervasiveness of regulatory approaches in other countries shows. Perhaps an unavoidably compromised policy that is nonetheless well executed may be better than a brilliant policy that is poorly executed. Even if they could not have been more persuasive in design, Australia’s economists should still have much that is useful to contribute in execution. Hopefully more can be drawn into it.</p>
<p><em>Read the panel’s full responses below:</em></p>
<p><iframe id="tc-infographic-115" class="tc-infographic" height="1400" src="https://cdn.theconversation.com/infographics/115/8c22ecaf49b3a727fb96e8c3b50da37fd0c28f49/site/index.html" width="100%" style="border: none" frameborder="0"></iframe></p>
<hr>
<p><em>This is an edited version of the <a href="https://business.monash.edu/economics-forum/polls/the-finkel-review/overview-of-poll-results-by-dr-bruce-mountain">summary of the report’s findings</a> originally published by the <a href="https://business.monash.edu/economics-forum">ESA Monash Forum</a>.</em></p><img src="https://counter.theconversation.com/content/82066/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Bruce Mountain does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>A panel of leading economists has given its majority verdict on Alan Finkel’s proposed Clean Energy Target: it may not be the best possible emissions policy, but we should get on with it anyway.Bruce Mountain, Director, Victoria Energy Policy Centre, Victoria UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/749252017-04-02T19:39:45Z2017-04-02T19:39:45ZWhat economics has to say about housing bubbles<figure><img src="https://images.theconversation.com/files/163382/original/image-20170330-4583-16sv89e.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Rapid rise of Australian house prices have created disagreement between economists on whether a housing bubble currently exists. </span> <span class="attribution"><span class="source">Brian Birdwell/flickr</span>, <a class="license" href="http://creativecommons.org/licenses/by-nc-nd/4.0/">CC BY-NC-ND</a></span></figcaption></figure><p>The b-word is doing the rounds, barely a decade after the United States house price bubble burst spectacularly, setting in motion a global financial crisis. As Australian real estate prices continue to break records, many wonder whether this is sustainable. </p>
<p>Economists disagree on how to define a bubble, or even whether bubbles exist. Intuitively, a bubble (and this applies to any asset, not just real estate) exists when the price of an asset is over-inflated relative to some benchmark. And here’s the rub: no one can agree on what that benchmark should be.</p>
<p>The benchmark could be an estimate of the asset’s value based on a collection of variables that plausibly affect its supply, demand and price – so-called fundamentals. For houses, these fundamentals include population growth, tax policy, household size, household income and many others. </p>
<p>But economists cannot agree on what fundamentals determine an asset price, or how important each fundamental is. As well, the value of these fundamentals can only be estimated, not observed. It’s subjective to the point that someone will always be able to concoct a story based on fundamentals to rationalise why house prices are at the level they are.</p>
<p>Some economists propose alternative benchmarks to measure a bubble, such as historical long-run averages, or an estimate of the underlying value of a trend. If asset prices are greater than these averages or the trend, then we have a bubble. However, this definition is too simplistic because the economy is dynamic, ever evolving, and both long-run averages and trends do change.</p>
<h2>Price hikes and bubbles</h2>
<p>It’s only when asset prices reach outrageous heights that a majority of people, economists included, agree that the asset is overpriced and due for a major correction (a bubble burst). Even then some economists will deny the existence of a bubble. </p>
<p>One of the earliest examples of an asset price bubble was the frenzy in the market for Dutch tulip bulbs in the 17th century — the so-called “Tulipmania”. Although the data are patchy and many historians have not exercised great care in retelling the story, there’s little else to explain how prices for Witte Croonen bulbs rose 26-fold in January 1637 and fell to a 20th of their peak value in the first week of February.</p>
<p>Yet, <a href="https://www.uv.mx/personal/clelanda/files/2013/02/Garber-2000-Famous-first-bubbles.pdf">well-respected scholar Peter Garber argued that</a>:</p>
<blockquote>
<p>The wonderful tales from the tulipmania are catnip irresistible to those with a taste for crying bubble, even when the stories are so obviously untrue. So perfect are they for didactic use that financial moralisers will always find a ready market for them in a world filled with investors ever fearful of financial Armageddon.</p>
</blockquote>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/163385/original/image-20170331-4572-keijqg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/163385/original/image-20170331-4572-keijqg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=391&fit=crop&dpr=1 600w, https://images.theconversation.com/files/163385/original/image-20170331-4572-keijqg.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=391&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/163385/original/image-20170331-4572-keijqg.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=391&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/163385/original/image-20170331-4572-keijqg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=491&fit=crop&dpr=1 754w, https://images.theconversation.com/files/163385/original/image-20170331-4572-keijqg.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=491&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/163385/original/image-20170331-4572-keijqg.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=491&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Soldiers destroy tulips to reduce supply and stabilise prices following the sudden collapse of tulip prices in seventeenth century Holland. The Tulip Folly (1882) by Jean-Léon Gérôme.</span>
<span class="attribution"><span class="source">Jean-Léon Gérôme/Wikimedia Commons</span>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span>
</figcaption>
</figure>
<p>Assuming bubbles are a significant gap between the observed asset price and some appropriate benchmark value, the mere existence of this gap raises the question of how it came about. The answers mostly rely on psychology, which is why many economists (looking to represent the world in a mathematical model) struggle with the concept.</p>
<h2>Bubble frenzy</h2>
<p>Bubbles are ultimately a confidence game, in which the vendor sells the asset to a buyer at a profit, with the latter hoping to do the same in the future. This game relies on a powerful narrative that captures people’s imagination and persuades them their turn will be different. </p>
<p>As George Soros, the famous US-Hungarian multibillionaire <a href="https://en.wikiquote.org/wiki/George_Soros">hedge-fund manager once remarked</a>:</p>
<blockquote>
<p>[…] Bubbles don’t grow out of thin air. They have a solid basis in reality, but reality as distorted by a misconception.</p>
</blockquote>
<p>This misconception is the consequence of human behaviour and traits that depart from the fully rational paradigm so often assumed in formal economics. Instead, as behavioural economists argue, people exhibit a number of biases.</p>
<p>These include, for example, the desire to find information that agrees with their existing beliefs (called confirmation bias), and the tendency to form decisions based on the most readily available information (called availability bias). People experience and seek to resolve their discomfort when they have two or more contradictory beliefs, ideas or values. They also employ simple abstractions in thinking about complex problems and events (framing).</p>
<p>People are poor intuitive statisticians and care more about avoiding losses than about experiencing gains (called loss aversion). The list of flaws in human behaviour goes on. Moreover, humans, social animals that we are, compete with and emulate our peers, herd like sheep and act on rumours. </p>
<p>Occasionally, all these traits and biases reinforce each other and send the prices of houses, or shares, or whatever, into the stratosphere.</p>
<h2>Who’s afraid of a bubble?</h2>
<p>The bubble itself is rarely a major cause for concern, although young Australian households looking to buy their first home will disagree. The problem, of course, is that every bubble eventually pops and this correction is typically violent and painful, for two reasons. </p>
<p>First, asset prices often fall faster than they rise, so the downward correction can destroy value in a very short time. And second, most bubbles are fuelled by debt, because the only way a bubble can expand in the later stages is if the demand for the asset is bolstered by debt.</p>
<p>This combination – high debt and falling asset prices – generates a vicious cycle in which distressed debtors scramble to repair their balance sheets and sell their asset. This in turn pushes the price of that asset even lower, causing further distress to similar owners of the asset, and so on.</p>
<p>The pain associated with a bursting bubble varies considerably. Sometimes economies rebound rather quickly from a burst bubble, as was the case after the breath-taking collapse of the <a href="http://www.investopedia.com/terms/d/dotcom-bubble.asp">dotcom bubble</a>. </p>
<p>However, housing bubbles are in a league of their own. Historically, they have <a href="http://press.princeton.edu/titles/8973.html">always led to severe recessions</a>, and there is no reason to believe this should change. The next time is not different.</p>
<p>The answers on how to deal with a bubble range from “nothing” to “whatever it takes”. The problem is that no-one (policymakers included) can reliably identify a bubble. </p>
<p>If there is such a thing as a bubble, we will only know for sure when the bubble is already popping. Acting early to prevent a bubble expanding further is risky and unpopular. It’s a brave central banker who raises interest rates in anticipation of an increase in asset prices when the rest of the economy is humming along just fine, or even showing signs of weakness.</p>
<p>So, is Australia in the midst of a housing bubble? I will go out on a limb and answer in the affirmative. </p>
<p>There are plenty of arguments why current house prices are exactly where they should be, based on the fundamentals. But in my opinion these explanations do not pass the smell test: double-digit increases in house prices, combined with unprecedentedly high household debt (more <a href="http://stats.bis.org/statx/toc/CRE.html">than 120% of GDP</a>, the third highest in the world) and household debt-servicing ratios (also the <a href="http://www.bis.org/statistics/dsr.htm">third highest in the world</a>), make for a precarious situation. </p>
<p>All it takes is a modest change in investor sentiment, a few interest rate hikes, or a noticeable increase in unemployment, and the whole scheme unravels. I hope I’m wrong, but history is on my side.</p><img src="https://counter.theconversation.com/content/74925/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Timo Henckel received funding from the Centre for International Finance and Regulation. He is chair of CAMA's RBA Shadow Board at the Australian National University. </span></em></p>Economists struggle to agree on when and where housing bubbles occur, but bubbles all have similar characterisitics.Timo Henckel, Lecturer, Research School of Economics, and Research Associate, Centre for Applied Macroeconomic Analysis, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/755392017-03-31T06:17:52Z2017-03-31T06:17:52ZThe APRA bandaid for the housing market is wearing off<p>The Australian Prudential Regulatory Authority (APRA) and the Reserve Bank (RBA) are locked into a strange game of tweaking with economic levers to try and reduce the risk of a rapidly growing property market. But past cycles of rate rises and rules to try and curb lending to investors show the effectiveness of these measures is running out.</p>
<p>It also underscores the problems arising from a government unwilling to tackle the problem at source – the perverse incentives in the tax system. </p>
<p>Looking back to December 2014, the RBA voiced its <a href="http://www.rba.gov.au/speeches/2014/sp-gov-181114.html">mounting concerns about the rapid growth</a> in lending to property investors and the steep increases in property prices it was fuelling. But rather than address these concerns by raising interest rates, as the RBA had done in somewhat similar circumstances in the early 2000s, it was instead left to the banking system regulator APRA to tackle this by <a href="http://www.apra.gov.au/adi/Publications/Documents/141209-Letter-to-ADIs-reinforcing-sound-residential-mortgage-lending-practices.pdf">writing a letter to banks and other mortgage lenders</a> about the need for more cautious mortgage lending practices.</p>
<p>This letter laid down new rules capping the annual growth in lending to investors at a benchmark of 10%. APRA also set stricter criteria for determining whether borrowers could repay their loans if interest rates were to change. </p>
<p>This warning from the regulator had its desired effect. The share of new housing loans made to investors fell from over 40% during the 2014-15 financial year to less than 30% by the December quarter of 2015.</p>
<p>And this in turn saw the annual growth rate of loans to property investors slow from a peak of 10.8% in the June quarter of 2015 to less than 8% by the end of 2015. It fell again to less than 5% by the September quarter of last year. </p>
<p>The banks also fell into line with the new rules, cutting back on other more risky types of lending, such as interest-only loans, and loans with initial loan-to-valuation ratios in excess of 90%.</p>
<p>The RBA was <a href="http://www.rba.gov.au/monetary-policy/rba-board-minutes/2015/2015-12-01.html">especially pleased</a> with these developments, thinking that the risk was easing. So when it met again in May last year, the <a href="http://www.rba.gov.au/monetary-policy/rba-board-minutes/2016/2016-05-03.html">RBA Board was persuaded</a> to cut the cash rate to a new record low of 1.75%,in response to a much-lower-than-expected inflation result for the March quarter. </p>
<p>The RBA <a href="http://www.rba.gov.au/monetary-policy/rba-board-minutes/2016/2016-08-02.html">still seemed content</a> at its August 2016 meeting, seeing the easing conditions in the housing market as being consistent with APRA tightening the lending standard screws. It decided on another cut in the cash rate, to 1.5%.</p>
<p>But now investors have come back into the property market with a vengeance. These two reductions in interest rates have in effect overwhelmed the tightening in lending standards enforced by APRA during the first half of 2015.</p>
<p>This resurgence in lending to property investors has pushed up property prices once again, especially in Sydney and Melbourne. Dwelling values rose by 18.4% in Sydney and 13.1% Melbourne <a href="https://www.corelogic.com.au/news/annual-capital-city-growth-trend-reaches-new-high">respectively, over the year to February</a>.</p>
<p>The share of new loans going to investors has picked up from less than 30% in the December quarter 2015, to over 35% in the December quarter 2016, according to APRA statistics. This is from less than 44% of new housing finance commitments (excluding refinancings) in November 2015 to more than 50% in January 2017 according to ABS housing finance statistics. </p>
<p>The annual growth rate of loans outstanding to housing investors, as published by the RBA, has accelerated from 4.6% last August to 6.7% in February this year: over the last four months, lending to property investors has risen at an annualised rate of 8.0%. </p>
<p>Now the <a href="http://www.rba.gov.au/monetary-policy/rba-board-minutes/2017/2017-03-07.html">RBA is back to being concerned</a> about a build up of risks associated with the housing market. </p>
<p>The RBA’s Assistant Governor (Financial System), <a href="http://www.rba.gov.au/speeches/2017/sp-ag-2017-03-14.html">Michele Bullock, acknowledges</a> that although APRA’s 2015 actions “did address some of the risks” that had been mounting during 2014, “the initial effects on credit…may fade over time”. She added that APRA and the RBA “are prepared to do more if needed”. But since the RBA clearly has no appetite to reverse last year’s rate cuts any time soon, the only feasible option in the short term option is for APRA to do something about the Sydney and Melbourne markets. </p>
<p>So APRA has today take another <a href="http://www.apra.gov.au/MediaReleases/Pages/17_11.aspx">another bite at the cherry</a>, requiring banks to restrict new interest-only lending to 30% of all new loans (a lower proportion than at any time since early 2009) and to ensure that growth in lending to investors is “comfortably below” the 10% cap.</p>
<p>What all of this highlights is the limited effectiveness of <a href="http://www.economist.com/blogs/economist-explains/2014/08/economist-explains-1">so-called “macro-prudential” measures</a> in countering the very strong incentives to invest in residential property. These incentives are created by the combination of record low interest rates and the unusually generous treatment which the Australian taxation system gives to the costs of and returns from debt-funded property investment. </p>
<p>While <a href="http://www.afr.com/personal-finance/fixed-income/interest-rates-are-too-low-20170216-gue97i">some commentators have urged the Reserve Bank</a> to lift interest rates in order to dampen the latest surge in borrowing to invest in residential property, this seems unlikely. The RBA continues to expect inflation to remain below its 2-3% target range until <a href="http://www.rba.gov.au/publications/smp/2017/feb/pdf/06-economic-outlook.pdf">at least the middle of next year</a>, and unemployment to remain closer to 6% than to 5%.</p>
<p>It would be far better if the federal government were to tackle the problem at source. He could do this either by limiting the scope for negative gearing or reducing the capital gains tax discount, as Malcolm Turnbull once advocated (<a href="http://www.knightmanagement.com.au/pdf/Turnbull-Tax-Reform-Paper-26-August-2005.pdf">in a 2005 paper co-authored</a> with the ANU’s Jeromey Temple). Even the Property Council of Australia has conceded should be lowered to 40%, and denied altogether on investments held for less than two years. </p>
<p>However, given the government’s unwillingness to consider such measures, it seems more likely that APRA may have to become even more prescriptive with its lending criteria. And, as we have seen, in the current interest rate environment that is merely a bandaid solution – and bandaids eventually wear off.</p><img src="https://counter.theconversation.com/content/75539/count.gif" alt="The Conversation" width="1" height="1" />
The government’s unwillingness to consider changing the tax system to fix housing affordability, makes it more likely that APRA may have to become even more prescriptive with its lending criteria.Saul Eslake, Vice-Chancellor’s Fellow, University of TasmaniaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/710562017-01-24T14:04:44Z2017-01-24T14:04:44ZHow to be an economist in 2017<figure><img src="https://images.theconversation.com/files/153621/original/image-20170120-5221-10c3h27.jpg?ixlib=rb-1.1.0&rect=128%2C221%2C2425%2C1412&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/fairtomiddling/4388010872/in/photolist-7FKGKS-4dTchT-4dXbJG-4dTcex-ngcnDG-wEXhf-5aQQ1b-bjA1qz-5eXXH-bjA1jF-4dXbFL-7JiyY-bjA1h2-4KD6HV-awz6oL-dzHdMu-bjA1bX-7DmLiG-9ejWzz-FpToUL-5aUurf-8Y2j5w-bjA1NT-6dv6AX-r7UTFe-5EE5Vq-4KHoMb-bjA1Kk-bjA1Ac-76XGrf-dBJ8aG-6nHWMJ-gfpgyE-gaRYfQ-bjzWWD-biA8jg-bjA1EH-bjzX1H-aD3rwb-f8Yoae-bmuksW-f4YjAD-bjsCSZ-ZVT5-bmua3G-5MyNaK-5p52Pu-5oZJw4-5oZHRn-jaraB">Sean McGee Hicks/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc/4.0/">CC BY-NC</a></span></figcaption></figure><p>It has been a rough 12 months for economists. We have been <a href="https://theconversation.com/why-is-the-academic-consensus-on-the-cost-of-brexit-being-ignored-59540">ignored by voters</a>, <a href="http://www.huffingtonpost.co.uk/entry/michael-gove-experts-economists-andrew-marr-obr-ifs-nigel-farage_uk_583abe45e4b0207d19184080">ridiculed by politicians</a> and been told that <a href="http://www.bbc.co.uk/news/uk-politics-38525924">our discipline is in crisis</a>. </p>
<p>At its heart, the so-called “crisis” in economics is simply a result of the flaws in our species. Simply put, the variables used by economists are inherently problematic as they are attempts to model human decision making. What this should tell us is that the value in economics <a href="https://theconversation.com/economics-is-fundamentally-flawed-far-worse-than-the-bank-of-england-realises-71051">is not in some magical ability</a> to divine the future.</p>
<p>The trouble is, forecasting models are very attractive. They help investors assess risk, help central banks decide policy and allow politicians to justify ideological flights of fancy. And it’s in this last group that the caveats, warnings and limitations of these models are so often ignored. </p>
<h2>Being human</h2>
<p>Let’s look at those inherent problems in human decision making a little more closely. Let us say that an economy has grown by 3% every year for the past 20 years. A forecasting model, based on historical growth will rightly forecast future growth with a high probability of about 3%. Does this mean this is guaranteed? Of course not. </p>
<p>The model does not take into account that GDP is a product of human decision making. Just because we have constantly performed one action over and over again, are we destined to in perpetuity? <a href="http://www.investopedia.com/articles/investing/051415/how-calculate-gdp-country.asp">GDP is an observation</a> of our confidence, our tastes, our decisions to spend or save and so much more. These factors are in turn affected by countless others, the isolation of which is impossible due to their constantly changing nature.</p>
<p>I have something at stake in the debate. Right now, I am in the process of devising a model of the UK economy which incorporates relevant psychological drivers of decision making. In my model, I use proxies for people’s confidence and try to build in measures for this confidence to disappear very quickly – for instance how a major news story about people <a href="https://www.theguardian.com/money/negative-equity">falling into negative equity</a> might dent house buying confidence.</p>
<p>I also try to build in herd-like behaviour. And there are a host of other psychological effects to consider too. Did you know that people normally browse a holiday on a mobile phone or tablet but prefer to book it on a home computer? This is the same for most large purchases and the cumulative effects on the economy can be considerable. </p>
<p>It’s those pesky humans again, making everything complicated. You are less likely to impulse buy online if you have to enter your card details. Again this has a noticeable effect on the economy as new financial technology – <a href="https://www.theguardian.com/money/contactless-payments">such as contactless payments</a> – makes unnecessary purchases more likely. </p>
<h2>Doctoring the models</h2>
<p>Now, this model performs very well in tests designed to assess the robustness of forecasting. It identifies a general slowdown in confidence throughout 2017 culminating in a large downturn in general economic indicators at the end of the year. It seems plausible. However, I show this model to my students as an example of overconfidence in forecasting.</p>
<p>You see, it might produce statistically robust forecasts, but it cannot present the full picture and so its use as a means of prediction is limited. The <a href="https://theconversation.com/uk/eu-referendum-2016">unknown conditions of Brexit</a> may play a part, the weather may do as well. Without knowing these outcomes, and people’s response to them, my model is incomplete.</p>
<p>So, do I throw up my hands and curse economics as a futile endeavour? Just what is the value of the academic discipline to which I have (so far) devoted my career? Well, the analogy of a medical doctor is useful here.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/153622/original/image-20170120-5238-1ivtdux.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/153622/original/image-20170120-5238-1ivtdux.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/153622/original/image-20170120-5238-1ivtdux.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/153622/original/image-20170120-5238-1ivtdux.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/153622/original/image-20170120-5238-1ivtdux.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/153622/original/image-20170120-5238-1ivtdux.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/153622/original/image-20170120-5238-1ivtdux.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/153622/original/image-20170120-5238-1ivtdux.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Taking the economy’s temperature.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/doctor-stethoscope-reading-temperature-measured-by-552441727?src=iwVLsE82ePrbAJcGkHlRpA-1-9">Yanawut Suntornkij/Shutterstock</a></span>
</figcaption>
</figure>
<p>Designing this model gives a better understanding of the economy even if it can’t guide it down a path of unblemished progress. In the same way, a doctor cannot definitely prevent illness, but can offer advice on prevention and hopefully offer a cure if you do get ill. This is the same for the work economists do. </p>
<p>Economists can offer advice on preventing crises or slowdowns but cannot definitively prevent them from happening. Economists can also offer robust advice on restoring growth, although when the advice is that the economy has grown too fast and should slow, it is often <a href="http://www.telegraph.co.uk/finance/2907805/Greenspan-should-have-removed-the-punch-bowl.html">not welcomed by policy makers</a>. This advice is built on a strong evidence base, however just like a doctor prescribing a cure, it is foolhardy to say exactly when the cure will definitely work, or if it will adapt to changing conditions. </p>
<h2>Odds on</h2>
<p>Perhaps the hard part is getting people to acknowledge these realities. There remains a prevailing view that an economics model makes a definitive forecast for the future – some economists themselves are guilty of maintaining an ideological belief in a method regardless of empirical observation. In fact, economics models simply suggest a version of the future, and incorporate the likelihood of that future occurring.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/153623/original/image-20170120-5238-jqe2bo.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/153623/original/image-20170120-5238-jqe2bo.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/153623/original/image-20170120-5238-jqe2bo.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/153623/original/image-20170120-5238-jqe2bo.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/153623/original/image-20170120-5238-jqe2bo.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/153623/original/image-20170120-5238-jqe2bo.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=502&fit=crop&dpr=1 754w, https://images.theconversation.com/files/153623/original/image-20170120-5238-jqe2bo.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=502&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/153623/original/image-20170120-5238-jqe2bo.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=502&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Leave it to the experts …</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/jeneeze/5500659718/in/photolist-9o5juE-nEjs4h-HTR73E-pvcHKf-98A1MS-b2XAzP-d3w8cj-6mbTpL-nGn64H-7c3L6x-qAB6fx-62zcy7-qKK1B-7D5FSD-a6881v-9hKVJA-57MWEV-7cTBUS-4Yxfzo-5KUVZ6-zB3C1i-v9UbKg-v9KtpN-B3cbxL-Kq8q1o-q9sXa7-7MrjHv-q9AEsa-hCLEcy-q9sWbo-qQrGzX-pufSPt-qoJBiy-bVZzE5-uEUUJ-7cKWtK-dNmz2f-ej9DCb-6viApT-qoJBdJ-7Mvief-qoJCwW-r5B8Ts-q9s6gC-q9AEAr-hqyuyx-bwU7dg-6DPVN1-6DPU1J-q9zcye">Jen Williams/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc/4.0/">CC BY-NC</a></span>
</figcaption>
</figure>
<p>My model meets a strenuous robustness check, but I still query the use of it as a forecasting tool. I can see, however, why these forecasts are extremely attractive to policy makers.</p>
<p>There is comfort in statistics, and our processing of probabilities is flawed. Someone making a bet with an 80% likelihood of success will be disproportionately disappointed if they lose. This is because we tend to overweight such high probabilities as a certainty and already expect the winnings before the outcome, whereas in reality there is a one in five chance of a loss. The opposite is true too. The very small chance of all the factors responsible for an economic crisis converging together at a particular time reassures people that it will never happen. </p>
<p>Policy makers are as susceptible to this as anyone, and should appreciate that the true value of the economist lies not in mystical fortune telling, but in achieving a better understanding of the nature of the economies in which we live and work.</p><img src="https://counter.theconversation.com/content/71056/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>This is developed from Richard Whittle's previous ESRC funded research.</span></em></p>Ridiculed and ignored in 2016, what can the ‘dismal science’ offer us now?Richard Whittle, Research Fellow in Economics, Manchester Metropolitan UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/672602016-11-29T17:44:49Z2016-11-29T17:44:49ZThe way economics is taught needs an overhaul: a South African case study<figure><img src="https://images.theconversation.com/files/146030/original/image-20161115-31148-mef3en.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Economics lecturers need to teach their students about more than just numbers.</span> <span class="attribution"><span class="source">Reuters/Philimon Bulawayo</span></span></figcaption></figure><p>Economics is a discipline that ought, at its best, to explain the world and its complexities. Unlike physics, it is not an exact science. Due to its nature as a social sciences, lecturers must assist students to understand the complex relationships between companies, governments, consumers and diverse stakeholders. They also need to guide their students to develop critical thinking skills and information literacy. And this goes beyond to an understanding of critical aggregates such as gross domestic product (GDP), inflation and unemployment rates.</p>
<p>It is particularly crucial to revisit the <a href="http://wiredspace.wits.ac.za/handle/10539/20757">economics curriculum</a> in the light of recent global developments. In the years since the 2008 financial crisis, there’s been <a href="https://www.ft.com/content/f015a3ac-4aed-11e3-ac3d-00144feabdc0">much debate</a> about whether universities are doing enough to produce economics graduates ready for the real world. There’s been a rise of student societies committed to <a href="https://www.theguardian.com/commentisfree/2014/apr/07/uk-universities-alternative-economics-models-post-crash-society">new ways</a> of approaching the discipline.</p>
<p>What’s become increasingly clear is that teaching economics needs to be <a href="https://www.ineteconomics.org/topic/teaching-economics">tightly connected to real life</a>. This grounds teaching in students’ economic realities, enabling them <a href="http://wiredspace.wits.ac.za/handle/10539/20757">relate better to economics knowledge</a>. Undergraduate students, particularly those in their first year of study, must be given the opportunity to engage with different economic actors such as business managers and analysts. They must be given the chance to strongly draw on daily realities.</p>
<p>To teach hyperinflation, for instance, economics lecturers could choose to focus on the Zimbabwean example. They could invite a Zimbabwean economist to their classroom to tell the story. Or what about studying the effect of competition and regulation on small companies? An entrepreneur would be well placed to share her experiences.</p>
<p>Sadly, <a href="http://wiredspace.wits.ac.za/handle/10539/20757">research</a> that one of us has conducted suggests undergraduate economics students are not being taught effectively. </p>
<h2>What our research and experience showed</h2>
<p>In both the global North and South, economics tends to be taught with micro- and macroeconomic models that are quite disconnected from sociopolitical realities. Economics lecturers are usually experts in statistics and mathematics, which provide tools for developing these models. Of course, this isn’t a bad thing. But the research suggests that such experts also need to develop pedagogical competencies. This would use a educationalist’s perspective to contribute to the teaching of economics in higher education. </p>
<p>The <a href="http://wiredspace.wits.ac.za/handle/10539/20757">research</a>, which examined economics teaching of first-year undergraduate students at a South African research-intensive and global African university, reached three empirical conclusions. </p>
<p>First, the economics curriculum must be aligned with undergraduate students’ real-life contexts. Second, the economics curriculum must be rethought in light of <a href="http://www.res.org.uk/view/article7Apr13Features.html">ongoing debates</a> within the discipline. Finally, there’s a need for economics lecturers to undergo teacher training – what educationists refer to as <a href="http://infed.org/mobi/what-is-pedagogy/">pedagogy</a>. </p>
<p>It’s not enough for lecturers to know about the discipline: they must actually know how best to teach and assess students. This has significant implications for student’s learning, and the <a href="http://wiredspace.wits.ac.za/handle/10539/20757">pedagogical development of the economics faculty</a> cannot be overemphasised. </p>
<h2>Renew economics curriculum and pedagogy</h2>
<p>Lecturers should use learning materials that are contextual to the economies where learners study. Students will feel more engaged in their studies if they see how learning economics can help them unpack the complexities of the world they live in.</p>
<p>When it comes to pedagogy, the development of online learning management platforms offers the possibility to make the discipline of economics more attractive. This draws on the power of the internet as a tool for teaching. It gives students the opportunity to practice and learn outside the classroom. When lecturers adopt a <a href="https://theconversation.com/will-the-university-of-adelaides-lecture-phase-out-be-a-flop-44074">flipped classroom pedagogy</a>, students can begin their learning at home through online materials. They can then apply their knowledge in class through case study discussions and collaborative projects. This flipped classroom approach can truly engage students with the richness of economic analysis.</p>
<p>But for all of this to happen, lecturers need more training. This will equip them with the skills and confidence to break out of the “sage on the stage” mould. This sort of “<a href="http://www.tandfonline.com/doi/full/10.1080/00131940802368554?scroll=top&needAccess=true">chalk and talk</a>” teaching does students a disservice. It doesn’t give them a chance to develop critical thinking skills.</p>
<h2>Get lecturers engaged</h2>
<p>So, if lecturers are to better teach economics in the current global context and help students critically reflect on economic policies, they need further training in pedagogy. Today’s economics lecturers, who are predominantly academic economists, have a strong disciplinary background. But this doesn’t give them the skills to teach effectively.</p>
<p>Pedagogical training would enhance lecturers’ ability to ascertain student learning, beyond just passing examinations. Academic development through <a href="https://elearn.wits.ac.za/home/resources/PGDipHE_flyer_Final.pdf">a higher education qualification</a> or <a href="https://www.uj.ac.za/corporateservices/ads/ADC/PASD">specific workshops</a> in higher education teaching could prepare these disciplinary experts for university teaching. The skills they’ll learn will empower academics to branch out of traditional economics teaching that has tended to focus largely on students’ mathematical competencies. </p>
<p>Beyond this, the complex nature of the economics discipline and the dynamics of globalisation in the 21st century justify the need for university teachers and students to engage more broadly through <a href="http://www.isipe.net/open-letter/">interdisciplinary approaches</a>. Drawing on other disciplines in the social sciences and the humanities, students can better understand the broader social and moral implications of economics decisions.</p>
<p>This is not to say that teaching economic models is obsolete. We do not contend that models should be banned from the classroom. Instead, our argument is that lecturers should encourage students to engage with their real-life economic context to acquire knowledge but also to critically reflect on the factors and impacts of economic decisions. Economic models can’t be taught in a vacuum, they need to be applied critically. Critical thinking skills and information literacy are crucial if students are to be empowered.</p>
<p>This echoes Oxford University economist Margaret Stevens’ <a href="http://www.res.org.uk/view/art1Apr15Comment.html#n2">argument</a> that it’s time to find a balance between teaching models and encouraging students’ autonomous thinking. </p>
<p>Students should be assessed on their capacity to critically analyse economic problems using appropriate data and aggregates. They must be encouraged to develop critical thinking skills and information literacy to locate and critically assess information available online. This all feeds into what we feel is the ultimate goal of teaching economics: to equip students with the autonomy to understand economic policies and become thoughtful economic actors.</p><img src="https://counter.theconversation.com/content/67260/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Dr Emmanuel Ojo receives funding from National Research Foundation (NRF). </span></em></p><p class="fine-print"><em><span>Dr Loise Jeannin works for the University of Johannesburg as a Postdoctoral Research Fellow.</span></em></p>In both the global North and South, economics tends to be taught with micro- and macroeconomic models that are disconnected from sociopolitical realities. We suggest new ways of teaching economics.Emmanuel Ojo, Lecturer, Faculty of Humanities, University of the WitwatersrandLoïse Jeannin, Postdoctoral Research Fellow in Higher Education, University of JohannesburgLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/648982016-09-12T12:28:35Z2016-09-12T12:28:35ZOur world is not a pure market economy, and economics can’t explain it<figure><img src="https://images.theconversation.com/files/137205/original/image-20160909-13345-13woyr2.jpg?ixlib=rb-1.1.0&rect=1%2C0%2C1022%2C683&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Present and correct.</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/atfruth/5287662490/in/photolist-94fDQE-qe83rX-sfkx7-Gb5jms-FNfDe3-CoJ2Gu-dBzPno-94xLdn-bh69NH-bkisXU-5KKN2U-bh68Jk-bh6aLc-eKSVd2-65XXRG-5KMaRm-4DD3xy-7vhfo-8LEGUY-iFWGoS-92cJ6n-b2sRyF-bKQxo-FhV8R1-G7vM6i-FhV8UY-Gdn7QV-G5cP6Q-Fi6NDv-Fi6NEn-G7vMca-Fi6Nzn-bh67N2-i7JYh7-576Vks-47tYv-5MUcRR-7rqQLZ-aUwGoK-ty6wX-u7R3Q-94tVXc-6o9GPy-7qiHdU-7sUQXb-93Dy7q-wZanj-bjx1bk-946zNq-93ZePb">Aaron Fruth/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-sa/4.0/">CC BY-NC-SA</a></span></figcaption></figure><p>We tend to take it for granted that our economy is a <a href="http://www.investopedia.com/terms/m/marketeconomy.asp">market economy</a>. Mainstream economics is particularly committed to that idea. Indeed its core concepts depend on it: supply and demand curves and equilibrium prices make no real sense outside the context of markets. But today in large parts of the most dynamic sector of our economy, the market is either absent or only one part of the story.</p>
<p>Of course the digital economy includes companies such as Apple and Amazon selling products in markets, but it also includes very different models. The web is the realm of the gift. The vast majority of the pages we download are free – and sites such as Wikipedia are sophisticated examples of the gift economy in action.</p>
<p>Even some of the most successful commercial companies, such as Google and Facebook, depend on business models that hybridise gift practices and the market. The commodities they sell depend utterly on the gifts that they give. </p>
<p>To make sense of these gift and hybrid forms of economy, my research in the book <a href="http://www.cambridge.org/gb/academic/subjects/sociology/social-theory/profit-and-gift-digital-economy?format=PB&isbn=9781316509388">Profit and Gift in the Digital Economy</a> develops the idea that we should think of the economy as an interacting mix of market and non-market practices. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/137206/original/image-20160909-13345-1h32xcj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/137206/original/image-20160909-13345-1h32xcj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/137206/original/image-20160909-13345-1h32xcj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/137206/original/image-20160909-13345-1h32xcj.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/137206/original/image-20160909-13345-1h32xcj.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/137206/original/image-20160909-13345-1h32xcj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=502&fit=crop&dpr=1 754w, https://images.theconversation.com/files/137206/original/image-20160909-13345-1h32xcj.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=502&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/137206/original/image-20160909-13345-1h32xcj.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=502&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Market forces.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/dordrecht-holland/15503556441/in/photolist-pBZMcg-jnKqiC-oWHSxK-qJ5VbP-fiPZVo-F4A1VG-oi8CCD-ogecyn-eMhmDz-cjeFaW-7mBr7x-pXf5tX-aYCoqZ-ngxnw6-4fFumS-gez1Yp-fP3Qnz-hShtN8-gs7W3C-9deuWz-pRvpKx-gVo2Mi-itDpE7-ahqdeH-oRQmeF-cLzvUC-JBzoN8-nXuFBB-jqWMEz-pxuuim-hxamQR-peT1hP-dLaYn8-pAefWf-oonBpc-UVxmF-fJfHjE-PgQNn-hJAcYh-Fecteb-avpofg-kR71wX-cWBcwU-cJCw4G-9Vfin-bzP8Fr-vVLVh-oMzzaW-rigahh-e67GQ6">Paul van de Velde/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<h2>The gift economy in action</h2>
<p>Wikipedia – the <a href="https://en.wikipedia.org/wiki/History_of_Wikipedia">largest and most widely used encyclopedia</a> the world has ever seen – is the iconic case of the digital gift economy. It dominates its sector, and has more or less completed the extinction of the paid-for encyclopedia that began when Microsoft gave away Encarta to PC buyers.</p>
<p>Wikipedia rests on three gift practices: it gives us access to its content for nothing, that content is created by volunteers who edit it for nothing, and its running costs are funded by voluntary donations. </p>
<p>And when work is voluntary, the old rules no longer apply. <a href="http://www.forbes.com/forbes/welcome/?toURL=http://www.forbes.com/sites/georgeanders/2014/06/30/how-wikipedia-really-works-an-insiders-wry-brave-account/&refURL=https://www.google.co.uk/&referrer=https://www.google.co.uk/">Wikipedia’s editors</a> are not told what to do by managers implementing a top-down strategy. They choose their own tasks and do them at their own pace. The quality of their work is not assured by performance appraisals and the threat of redundancy. Instead they debate quality with each other on Wikipedia’s Talk pages, employing norms that have been consensually agreed by the editors themselves.</p>
<p>Conventional economics has no tools with which to analyse phenomena like Wikipedia. <a href="http://www.smithsonianmag.com/smart-news/how-much-is-wikipedia-worth-704865/?no-ist">The site offers no revenue, market capitalisation or book value</a> by which to value it. Neither the human motivations nor the co-operative coordination mechanisms fit economic models of utility maximisation and market equilibrium. When we measure our economy, are we really best served by ignoring Wikipedia? </p>
<h2>A hybrid powerhouse</h2>
<p>By contrast, Google looks like a company that traditional economics should be able to explain. The second largest company in the world by market capitalisation, it made <a href="http://www.androidcentral.com/google-releases-q4-and-full-2015-earnings">profits of US$74.5 billion</a> (£56 billion) in 2015, mostly from selling advertising.</p>
<p>That’s a market, isn’t it? It is, but it’s a market that only exists because of the gifts that Google gives to its users. The core case is free web search. When Google gives us search results, it receives information about our interests as a by-product of the search process, and uses that to sell much more effectively targeted advertising than was ever possible in conventional media.</p>
<p>Here we have two deeply interdependent practices: a market practice of selling advertising that can only exist because of a gift practice of providing free web search. Freesheet newspapers offer a similar model, but Google is on a different scale. However well demand and supply curves can explain the outcomes in the advertising market, they tell us nothing about how Google acquires those advertising opportunities in the first place.</p>
<p>To explain hybrid economic models like this one, we need an approach that sees both gift and market practices as significant and can analyse the ways in which they are combined.</p>
<h2>Economics and the gift economy</h2>
<p>Although I’ve highlighted the digital gift economy here, the gift economy is much older and much larger than that – it has just been less tangibly coupled with the market economy that we see on the business news. To take only the largest case, people have been producing and transferring economic benefits within the household since households began, without selling them to each other. When a parent cooks for their family that is just as productive as a chef cooking for customers in a restaurant, but no cash changes hands in payment.</p>
<p><a href="http://www.tandfonline.com/doi/abs/10.1080/13545709610001707756">One study of the Australian economy</a>, for example, found that when monetised – when household work is given a dollar value equivalent to that in the market economy – the household sector alone is as large as the market sector. Nor is the “old” gift economy confined to gifts to friends and family – charitable giving, volunteering and blood donation are all familiar forms of gifts to strangers. </p>
<p>Economics tends to overlook the gift economy, wherever it appears, not only because tools used by economics, such as revenue or profit calculations, market share and stock prices can only make sense of markets, but also because it has no way to value products that are not sold. We are all accustomed to valuing things in terms of prices achieved in the market, but there are no such prices in the gift sector. </p>
<p>That doesn’t mean its products aren’t valuable, but rather that we have absorbed a thoroughly dysfunctional notion of value that goes along with thinking of the economy in purely market terms. We can become so focused on the monetary side of the economy that we don’t see the absurdity of promoting its growth at the expense of the things we do for each other that don’t come with a price tag attached. If we are to make sense of both today’s economy and future possibilities, we need to start analysing our world as a complex of both market and non-market social practices, and start valuing its products in terms of human benefits instead of price.</p><img src="https://counter.theconversation.com/content/64898/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Dave Elder-Vass does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Economics struggles to explain the explosion of gift models at the heart of our online economy.Dave Elder-Vass, Reader in Sociology, Loughborough UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/643382016-08-30T11:43:58Z2016-08-30T11:43:58ZIs economists’ view of people as rational still credible?<figure><img src="https://images.theconversation.com/files/135317/original/image-20160824-30228-1kqkhx2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Decisions, decisions. </span> <span class="attribution"><a class="source" href="http://www.shutterstock.com/pic-334447535/stock-photo-business-challenge-a-businessman-navigating-through-a-maze-top-view.html?src=15k4hx96VP5Q44uAMhXdNA-1-10">pogonici</a></span></figcaption></figure><p>For years, economists and psychologists have argued about whether the <a href="http://www.econlib.org/library/Marshall/marP.html">standard model</a> that economists use to explain how people make decisions is correct. It says that people make rational choices: they weigh all the options against a well-defined set of preferences to choose the one which makes them happiest, or is the most valuable to them. </p>
<p>These preferences – and what a person can afford – define what they are willing to pay for goods and services. Businesses and governments around the world use this view of human behaviour as the basis for weighing the benefits and costs of decisions affecting trillions of pounds every year. </p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/135609/original/image-20160826-17887-hx5ysf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/135609/original/image-20160826-17887-hx5ysf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/135609/original/image-20160826-17887-hx5ysf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=783&fit=crop&dpr=1 600w, https://images.theconversation.com/files/135609/original/image-20160826-17887-hx5ysf.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=783&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/135609/original/image-20160826-17887-hx5ysf.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=783&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/135609/original/image-20160826-17887-hx5ysf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=983&fit=crop&dpr=1 754w, https://images.theconversation.com/files/135609/original/image-20160826-17887-hx5ysf.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=983&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/135609/original/image-20160826-17887-hx5ysf.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=983&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Tenterhooks.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/degust/27111844213/in/photolist-HiMhHT-dtw2tA-e1zfHG-vD18n-nLFQws-nfe5AW-mh3udM-r2vS3U-7dXfjx-5opEup-oNuX9T-nDpnvJ-qaqXgK-jE3E3G-RJvhH-ccSpYU-ccSoVw-RJjTt-bVva7Z-oiDRq2-ccSqqb-jEYf7s-ckLj7q-o5Diw5-hmRC8-qazHkJ-8eUMUP-rk6PtS-DUitdf-5uoQvf-dqUceV-oe7XCx-dpNbHj-ccSqk7-cKQC9d-ivpQh-5WuZVo-nVJzPy-gCPfy-o32nsC-HRxskw-i3dxk-31LzD4-4XMXqJ-6hwXLQ-JT4ab2-cKf2Jj-o5LmZE-4VPoyT-55FMTE">Gustav Deghilage</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span>
</figcaption>
</figure>
<p>Psychologists are also interested in people’s choices, particularly the effect of emotions. Much of this complements economists’ standard view of us. Take emotions related to the object of choice, for instance. If I choose to watch my local football team, part of the attraction might be knowing I will be nervous but excited. I’m making a rational choice to experience the emotion as part of the “pay-off”. </p>
<p>You can say the same about emotions that occur at the moment of decision and are directly related – we call these integral emotions. Suppose you sign up to retrain as a driving instructor. Because of the risk in changing careers, the act of signing up can evoke feelings of fear and even pleasure that help explain the choice. Where the previous example was about choosing in anticipation of excitement to come, here you experience it immediately. Again, however, it is a rational choice to experience the feeling as part of the decision. </p>
<p>But there’s a third category of emotions that should play no part in a rational choice – incidental emotions. For instance, I am very happy because my football team has won the cup and now I am choosing what to have for dinner. An economist who believes purely in rational actors would say this happiness should not affect what I eat. </p>
<p>Yet behavioural scientists have produced plenty of evidence to the contrary in recent years. They have <a href="http://www.tandfonline.com/doi/abs/10.1080/02699930903132496">shown that</a> incidental emotions affect our judgement, decision making and reasoning. They have also <a href="http://faculty.london.edu/aedmans/Rowe.pdf">shown that</a> changes in people’s happiness can affect the stock market. </p>
<p>This has not been the only challenge to economists’ standard model. Behavioural scientists and psychologists <a href="http://link.springer.com/article/10.1007/s10640-014-9783-y">have also</a> demonstrated that context can affect decisions – for instance, that people can view choices differently over time – and that we perceive gains and losses differently. Yet these insights are not inconsistent with rational choices. Economists have used them <a href="http://link.springer.com/article/10.1007/s10640-014-9783-y">to refine</a> their theories and data analysis. </p>
<p>Incidental emotions are more of a problem. If our choices can be governed by unrelated emotions, we are not always rational after all and economists’ tools based on rational choice are undermined. Perhaps for this reason, economists have never to my knowledge taken these findings any further. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/135318/original/image-20160824-30231-13gng28.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/135318/original/image-20160824-30231-13gng28.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/135318/original/image-20160824-30231-13gng28.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=424&fit=crop&dpr=1 600w, https://images.theconversation.com/files/135318/original/image-20160824-30231-13gng28.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=424&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/135318/original/image-20160824-30231-13gng28.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=424&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/135318/original/image-20160824-30231-13gng28.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=533&fit=crop&dpr=1 754w, https://images.theconversation.com/files/135318/original/image-20160824-30231-13gng28.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=533&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/135318/original/image-20160824-30231-13gng28.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=533&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Not so rational now …</span>
<span class="attribution"><a class="source" href="http://www.shutterstock.com/pic-103476707/stock-photo-stock-market-arrow-graph-going-down-on-blue-display.html?src=etIzvwIrYnNg4utAPEocdA-1-16">JMaks</a></span>
</figcaption>
</figure>
<h2>Choice and the environment</h2>
<p>While the lifeblood of micro economics is consumer behaviour, rational choice has also been used to explain other kinds of human choices and values. For example economists <a href="http://www.e-elgar.com/shop/pricing-nature">have been using</a> it since the 1970s in relation to how we value environmental “goods” such as cutting air pollution or protecting wilderness. </p>
<p>One method is to ask people to state a maximum they would be willing to pay for a certain product if it were the only way of securing a particular environmental goal. Policy developers and environmental managers have adopted this to provide evidence about the economic benefits of such goals. For example the UK Environment Agency <a href="http://opus.bath.ac.uk/9856/">values</a> improvements to river quality in this way. </p>
<p>But is it right to assume people will choose rationally here? Since incidental emotions appear capable of interfering with our purchasing choices, won’t they affect our environmental “choices”, too? My new <a href="https://risweb.st-andrews.ac.uk/portal/en/researchoutput/sad-or-happy-the-effects-of-emotions-on-stated-preferences-for-environmental-goods(19e1467e-476b-4202-8a06-947b9e4220d7).html">co-authored paper</a> sought to find out. </p>
<p>We used a laboratory setting at the University of Waikato in New Zealand, where I was a visiting professor. Our 284 student participants first viewed one of three film clips, since films are a good way of <a href="http://philpapers.org/rec/SCHATE-2">inducing</a> particular emotional states. One group watched a happy clip from <a href="http://www.imdb.com/title/tt0314331/">Love Actually</a>; another group watched a sad clip from <a href="http://gb.imdb.com/title/tt0096969/">Born on the Fourth of July</a>; while a third group watched a neutral clip of stock market reports and golf instructions. </p>
<p>All students then took part in a choice experiment about New Zealand beaches. They had to choose between different packages of environmental attributes
related to water quality, sediment levels and fish populations. Some packages were environmentally better overall, while some were a mixed bag. They might choose a package with rising fish populations, high sediment and medium water quality or one with decreasing fish, low sediment and high quality – and so on. </p>
<p>The “price” for each package was to live a certain distance from the beach. Securing better environmental attributes meant choosing to live further away, and hence accepting higher travel costs. The question for each student was how much they were willing to pay and whether they prioritised some benefits over others. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/135319/original/image-20160824-30246-14of7vv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/135319/original/image-20160824-30246-14of7vv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/135319/original/image-20160824-30246-14of7vv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=386&fit=crop&dpr=1 600w, https://images.theconversation.com/files/135319/original/image-20160824-30246-14of7vv.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=386&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/135319/original/image-20160824-30246-14of7vv.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=386&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/135319/original/image-20160824-30246-14of7vv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=485&fit=crop&dpr=1 754w, https://images.theconversation.com/files/135319/original/image-20160824-30246-14of7vv.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=485&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/135319/original/image-20160824-30246-14of7vv.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=485&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Deal or no deal?</span>
<span class="attribution"><a class="source" href="http://www.shutterstock.com/pic-359810489/stock-photo-a-woman-walking-on-the-beach-with-her-dog-this-image-has-added-grain-and-styling.html?src=gv4w6475iUoZKvYTCoh-PQ-2-88">Duncan Andison</a></span>
</figcaption>
</figure>
<p>To our surprise, the participants’ emotional state had no significant effect on their choice. Having ruled out the possibility that the films had not worked, our results appear to go against psychologists’ findings about incidental emotions and instead endorse rational choice. Why?</p>
<p>It might be because people were being asked to make choices over a public good where many people would benefit. Emotions may have a different effect on our choices over public goods than private goods. Or it could be because our participants were making choices about intentions. There’s a well-developed <a href="https://cas.hse.ru/data/816/479/1225/Oct%2019%20Cited%20%231%20Manage%20THE%20THEORY%20OF%20PLANNED%20BEHAVIOR.pdf">body of theory</a> that questions the link between what we intend and what we do. </p>
<p>In short, more work is required to understand how our findings fit into the developing picture about people’s choices. The difference between public and private goods looks a particularly worthwhile avenue. If economists’ view of behaviour is to remain credible, it is time they examined this area. </p>
<p>In the meantime, we are looking into another area where insights from behavioural science and psychology are ripe for consideration by economists: how choices are affected by your personality type.</p><img src="https://counter.theconversation.com/content/64338/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Nicholas Hanley receives funding from the ESRC, NERC, BBSRC, Leverhulme Trust, European Investment Bank and Scottish Funding Council.</span></em></p>The idea that we make rational choices is the basis for how businesses and governments make their plans. But psychologists have been asking some awkward questions.Nicholas Hanley, Professor of Environmental Economics, University of St AndrewsLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/644412016-08-25T08:28:20Z2016-08-25T08:28:20ZSouth African academics ask Zuma to ‘stop the war’ on finance minister<figure><img src="https://images.theconversation.com/files/135476/original/image-20160825-6595-1v9vudw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">South Africa's Finance Minister Pravin Gordhan is a hunted man.</span> <span class="attribution"><span class="source">Mujahid Safodien/EPA</span></span></figcaption></figure><p><em>South Africa’s minister of finance Pravin Gordhan is again on <a href="http://www.dailymaverick.co.za/article/2016-08-24-statement-by-minister-of-finance-pravin-gordhan/#.V76eh5h9600">a collision</a> course with the country’s Directorate for Priority Crime Investigations. The row has <a href="http://www.news24.com/SouthAfrica/News/live-pravin-gordhan-the-latest-news-20160825">unsettled</a> the country’s already shaky currency, the rand. It’s also prompted a group of senior academics from nine universities to pen an <a href="http://www.rdm.co.za/business/2016/08/24/stop-the-war-on-pravin-gordhan">open letter</a>. The letter, which first appeared on local news site the <a href="http://www.rdm.co.za/">Rand Daily Mail</a>, is republished below.</em></p>
<p>“In December 2015 the shocking decision by President Jacob Zuma to <a href="http://nenegate.biznews.com/">fire</a> Finance Minister Nhlanhla Nene led about 70 senior academic economists from across South African universities to write an <a href="https://theconversation.com/academics-in-south-africa-voice-their-dismay-at-zumas-actions-52313">open letter</a> to the Business Day to express our outrage at the capriciousness of that decision. We also warned of the likely consequences for the country’s fragile economy. </p>
<p>That that decision was politically motivated has been borne out by subsequent events. Significantly, Mr Nene’s <a href="http://www.bdlive.co.za/national/2016/04/13/nenes-brics-job-still-a-mystery">redeployment</a> to the Brics Bank, ostensibly the reason for his removal, has not materialised. The President continues to use every platform to <a href="http://www.bdlive.co.za/national/2016/02/22/zuma-says-van-rooyen-was-administrations-most-qualified-finance-minister">sing the praises</a> of the little known backbencher he appointed in Nene’s place. He also frequently expresses bitterness at the role of (so called) white monopoly capitalists whom he claims forced a <a href="http://www.bdlive.co.za/national/2015/12/13/zuma-brings-back-gordhan-drops-van-rooyen">reversal</a> of his decision to appoint Desmond van Rooyen.</p>
<p>At the time and in the circumstances, some commentators thought that the new Minister Pravin Gordhan would be safe from similar politically motivated attacks. How wrong they were. Since earlier this year, Minister Gordhan has been subjected to an unrelenting attack from the Hawks. They have been investigating the Minister’s alleged role in the establishment of the so-called "rogue” spy unit when he was the South African Revenue Services’ (SARS) Commissioner. A few days ago the Daily Maverick <a href="http://www.dailymaverick.co.za/article/2016-08-23-breaking-sars-wars-endgame-hawks-order-pravin-gordhan-and-others-to-present-themselves/">reported</a> that the Hawks were “circling” the Minister again.</p>
<p>These events have once again compelled us to put pen to paper to express our outrage and warn of the dangers to our still very fragile economy. There are predictions of <a href="https://theconversation.com/south-africa-can-expect-zero-growth-its-problems-are-largely-homemade-62943">zero growth</a> in 2016; stubbornly <a href="http://ewn.co.za/2016/05/09/SA-unemployment-rate-rises">high unemployment</a>; persistent poverty and inequality and a volatile currency. This is not the time – if there ever was – to be playing such dangerous games with the lives and well-being of all sectors of our economy and society, especially the poor and the vulnerable. </p>
<p>We say all this with the same qualifiers we employed in our <a href="https://theconversation.com/academics-in-south-africa-voice-their-dismay-at-zumas-actions-52313">December 2015 letter</a>. These include our recognition that Ministers of Finance do not enjoy any special privileges or protection. Everyone is subject to the rule of law and the <a href="http://www.justice.gov.za/legislation/constitution/SAConstitution-web-eng.pdf">Constitution</a>. Finally, our stance does not mean that all of us share with equal enthusiasm the Treasury and government’s fiscal framework.</p>
<p>We urge the President, the Cabinet and the African National Congress’ National Executive Committee (NEC) to assist in bringing this dangerous set of events to an end in the best way possible in the interests of our country and our economy. It is time for real leaders in the NEC, the Cabinet and in governing alliance partners the SA Communist Party and the Congress of South African Trade Unions to stand up to the tyrannical and despotic behaviour on display here. Yet again we stand on the edge of an economic precipice.</p>
<p>We end expressing by similar sentiments to those used in our December 2015 letter: As senior academics in Economics and related disciplines we express our unambiguous and urgent concern both about these events in general, about the unseemly attacks on the Minister of Finance and about the general lack of progress in tackling the massive and growing crisis of low growth, poverty, unemployment and inequality as well as the crisis of governance at our state owned enterprises.“</p>
<p>Collectively supported by:</p>
<p><strong>University of Cape Town</strong></p>
<p>Professor Haroon Bhorat, Professor Anthony Black, Professor Faizel Ismail, Professor Murray Leibbrandt, Professor Martin Wittenberg, Professor Ingrid Woolard, Professor Alan Hirsh, Professor Cally Ardington, Professor Christopher Rooney, Dr Co-Pierre Georg, Professor David Kaplan, Professor Don Ross, Mr Grant Smith, Ms Katherine Eyal, Ms Kezia Lilenstein, Professor Lawrence Edwards, Associate Professor Malcolm Keswell, Associate Professor Mark Ellyne, Professor Martine Visser, Professor Mike Morris, Mr Morne Oosthuizen, Professor Nicoli Nattrass, Associate Professor Tony Leiman, Toughedah Jacobs, Sarah Marriott, Adaiah Lilenstein, Jabulile Monnakgotla, Amy Thornton, Shakira Jeppie, Associate Professor Justine Burns</p>
<p><strong>University of Pretoria</strong></p>
<p>Professor Steve Koch, Professor Elsabe Loots, Professor Riel Franzsen, Professor James Blignaut, Professor Jan van Heerden</p>
<p><strong>Sol Plaatje University</strong></p>
<p>Botho Enele and Mandla Mthembu</p>
<p><strong>Rhodes University</strong></p>
<p>Professor Robert van Niekerk</p>
<p><strong>North West University</strong></p>
<p>Wilma Viviers</p>
<p><strong>University of Stellenbosch</strong></p>
<p>Servaas van der Berg, Stan du Plessis, Rulof P Burger, Nick Vink, Theo Kleynhans, Professor Andrie Schoombee, Professor Estian Calitz, Professor Ada Jansen, Professor Johan Fourie, Professor Ben Smit, Professor Ronelle Burger, Professor Johann Kirsten</p>
<p><strong>University of the Western Cape</strong></p>
<p>Julian May</p>
<p><strong>University of Witwatersrand</strong></p>
<p>Professor Imraan Valodia, Professor Vishnu Padayachee, Dr Gareth Roberts, Fatima Bhoola, David Francis, Associate Professor Daniela Casale, Professor Dori Posel, Lumkile Mondi, Nimisha Naik, Associate Professor Uma Kollamparambil, Kenneth Creamer</p>
<p><strong>Private Sector</strong></p>
<p>Iraj Abedian – Chief Economist, Pan-African Investment & Research Services</p><img src="https://counter.theconversation.com/content/64441/count.gif" alt="The Conversation" width="1" height="1" />
A row between South Africa’s finance minister and the country’s Directorate for Priority Crime Investigations has prompted academics to pen an open letter asking President Jacob Zuma to intervene.Natasha Joseph, Commissioning EditorLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/358612015-08-27T11:01:43Z2015-08-27T11:01:43ZVaroufakis in conversation with leading academics as Syriza splinters and election beckons in Greece<p>When Yanis Varoufakis was elected to parliament and then <a href="http://www.theguardian.com/business/economics-blog/2015/jan/26/profile-yannis-varoufakis-greece-finance-minister">named as Greek finance minister in January</a>, he embarked on an extraordinary seven months of negotiations with the country’s creditors and its European partners. </p>
<p>On July 6, Greek voters backed his hardline stance in a referendum, with a resounding <a href="https://theconversation.com/greece-votes-no-now-syriza-must-clarify-what-that-really-means-44289">62% voting No to the European Union’s ultimatum</a>. On that night, he resigned, after prime minister Alexis Tsipras, fearful of an ugly exit from the eurozone, decided to go against the popular verdict. Since then, the governing party, Syriza, has splintered and a <a href="https://theconversation.com/why-alexis-tsipras-has-called-a-snap-election-in-greece-46496">snap election has been called</a>. Varoufakis remains a member of parliament and a prominent voice in Greek and European politics.</p>
<p>When asked about Tsipras’s decision to trigger a snap election, inviting the Greek public to issue their judgement on his time in office, Varoufakis said:</p>
<blockquote>
<p>If only that were so! Voters are being asked to endorse Alexis Tsipras’ decision, on the night of their majestic referendum verdict, to overturn it; to turn their courageous No into a capitulation, on the grounds that honouring that verdict would trigger a Grexit. This is not the same as calling on the people to pass judgement on a record of steadfast opposition to a failed economic programme doing untold damage to Greece’s social economy. It is rather a plea to voters to endorse him, and his choice to surrender, as a lesser evil.</p>
</blockquote>
<p>The Conversation asked nine leading academics what their questions were for a man who describes himself as an “accidental economist”. His answers reveal regrets about his own approach during a dramatic 2015, a withering assessment of France’s power in Europe, fears for the future of Syriza, a view that Syriza is now finished, and doubts over how effective Jeremy Corbyn could be as leader of Britain’s Labour party.</p>
<hr>
<p><strong>Anton Muscatelli, University of Glasgow</strong> - <em>Why was Greek prime minister Alexis Tsipras persuaded to accept the EU’s pre-conditions around the third bailout discussions despite a decisive referendum victory for the No campaign; and is this the end of the road for the anti-austerity wing of Syriza in Greece?</em></p>
<p><strong>Varoufakis:</strong> Tsipras’ answer is that he was taken aback by official Europe’s determination to punish Greek voters by putting into action German finance minister Wolfgang Schäuble’s plan to push Greece out of the eurozone, redenominate Greek bank deposits in a currency that was not even ready, and even ban the use of euros in Greece. These threats, independently of whether they were credible or not, did untold damage to the European Union’s image as a community of nations and drove a wedge through the axiom of the eurozone’s indivisibility. </p>
<p>As you probably have heard, on the night of the referendum, I disagreed with Tsipras on his assessment of the credibility of these threats and resigned as finance minister. But even if I was wrong on the issue of the credibility of the troika’s threats, my great fear was, and remains, that our party, Syriza, would be torn apart by the decision to implement another self-defeating austerity program of the type that we were elected to challenge. It is now clear that my fears were justified.</p>
<hr>
<p><strong>Roy Bailey, University of Essex</strong> - <em>Was the surprise referendum of July 5 conceived as a threat point for the ongoing bargaining between Greece and its creditors and has the last year caused you to adjust how you think about Game Theory?</em></p>
<p><strong>Varoufakis:</strong> I shall have to disappoint you Roy {<em>Editor’s note: Roy Bailey taught Varoufakis at Essex and advised on his PhD</em>}. As I wrote <a href="http://www.nytimes.com/2015/02/17/opinion/yanis-varoufakis-no-time-for-games-in-europe.html?_r=2">in a New York Times op-ed</a>, Game Theory was never relevant. It applies to interactions where motives are exogenous and the point is to work out the optimal bluffing strategies and credible threats, given available information. Our task was different: it was to persuade the “other” side to change their motivation vis-à-vis Greece. </p>
<p>I represented a small, suffering nation in its sixth straight year of deep recession. Bluffing with our people’s fate would be irresponsible. So I did not. Instead, we outlined that which we thought was a reasonable position, consistent with our creditors’ own interests. And then we stood our ground. When the troika pushed us into a corner, presenting me with an ultimatum on June 25 just before closing Greece’s banking system down, we looked at it carefully and concluded that we had neither a mandate to accept it (given that it was economically non-viable) nor to decline it (and clash with official Europe). Instead we decided to do something terribly radical: to put it to the Greek people to decide.</p>
<p>Lastly, on a theoretical point, the “threat point” in your question refers to <a href="http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/1994/nash-lecture.pdf">John Nash’s bargaining solution</a> which is based on the axiom of non-conflict between the parties. Tragically, we did not have the luxury to make that assumption.</p>
<hr>
<p><strong>Cristina Flesher Fominaya, University of Aberdeen</strong> - <em>The dealings between Greece and the EU seemed more like a contest between democracy and the banks, than a negotiation between the EU and a member state. Given the outcome, are there any lessons that you would take from this for other European parties resisting the imperatives of austerity politics?</em></p>
<p><strong>Varoufakis:</strong> Allow me to phrase this differently. It was a contest between the right of creditors to govern a debtor nation and the democratic right of the said nation’s citizens to be self-governed. You are quite right that there was never a negotiation between the EU and Greece as a member state of the EU. We were negotiating with the troika of lenders, the International Monetary Fund, the European Central Bank and a wholly weakened European Commission in the context of an informal grouping, the Eurogroup, lacking specific rules, without minutes of the proceedings, and completely under the thumb of one finance minister and the troika of lenders. </p>
<p>Moreover, the troika was terribly fragmented, with many contradictory agendas in play, the result being that the “terms of surrender” they imposed upon us were, to say the least, curious: a deal imposed by creditors determined to attach conditions which guarantee that we, the debtor, cannot repay them. So, the main lesson to be learned from the last few months is that European politics is not even about austerity. Or that, as <a href="http://yanisvaroufakis.eu/2015/03/15/presenting-an-agenda-for-europe-at-ambrosetti-lake-como-14th-march-2015/">Nicholas Kaldor wrote in The New Statesman</a> in 1971, any attempt to construct a monetary union before a political union ends up with a terrible monetary system that makes political union much, much harder. Austerity and a hideous democratic deficit are mere symptoms.</p>
<hr>
<p><strong>Panicos Demetriades, University of Leicester</strong> - <em>Did you ever think that your message was being diluted or becoming noisy, or even incoherent, by giving so many interviews?</em></p>
<p><strong>Varoufakis:</strong> Yes. I have regretted several interviews, especially when the journalists involved took liberties that I had not anticipated. But let me also add that the “noise” would have prevailed even if I granted far fewer interviews. Indeed the media game was fixed against our government, and me personally, in the most unexpected and repulsive way. Wholly moderate and technically sophisticated proposals were ignored while the media concentrated on trivia and distortions. Giving interviews where I would, to some extent, control the content was my only outlet. Faced with an intentionally “noisy” media agenda that bordered on character assassination, I erred on the side of over-exposure. </p>
<hr>
<p><strong>Simon Wren-Lewis, University of Oxford</strong> - <em>Might it have been possible for a forceful France to have provided an effective counterweight to Germany in the Eurogroup, or did Germany always have a majority on its side?</em></p>
<p><strong>Varoufakis:</strong> The French government feels that it has a weak hand. Its <a href="http://www.reuters.com/article/2015/03/26/us-france-economy-idUSKBN0MM0NN20150326">deficit</a> is persistently within the territory of the so-called <a href="http://ec.europa.eu/eurostat/web/government-finance-statistics/excessive-deficit-procedure">excessive deficit procedure</a> of the European Commission, which puts Pierre Moscovici, the European commissioner for economic and financial affairs, and France’s previous finance minister, in the difficult position of having to act tough on Paris under the watchful eye of Wolfgang Schäuble, the German finance minister. </p>
<p>It is also true, as you say, that the Eurogroup is completely “stitched up” by Schäuble. Nevertheless, France had an opportunity to use the Greek crisis in order to change the rules of a game that France will never win. The French government has, thus, missed a major opportunity to render itself sustainable within the single currency. The result, I fear, is that Paris will soon be facing a harsher regime, possibly a situation where the president of the Eurogroup is vested with draconian veto powers over the French government’s national budget. How long, once this happens, can the European Union survive the resurgence of nasty nationalism in places like France?</p>
<hr>
<p><strong>Kamal Munir, University of Cambridge</strong> – <em>You often implied that what went on in your meetings with the troika (the IMF, ECB and European Commission) was economics only on the surface. Deep down, it was a political game being played. Don’t you think we are doing a disservice to our students by teaching them a brand of economics that is so clearly detached from this reality?</em></p>
<p><strong>Varoufakis:</strong> If only some economics were to surface in our meetings with the troika, I would be happy! None did.</p>
<p>Even when economic variables were discussed, there was never any economic analysis. The discussions were exhausted at the level of rules and agreed targets. I found myself talking at cross-purposes with my interlocutors. They would say things like: “The rules on the primary surplus specify that yours should be at least 3.5% of GDP in the medium term.” I would try to have an economic discussion suggesting that this rule ought to be amended because, for example, the 3.5% primary target for 2018 would depress growth today, boost the debt-to-GDP ratio immediately and make it impossible to achieve the said target by 2018. </p>
<p>Such basic economic arguments were treated like insults. Once I was accused of “lecturing” them on macroeconomics. On your pedagogical question: while it is true that we teach students a brand of economics that is designed to be blind to really-existing capitalism, the fact remains that no type of sophisticated economic thinking, not even neoclassical economics, can reach the parts of the Eurogroup which make momentous decisions behind closed doors.</p>
<hr>
<p><strong>Mariana Mazzucato, University of Sussex</strong> – <em>How has the crisis in Greece (its cause and its effects) revealed failings of neoclassical economic theory at both the micro and the macro level?</em></p>
<p><strong>Varoufakis:</strong> The uninitiated may be startled to hear that the macroeconomic models taught at the best universities feature no accumulated debt, no involuntary unemployment and, indeed, no money (with relative prices reflecting a form of barter). Save perhaps for a few random shocks that demand and supply are assumed to quickly iron out, the snazziest models taught to the brightest of students assume that savings automatically turn into productive investment, leaving no room for crises.</p>
<p>It makes it hard when these graduates come face-to-face with reality. They are at a loss, for example, when they see <a href="http://www.cer.org.uk/insights/more-investment-germany%E2%80%99s-sake">German savings that permanently outweigh German investment</a> while <a href="https://theconversation.com/greece-and-germany-have-more-in-common-than-you-might-think-41735">Greek investment outweighs savings</a> during the “good times” (before 2008) but collapses to zero during the crisis. </p>
<p>Moving to the micro level, the observation that, in the case of Greece, real <a href="http://www.reuters.com/article/2013/10/22/us-greece-incomes-idUSBRE99L0I420131022">wages fell by 40%</a> but employment dropped precipitously, while exports remained flat, illustrates in Technicolor how useless a microeconomics approach bereft of macro foundations truly is.</p>
<hr>
<p><strong>Tim Bale, Queen Mary University of London</strong> – <em>Do you see any similarities between yourself and Jeremy Corbyn, who looks like he might win the (UK) Labour leadership, and do you think a left-wing populist party is capable of winning an election under a first-past-the-post system?</em></p>
<p><strong>Varoufakis:</strong> The similarity that I feel at liberty to mention is that Corbyn and I, probably, coincided at many demonstrations against the Tory government while I lived in Britain in the 1970s and 1980s, and share many views regarding the calamity that befell working Britons as power shifted from manufacturing to finance. However, all other comparisons must be kept in check. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/92299/original/image-20150818-12421-1mqzdad.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/92299/original/image-20150818-12421-1mqzdad.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/92299/original/image-20150818-12421-1mqzdad.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/92299/original/image-20150818-12421-1mqzdad.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/92299/original/image-20150818-12421-1mqzdad.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/92299/original/image-20150818-12421-1mqzdad.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/92299/original/image-20150818-12421-1mqzdad.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/92299/original/image-20150818-12421-1mqzdad.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Demo partners? Jeremy Corbyn.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/garryknight/15024926027/in/photolist-oTGF3K-oFqoSv-ou7Aqw-8ZatUS-oBHKNz-wNHZ7B-wNATdW-HihJt-rRyD2L-k6WpFb-oFoHoE-wNAXkq-wNzJCJ-w9buVb-vSJAQQ-x6KuKx-x6JW2B-wNHnvX-w9bUyJ-3j3uR1-wx8Sku-vST2QH-9SZa9Q-9SZ8Wh-9SWj8a-9SWiYz-9SZ97G-9SWk3v-9SZ9QU-9SWjgT-9SZ9Z7-9SZ9FW-9SWjQ6-9SWkKp-wP2Qf5-wxgfG8-wMqMf7-wP2cq3-wPKskc-wMqKpd-wxg4ui-wMqJhy-wx8NvL-wMrez1-vSSWYD-vSTSZV-vSJrw9-wPKwJn-wx8RKE-wPL5vi">Garry Knight</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<p>Syriza was a radical party of the Left that scored a little more than <a href="http://www.ibtimes.com/greece-elections-syriza-gears-win-grexit-expectations-are-low-1793502">4% of the vote in 2009</a>. Our incredible rise was due to the collapse of the political “centre” caused by popular discontent at a Great Depression due to a single currency that was never designed to sustain a global crisis, and by the denial of the powers-that-be that this was so. </p>
<p>The much greater flexibility that the Bank of England afforded to Gordon Brown’s and David Cameron’s British governments prevented the type of socio-economic implosion that led Syriza to power and, in this sense, a similarly buoyant radical left party is most unlikely in Britain. Indeed, the Labour Party’s own history, and internal dynamic, will, I am sure, constrain a victorious Jeremy Corbyn in a manner alien to Syriza. </p>
<p>Turning to the first-past-the-post system, had it applied here in Greece, it would have given our party a crushing majority in parliament. It is, therefore, untrue that Labour’s electoral failures are due to this system. </p>
<p>Lastly, allow me to urge caution with the word “populist”. Syriza did not put to Greek voters a populist agenda. “Populists” try to be all things to all people. Our promised benefits extended only to those earning less than £500 per month. If it wants to be popular, Labour cannot afford to be populist either.</p>
<hr>
<p><strong>Mark Taylor, University of Warwick</strong> - <em>Would you agree that Greece does not fulfil the criteria for successful membership of a currency union with the rest of Europe? Wouldn’t it be better if they left now rather than simply papering over the cracks and waiting for another Greek economic crisis to occur in a few years’ time?</em></p>
<p><strong>Varoufakis:</strong> The eurozone’s design was such that even France and Italy could not thrive within it. Under the current institutional design only a currency union east of the Rhine and north of the Alps would be sustainable. Alas, it would constitute a union useless to Germany, as it would fail to protect it from constant revaluation in response to its trade surpluses. </p>
<p>Now, if by “criteria” you meant <a href="http://ec.europa.eu/economy_finance/economic_governance/sgp/index_en.htm">the Maastricht limits</a>, it is of course clear that Greece did not fulfil them. But then again nor did Italy or Belgium. Conversely, Spain and Ireland did meet the criteria and, indeed, by 2007 the Madrid and Dublin governments were registering deficit, debt and inflation numbers that, according to the official criteria, were better than Germany’s. And yet when the crisis hit, Spain and Ireland sunk into the mire. In short, the eurozone was badly designed for everyone. Not just for Greece. </p>
<p>So should we cut our losses and get out? To answer properly we need to grasp the difference between saying that Greece, and other countries, should not have entered the eurozone, and saying now that we should now exit. Put technically, we have a case of hysteresis: once a nation has taken the path into the eurozone, that path disappeared after the euro’s creation and any attempt to reverse along that, now non-existent, path could lead to a great fall off a tall cliff.</p><img src="https://counter.theconversation.com/content/35861/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Yanis Varoufakis served as Greece’s Finance Minister (January to July 2015) and remains a Member of the Hellenic Parliament.</span></em></p><p class="fine-print"><em><span>Cristina Flesher Fominaya is currently Senior Marie Curie Fellow at the Natonal University Ireland, Maynooth. Her current research project "Contentious Politics in an Age of Austerity" is funded by a Marie Sklodowska-Curie Intra-European Fellowship.</span></em></p><p class="fine-print"><em><span>Panicos O. Demetriades has received funding from the ESRC to carry out research projects and offers consultancy services through Gerson Lehrman Group.</span></em></p><p class="fine-print"><em><span>Anton Muscatelli, Kamal A Munir, Mariana Mazzucato, Mark Taylor, Roy Bailey, Simon Wren-Lewis, and Tim Bale do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Greece’s ‘accidental economist’ speaks to the UK’s leading minds on Syriza, the troika, and whether he’s just a little over-exposed.Yanis Varoufakis, Professor of Economics, University of AthensLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/434062015-07-03T04:27:43Z2015-07-03T04:27:43ZWhy the approach economists have taken to growth in Africa has failed chronically<figure><img src="https://images.theconversation.com/files/87015/original/image-20150701-27138-1mwajiy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Not all of the post-independence period in Africa has been an economic failure.</span> <span class="attribution"><span class="source">Reuters/Philimon Bulawayo </span></span></figcaption></figure><p>There has been a chronic failure among economists to explain growth in Africa.
The methods and analytical angles they have used to explain relative failure in Africa were conceived in the 1990s, but these were unsuitable for explaining growth in the 1960s or growth since the 2000s.</p>
<p>There is no denying that there was an economic failure in many African economies and that this decline took place during the postcolonial period. But it did not coincide with the whole period. “Postcolonial period” and “economic failure” have been equated in literature that attempts to explain growth in postcolonial Africa. They should not be.</p>
<p>This erroneous stylised fact provided the impetus for a literature that compressed a history that moved from explaining the African growth shortfall to explaining the gap in GDP per capita between African economies and the rich countries in the rest of the world.</p>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/86974/original/image-20150701-31874-19vmvfz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/86974/original/image-20150701-31874-19vmvfz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=922&fit=crop&dpr=1 600w, https://images.theconversation.com/files/86974/original/image-20150701-31874-19vmvfz.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=922&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/86974/original/image-20150701-31874-19vmvfz.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=922&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/86974/original/image-20150701-31874-19vmvfz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1159&fit=crop&dpr=1 754w, https://images.theconversation.com/files/86974/original/image-20150701-31874-19vmvfz.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1159&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/86974/original/image-20150701-31874-19vmvfz.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1159&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Economists have been able to explain why African nations fail, but not how they are growing.</span>
</figcaption>
</figure>
<p>Dispensing with the average growth outcome perspective changes the way in which the postcolonial growth record is both narrated and explained. This is because, by doing this, we are provided with an insight into periods of growth. When those periods become visible, it suddenly stops seeming at all plausible that initial conditions such as ethnic fragmentation and measures of social capital had a direct role in the failure of economic growth in the late 1970s.</p>
<p>At best, there must have been some latent factors, but the causality story – initial conditions causing slow growth – is wrong and therefore not useful for policy advice. Moreover, policy typologies such as the distinction between “closed” and “open” economies, or the related “bad” and “good” policies, do not correlate coherently with episodes of economic growth in African countries.</p>
<h2>Mistaking symptoms for causes</h2>
<p>Africa’s growth failure happened because of a combination of external economic shocks and a less-than-perfect policy response, from both international donors and national economic policymakers. </p>
<p>But laying the blame solely on institutions and policies was a costly mistake. Cause and effect were reversed in the growth literature, and several decades were wasted putting a lot of effort into curing symptoms that were thought to be causes. </p>
<p>If structural adjustment had been conceived as a policy package that was intended to remedy the effects of economic decline, it would have been more successful. Instead, structural adjustment policies were misguided.</p>
<p>All African economies have experienced the fluctuations and contractions of world markets, but different economies had different levels of exposure to world markets and they put different policies in place to manage their interactions with those markets. </p>
<p>The development of world markets after 1973 was bad news for all African economies except the petroleum-exporting ones. Dependence on world markets for primary commodity exports led to a convergence of negative economic performance in the 1980s, with only a few exceptions. </p>
<p>This convergence in economic performance paved the way for a convergence in policy advice, as African economies embarked on relatively homogeneous structural adjustment programs that were not suited to heterogeneous country conditions.</p>
<h2>What’s governance got to do with growth?</h2>
<p>That the states that most analysts characterise as having “poor governance” have presided over long periods of growth, both in Africa and elsewhere, is a strong argument against the claim that political governance is a determining factor in economic history. </p>
<p>Africa’s growth performance in the 1960s and China’s recent growth performance are good examples. </p>
<p>A second argument against the link between governance styles and economic performance is the fact that good governance is an outcome of development and not a prerequisite for growth. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/87012/original/image-20150701-27131-1pk92x3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/87012/original/image-20150701-27131-1pk92x3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=406&fit=crop&dpr=1 600w, https://images.theconversation.com/files/87012/original/image-20150701-27131-1pk92x3.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=406&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/87012/original/image-20150701-27131-1pk92x3.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=406&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/87012/original/image-20150701-27131-1pk92x3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=510&fit=crop&dpr=1 754w, https://images.theconversation.com/files/87012/original/image-20150701-27131-1pk92x3.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=510&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/87012/original/image-20150701-27131-1pk92x3.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=510&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">China’s high growth rates disproves theory that political governance is a determining factor in economic history.</span>
<span class="attribution"><span class="source">Reuters/Jason Lee</span></span>
</figcaption>
</figure>
<h2>Focus should be on what works, not what doesn’t</h2>
<p>It is quite obvious that future growth will depend on a multitude of variables, and that accurate projections are not feasible. However, it is also beyond doubt that world markets, local political conditions and the costs of factors of production in the domestic economy will play a large part in determining future growth trajectories. To predict the growth of the world economy is a tall order.</p>
<p>Our best guess is that markets will continue to fluctuate, as they have done in the past. But this will not mean more of the same for Africa.</p>
<p>The solution is to refocus the study of economics on the study of economies. The increasing distance between the observers and the observed has created a growing knowledge problem. With the move to cross-country studies based on macro-analysis, country-level nuances have been lost. </p>
<p>In other words, cross-country growth regressions can take us only so far. One of the problems is that the seemingly proven results of such literature have been taken at face value.</p>
<p>I do not want to argue that economists should be excluded from analysing the history of political and social institutions. The economic implications of history are far too great for these factors to be sidelined when writing the history of both poverty and the wealth of nations. </p>
<p>I do, however, wish to caution economists about the dangers of drawing policy implications for continents – or even for the entire world – that are based too quickly on weak and unquestioned evidence, spurious correlations, and uninvestigated historical relationships.</p>
<figure class="align-left ">
<img alt="" src="https://images.theconversation.com/files/86986/original/image-20150701-31900-18c4y3x.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/86986/original/image-20150701-31900-18c4y3x.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=383&fit=crop&dpr=1 600w, https://images.theconversation.com/files/86986/original/image-20150701-31900-18c4y3x.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=383&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/86986/original/image-20150701-31900-18c4y3x.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=383&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/86986/original/image-20150701-31900-18c4y3x.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=481&fit=crop&dpr=1 754w, https://images.theconversation.com/files/86986/original/image-20150701-31900-18c4y3x.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=481&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/86986/original/image-20150701-31900-18c4y3x.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=481&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Karl Marx’s interpretation that the more developed countries showed the less developed the image of their own future has been debunked repeatedly.</span>
<span class="attribution"><span class="source">Reuters/Dinuka Liyanawatte</span></span>
</figcaption>
</figure>
<p>The turn toward a literature that delivers useful policy recommendations will involve research that seeks to uncover how African states and economies operate, rather than showing how they differ from those that are richer. </p>
<p>Karl Marx wrote that the more developed countries showed the less developed the image of their own future. That interpretation of economic development has been debunked time and again. </p>
<p>Late development is different, and African countries should follow their own path. If it is true – and I think it is – that institutions really matter for development, then that means we have to understand how and why institutions are embedded, and how we can work with them. </p>
<p>The subtraction approach to economic development must be disbanded. A change is needed in the literature on institutions and economic growth – toward a reciprocal comparison focusing on how African economies work rather than only explaining why they don’t.</p>
<hr>
<p><em>This article is an excerpt from the author’s new book, <a href="http://www.zedbooks.co.uk/node/20810">Africa: Why Economists Get It Wrong</a>.</em></p><img src="https://counter.theconversation.com/content/43406/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Morten Jerven receives funding from Social Sciences and Humanities Research Council of Canada.</span></em></p>Africa’s growth failure happened because of a combination of external economic shocks and a less-than-perfect policy response, from both international donors and national economic policymakers.Morten Jerven, Associate Professor of Economics, Simon Fraser UniversityLicensed as Creative Commons – attribution, no derivatives.