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:
Good economic theories help us understand big events as they are happening. What we most want is guidance on how they are likely to play out over time, both the short- and long-run. Good models are especially valuable in circumstances of macro disruptions that lack convincing historical precedent. That is the case with Brexit, the shocking decision of the British electorate to leave the European Common Market. The on-going rending of the UK political fabric is inexorably pushing the country to a once unimaginable hard exit.
Generalized-exchange macroeconomics, constructed in the GEM Project as a superior alternative to market-centric thinking featured in the mainstream academy, is up to the high standards of good theory. In particular, the model provides reliable answers to the hard-Brexit questions that I get asked.
Will a hard Brexit cause a collapse in dollar asset prices along the lines of the Great Recession? This is the first question asked about any in-the-news macro disruption. With respect to a hard Brexit, the answer is a confident no. GEM modeling identifies the financial panic at the center of the 2008-09 extreme instability to be rooted in investor/lender uncertainty about the trend prospects for domestic economic stability. It demonstrates that stability expectations are rationally and coherently rooted in the prospects for aggregate nominal demand. (Chapters 2 and 3) It additionally shows that, in 2008, investors/lenders became uncertain about the credibility of the Federal Reserve’s trend full-employment objective. Consequently, as intuitively modeled by Nancy Stokey, investors/lenders became inactive, delaying their acquisition of financial assets until credible market bottoms emerge. (Chapter 6 and 10) Postponing the pursuit of profit opportunities triggered the frightening 2008-09 contraction in total spending. More generally, the Project asserts that robust credibility of government policymakers’ objectives of high trend employment and low inflation is sufficient to prevent nonstationary demand contractions and consequent great recessions/depressions
Today, by contrast with 2008, the is no meaningful uncertainty about the Fed’s capacity, especially now that it is armed...