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:
A friend argues that I need to try harder to understand the how otherwise reasonable non-economists make sense out of fundamental economic concepts like capitalism, free markets, and business cycles. He recommended a recent book, Having and Being Had by Eula Biss.
I read the book. I was disappointed. The author’s admittedly humorous distain for economics makes it difficult to understand how much her book aligns with the thinking of reasonably informed non-economists. One passage, however, did catch my attention. It occurs while Biss is making fun of recipients of the 2013 economics Nobel Prize. While laughing at Eugene Fama and Robert Shiller for having theories that “directly contradict” each other, she draws attention to a number of interesting issues.
“Even after the [2008-09] housing crash, Fama denied that the housing market had been a bubble and was skeptical that bubbles existed. ‘I don’t even know what a bubble means,’ he said. Economics isn’t good at explaining certain things, Fama acknowledged, like what causes recessions, but he still believed that the markets were ‘rational’. Rational markets don’t make bubbles. Rational markets don’t need to be regulated. Shiller, who had been tracking irrational behavior in the markets, disagreed. The idea that stock prices were rational, he wrote was ‘one of the most remarkable errors in the history of economic thought’.” (p.53)
What causes recessions? I do not know Fama or what he knows about recessions. I do know that economists who matter at the Fed, CBO, the Treasury, and big financial firms are good at explaining what causes recessions. It’s their bread and butter. Periodic contractions of total employment and output result from the combination of significantly weakening aggregate nominal spending and price, largely wage, downward inflexibility. It is aa intuitive law of economics that, if prices cannot adjust to a shock, then real quantities must change. Effective stabilization policy always focuses on managing total demand. Recessions cause significant damage; unchecked recessions morph into depressions and...