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:
The GEM Project is about resurrections, reviving particular schools of thought long left for dead. Most central is the large-workplace modeling conducted by a loose collection of 20th century labor economists. Clark Kerr, John Dunlop, Frederick Harbison, Charles Myers, Richard Lester, Lloyd Reynolds, Arthur Ross, Albert Rees, George Schultz, Henry Phelps Brown, and their colleagues were neoclassically trained, modeling rational employer and employee behavior subject to large-firm technological constraints. They closely investigated worker preferences and the interpersonal and intertemporal wage comparisons that they saw greatly influence satisfaction on the job. Especially notable is John Dunlop’s (1957) exhaustive study on internal wage systems, featuring the power and ubiquity of established reference standards in intra-firm determination of labor compensation. The on-site labor economists produced a nuanced, still accurate picture of what occurs in the large-establishment workplace that is broadly ignored by modern economists.
A second, related resurrection is the original morale-centric efficiency-wage literature that, along with Solow (1979), I (1977, 1980) helped to pioneer. That relatively small body of work combined employees’ preference for equitable treatment and costly, asymmetric large-workplace information. The latter induced a bimodal separation of rational labor pricing in economic theory. Large establishments rationally set wages inside the firm, while their small counterparts are market-wage takers. Efficiency-wage theory was unhappily reformulated by subsequent authors, returning the significant action to the more familiar marketplace. (Chapter 4)
The third resurrection concerns a better-known but still banished literature: the Early Keynesian macro centrality of wage rigidities. Building on Modigliani and Patinkin, Samuelson organized the Neoclassical Synthesis around the assumption of short-term labor-price stickiness that dominated macro thinking for decades after the death of Keynes. The Early Keynesians used wage rigidities to make their aggregate models stabilization-relevant, putting macroeconomics and macroeconomists on the policymaking map.
In the familiar story, the assumption of wage stickiness sufficient to suppress recontracting robbed the Early Keynesian model class of coherence. That serious methodological failure eventually resulted in its replacement in mainstream thinking by the...