A Reflection On Major Issues Discussed At The INET Conference In Berlin

This article was written by a participant in the recent INET conference in Berlin. It reflects some of his views on the issues discussed at the conference. It goes into many areas that are interesting but I have selected a few of them in this post.

The theme of the conference was Paradigm Lost. The lost paradigm is neoclassical economics. There was not consensus on what will replace it. Thomas Fricke spoke about the problem in Germany. He claimed that German economists were sold on the neoclassical paradigm, and they used it to implement successful reforms which enabled the transition to a united Germany. Some now recognize the problems with the paradigm in the current crisis, but it is hard for many to make changes. This is particularly true for central bankers. I think that this is also true in the US. Change is not easy in any profession. I have not seen much change in the textbooks used in the introductory courses taken by most students. Furthermore, central bankers in the US still use the DSGE models that assume that banking and credit are exogenous to the real economy.

The use of credit and leverage, enabled by financial derivatives, has enabled the advanced economies to over consume. This, coupled with the entry of 4 billion to the consuming middle class in developing countries, has placed huge demands on natural resources which are not ecologically sustainable. National political constraints stand in the way of making the sacrifices that are necessary to sustain the environment for future generations. Politicians sell a paradise for self interested free riders who have little interest in self sacrifice.

Globalization was also a theme at the conference. Globalization has enabled convergence that has reduced the inequalities of income, wealth, and knowledge between the advanced nations and many developing economies. At the same time, it has fostered growing inequality within nations. There is a recognition of the impact of globalization on how we think about economics, and how we should deal with the transition, but it remains an issue without a clear solution.