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:
This post takes a break in the GEM Blog’s mission to explicate generalized-exchange modeling, substituting a policy update. With the constant political turmoil in Washington, some really important recent news got lost. The Congressional Budget Office released projections indicating that the federal government annual deficit, given unchanged fiscal policy, will exceed a trillion dollars by 2020. Again with unchanged policy (e.g., no deficit-financed ambitious federal infrastructure program or “beautiful” wall along the Southern border), the total national debt which today is just above $21 trillion is projected to reach $33 trillion in 2028. That would make the publicly held portion of the debt equal to the total U.S. gross national product. Fiscal-policy experts consider that close to or past an extreme crisis point that unleashes unmanageable reactions, greatly damaging the well-being of the country at large.
My conclusions are rooted in considerable expertise. I ran macroeconomic analysis at the CBO, producing many deficit/debt projections, during the last time (the early 1980s) a large tax cut (absent significant spending reductions) threatened to generate an extended run of outsized federal deficits. The experience produced perspective, summarized below, that is useful in making sense of the recent hurried sharp turn in fiscal policy.
First, the projections are not a mistake. Especially in periods of full employment which we are clearly experiencing today, accurate deficit/debt projections are relatively easy to do. I could have come up with a result similar to CBO’s with a pencil and the back of an envelope. We must face up to it. With unchanged fiscal policy, the credit of the United States during the CBO’s timeline is going to become a hot mess.
Second, accelerating economic growth will not reduce the projected deficits. The cyclical recovery is largely complete. Over the next two decades, hoped-for growth in employment and output above recent trends will not happen. In fact, discernible economic headwinds will work to significantly slow growth. Most notably, demographic forces (pretty easy to project) will...