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:
Last week’s post illustrates why the mainstream New Keynesian journal, American Economic Journal: Macroeconomics, has since its debut in 2009 failed to explain the most important instability evidence. The core problem is that AEJ:M editors assign top priority to defending the “settled” New Keynesian market-centric general-equilibrium model class. That is a demanding task, especially since they must know their theory cannot rationally accommodate meaningful wage rigidity (MWR) or involuntary unemployment. But the gatekeepers, seemingly immune to shame, are persistent. Over time scholars have learned that publishable papers avoid the thorny New Keynesian ambition to microfound the suppression of wage recontracting.
It’s apparently OK to do empirical analysis on macro phenomena that are rooted in MWR. But it is not acceptable to go outside the bounds of market centricity in the effort to rigorously model wage rigidity, which would enable sensible interpretation of empirical findings. Leading NK theorists believe in and impose a research agenda that rejects the New Neoclassical Synthesis mandate insisting macroeconomics be rooted in rational behavior. The NK academy is satisfied with keystone wage rigidity, e.g. the staggered Calvo Wage, that is obviously irrational.
As readers of this blog understand, that editorial judgement dooms NK macro theory to stabilization irrelevance. Readers also know that rational MWR results from optimizing employee-employer exchange that occurs in workplaces that are inherently restricted by costly, asymmetric information. AEJ:M editors don’t want to hear that; they don’t want, for whatever self-interest, to acknowledge that market-centric macroeconomics is not now, and since the Second Industrial Revolution has not been, settled theory. The GEM Project easily demonstrates that the price of the mainstream NK unwillingness to intuitively generalize rational exchange from the marketplace to the information-challenged workplace is the consequent inability to explain the most important instability evidence and, therefore, provide sensible policy advice.
The AEJ:M editorial satisfaction of with that sorry state of affairs is apparent with each publication of an article that involves, at least implicitly, unmentionable MWR and involuntary...