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:
I admire Jean-Pascal Bénassy’s text Macroeconomic Theory (2011). But its New Keynesian roots cause him to get some significant things wrong. A troubling example is his identification of a “particularly important issue, that of government policy effectiveness. It is shown notably that hypotheses on information and expectations formulation are absolutely central in assessing whether government can actually control the evolution of employment and output.” (p.25)
Bénassy’s confident conclusion about expectations and information is the generally accepted assessment that has directed cutting-edge research for more than three decades. The GEM Project concurs with parts of it, especially the crucial roles of confidence (a kind of expectations) in stabilization authorities’ capacity to deliver on their real-side (high trend employment) objective and of imperfect information in large, highly specialized workplaces. However, his assertion of centrality for expectations formation is little more than a misleading artifact of market-centric general-equilibrium restrictions imposed on the scope of rational price-mediated exchange. The artifact has diverted a great deal of the rigorous thinking about stabilization-relevant macroeconomics into blind alleys and is central to any adequate explanation of the paucity of useful stabilization theorems produced by the current generation of mainstream macro theorists.
In generalized-exchange modeling, meaningful wage rigidity uniquely microfounds the causal link from nominal demand disturbances to recognizably sized, same-direction changes in employment, output, and profits. The MWR channel is what is ‘absolutely central’ to macro-model stabilization-policy effectiveness, remaining robust even in the implausible perfect foresight circumstances of the Rational-Expectations Hypothesis. Exchange generalization from the marketplace to bureaucratic workplaces posits expectations that efficiently use available information, including all that is known about the behavior and plans of government authorities. Once the arbitrary, debilitating marketplace-only constraint on rational exchange is eliminated, the most consequential restriction on information is its asymmetric, costly nature in large, specialized workplaces, a limitation that is sufficiently accepted by practitioners to be axiomatic.
No reasonable debate rooted in the formulation of expectations or the nature of information attends the derivation, from...