A home for economists who believe macroeconomics can be both coherent and stabilization-policy relevant
The GEM website is a home for economists who believe that mainstream macroeconomics cannot usefully explain the costly instability that periodically rocks modern economies.
In particular, consensus thinking failed to guide policymakers' efforts to deal with the enormous welfare costs of the 2007-09 Great Recession – especially six million involuntarily lost jobs.
That failure is not surprising. Forced unemployment is beyond the reach of coherent market-centric theory that today dominates macro research.
The GEM Project offers an alternative approach that intuitively explains instability while maintaining both coherence and stabilization-relevance. In its central innovation, the Project generalizes rational exchange from the marketplace to the large-firm workplace, crucially microfounding meaningful wage rigidities – the key to policy-useful modeling.
Generalization of price-mediated exchange is offered as the next big idea in macroeconomics. We invite economists dissatisfied with the stabilization-policy limitations of mainstream theory to join us in constructing a better model.
The interactive GEM website provides a variety of ways to contribute:
Core neoclassical principles that govern macro modeling are optimization, general equilibrium, and market centricity. The GEM Project argues that the third tenet, the restriction of rational exchange to the marketplace, long ago outlived its usefulness. The emergent ubiquity of complex, bureaucratic corporations fundamentally altered the nature of rational price-mediated exchange, badly damaging the capacity of textbook market-centric macroeconomics to explain critical evidence. The Project demonstrates that, in order to be stabilization-relevant, consensus macro thinking must accept the generalization of optimizing exchange from the marketplace to information-challenged workplaces.
Market exchange versus production. Joan Robinson (1977, p.1321), perhaps even more than her Cambridge colleague John Maynard Keynes, anticipated the GEM Project: “There are various brands of micro theory; …but all share the characteristic of stressing exchange and neglecting production.” She cites Nikolay Bukharin as an economist who got it right. In 1919, he lamented that “there is almost no [mainstream] discussion of how scarce means are organized to yield outputs; the whole emphasis is on exchanges of ready-made goods.”
She then cites the estimable Robert Clower as an example of getting it wrong. From Clower: “An ongoing exchange economy with specialist traders is a production economy since there is no bar to any merchant capitalist acquiring labor services and transforming them (repackaging, processing into new forms, etc.) into outputs that are unlike the original inputs and are ‘sold’ accordingly as are commodities that undergo no such transformation. In short, a production unit is a particular type of middleman or trading specialist.”
Robinson’s step-back perspective on the fundamental macro debate is insightful: “We cannot help trying to understand the world we are living in, and we need to construct some kind of picture of an economy from which to draw hypotheses about its mode of operation. We cannot hope to get neat and precise answers to the questions that hypotheses raise, but we can discriminate among the pictures of reality that are offered and choose the least implausible ones to...