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:
John Hicks was a giant of 20th-century economics. Like a number of other great economists, he began his studies specializing in mathematics, later switching to economics.
Hicks was knighted in 1964 and shared the Nobel Prize with Kenneth Arrow in 1972. In the aftermath of the publication of my 1984 book (The Price of Industrial Labor), I corresponded with Sir John who had a lifelong interest in labor pricing. He was a kind and insightful scholar, who understood the necessity of microfounding meaningful wage rigidity (MWR) if macro theory is to be stabilization-relevant.
Original Great Idea
In his 1937 Econometrica article, Hicks famously reformulated the goods and money markets in Keynes’s The General Theory to be consistent with a general-market-equilibrium framework that he generally (and casually) restricted by assumed price rigidities – his famous IS-LM model. That paper (“Mr. Keynes and the ‘Classics’”) became one of the most cited papers in the literature. A few years later, in his 1944 Econometrica article, Franco Modigliani demonstrated that Keynes’s signature labor-market failure centrally required wage rigidity. Early Keynesian analysis was constructed on IS-LM equilibrium restricted by assumed labor-price stickiness.
GEM Helping Hand
Some context. In their influential Lectures on Macroeconomics (1989), Stanley Fischer and Olivier Blanchard concluded that Early Keynesian thinking, especially the Neoclassical Synthesis, was “in theoretical crisis”. In response, they organized their text around a benchmark neoclassical model featuring “optimizing individuals and competitive markets” with an important caveat. While research on microfounding wage and price rigidities evident in the data was on-going, B&F argued EK shortcut assumptions remained necessary to inform policymakers, the alternative being “a harmful utopia that leaves the real world to charlatans”. (pp.27-28) Lectures includes irrational models that are “the workhorses of applied macroeconomics”, notably featuring Hicks’s IS-LM interpretation of The General Theory that assumed non-microfounded price rigidity. B&F position their text to occupy a difficult middle ground in an increasingly contentious debate.
New Keynesian criticism. The “charlatans”, however, won. Given that Hicks’s IS-LM...