Radical Reform for Economics: Addressing Inequality, Structural Shifts, and Policy Failures

The economics profession is in dire need of radical reform, characterized by a "glasnost and perestroika" approach to dismantle its self-dealing, tribal, and restrictive academic structure. This insular system fosters uniformity of thought, rendering it ill-equipped to address contemporary global challenges. James Galbraith, from the LBJ School at the University of Texas at Austin, highlights this systemic stagnation, arguing that the profession's current output lacks pertinence to major problems, a stark contrast to the diverse intellectual landscape of economics decades ago.

Galbraith's work, particularly with the University of Texas Inequality Project, exemplifies an alternative approach. This project, spanning over two decades, has developed a comprehensive global dataset on pay and income inequality, covering 150 countries since 1963. This data reveals a strong macroeconomic component to inequality, driven by shifts in the global financial regime, such as the breakdown of Bretton Woods, the 1980s debt crisis, and commodity recoveries. This perspective significantly diverges from mainstream literature and selective tax-record-based analyses, like those by the Piketty team, by offering a broader, more consistent view of inequality's drivers.

The "end of normal" thesis posits that post-crisis projections cannot rely on past recovery patterns due to fundamental structural shifts. These include volatile resource costs (e.g., oil prices, mitigated by fracking), global political instability, and the transformative nature of digital technology. Unlike previous technological waves that expanded market activities (automobiles, appliances), digital technologies often move activities out of the market sphere by reducing marginal costs, impacting investment's share of GDP and shifting economies towards consumption-driven models. Additionally, the financial system itself was fundamentally broken by banks' fraudulent business models leading up to the 2008 crisis, prioritizing consumer loans and mortgages over business investment with unsustainable practices.

These structural realities underscore a crisis of economic ideas, which in turn fuels policy failures, as witnessed during the Greek crisis of 2015. Dysfunctional, ideologically entrenched policies, such as those advanced by the IMF and European institutions, failed to recognize Greece's unique economic constraints and the futility of applying generic austerity formulas. Galbraith advocates for a return to the critical, problem-solving spirit of earlier economists like Smith, Ricardo, Marx, Veblen, Schumpeter, and Keynes. He also stresses the importance of flexible statistical and mathematical training to constructively utilize vast, neglected public data, as demonstrated by the University of Texas Inequality Project's early identification of inequality trends in Latin America and China. To foster this, universities should create autonomous units for social or political economics, promoting intellectual diversity and competition.

I think the structure of the economics profession in the academic world is it's profoundly in need of reform and I'd like to say it needs two things glasnost and perestroika openness and restructuring.

what you have now is a is a machine that produces a substantial uniformity of thought and which is stuck cannot cannot really bring itself to adjust to the fact that that thought is not is not particularly pertinent to the major problems that we face.

there is a strong macroeconomic component to the movement of inequality that it's driven in very substantial ways by the changing nature of the of the global financial regime.

The thesis of the end of normal was that one needed to move past the methodological procedure of trying to project the future after a major event like the great crisis from the record of what was the past pattern of economic recoveries.

the digital technologies would tend to move things out of the market sphere by making communications for example basically a fixed cost exercise no marginal cost no contribute no extra contribution to the to the to the gross product.

the banks in my view were fundamentally broken by the business models that they adopted and pursued in the run-up to the great crisis they moved from what they had been doing in the post-war period which was substantially financing business investment to financing consumer loans and mortgages and to do so on an increasingly decrepit fraudulent business model.

I think there is a crisis of economic ideas underlies the crisis of policy.

the economists of the IMF and the European Commission and the especially the European Central Bank were advancing for Greece was a formula that exactly the same kind of formula had tried and failed in Indonesia tried and failed and in Korea every place else where they wrote a program and so they were they they they were intent upon maintaining their ideas because they were invested in them not in adjusting to the realities of the situation.

if you're interested in new ideas read old books go to the library pick out the things which are definitely not on your reading lists and read them that we'll get will get you somewhere.

what I think is necessary from that standpoint is for universities to create smaller autonomous units not necessarily policy schools but you could have a department of social economics department of political economics this kind of thing that were aught that were autonomous and that we're not dependent on the same narrow a hierarchy of promotion say then you have it begin to have a diversity of views.