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Economic Policies Since The Global Financial Crisis

Thursday 30 March 2017
St Catharine's College, Cambridge, UK -
all sessions in the Senior Combination Room (SCR)

 

Introduction: How have economic policies changed under the impact of the 2007/09 Global Financial Crisis (GFC)? Before the GFC, there had been belief in the ‘great moderation’, the belief that ‘new consensus macroeconomics’ and ‘inflation targeting’ ‘worked’; de-regulation and the financial sector were highly beneficial, inequality deemed needed for growth. The global economy appeared to be set on a path of continuous growth. The GFC exploded many of these ideas – yet have economic policies changed in response? How has the ‘conventional neo-liberal wisdom’ on economic policies changed? In the immediate aftermath of the GFC, attention focused on fiscal policy responses, on the development of ‘unorthodox’ monetary policies, and the regulation of the financial sector (e.g. Dodd-Frank Act). The fate of these three policy developments is examined. The fluctuating attitudes towards fiscal policy and austerity programmes are examined at the national and supra-national level including international organisations (IMF, OECD etc.). Monetary policy appears to have often shifted its policy objectives away from inflation targeting to financial stability and the use of quantitative/qualitative easing: does this represent a new era of monetary policy? And have attitudes to the financial sector and its regulation fundamentally changed – or is it ‘business as usual’? Output in 2016 is in general only a little higher than in 2007, and hence growth of output much lower than in the preceding decade. Does this represent a failure of demand recovery, and/or a shift to a much lower growth rate, and will the future be one of secular stagnation? Industrial policy had generally fallen out of favour in the decades of the ‘great moderation’. Have there been any significant changes? It is now widely recognized that inequality has tended to widen in many industrialised countries, and concern over inequality (for example, Occupy Wall Street etc.) become significant. But has there been any shift in the record on inequality and on the effective policy agenda with regard to inequality? How have labour market policies fared? Has the experience of unemployment promoted policies of more ‘flexible’ labour markets and depression of wages succeeded? How have environmental policies fared after the GFC? Has the opportunity of undertaking ‘green investment’ been taken, or has the austerity programme and the prospects for slow growth had adverse effects?

 

PAPER 1
Author: Philip Arestis

Professional affiliation: University of Cambridge, UK and University of the Basque Country UPV/EHU, Spain

Title of proposed paper: Monetary Policy since the Great Financial Crisis

This chapter focuses on monetary policy since the great financial crisis (GFC) of 2007/2008. It is the case that monetary policy since the GFC in effect has abandoned the main policy instrument that had been very fashionable prior to the international crisis, namely inflation targeting. The pre-GFC monetary policy was that of manipulating the rate of interest to achieve a set inflation target, the only objective of monetary policy. In view of the rate of interest reduced to nearly zero in many countries after the GFC, monetary policy makers introduced unconventional means to still achieve an inflation target. Quantitative easing has been introduced along with negative interest rates in some cases. A new objective has been introduced, what is now known as financial stability, but still inflation targeting is still around. We discuss these developments in the case of the main economies, namely the US, the European Economic and Monetary Union (EMU), and the UK.

 

PAPER 2
Author: Malcolm Sawyer

Professional affiliation: University of Leeds, UK

Title of proposed paper: Fiscal policies since the global financial crisis

In the immediate aftermath of the financial crisis, fiscal policy in the forms of the operation of automatic stabilisers and discretionary reflation was operated across many countries. But those anti-deflationary policies were soon down played and replaced by balanced budget rhetoric. The paper examines the change in rhetoric (in the EMU and the UK), its nature and the justifications provided for it. It continues by examining how far the rhetoric of balanced budgets has led to reduced budget deficits, and investigates the reasons for the failures over deficit reduction. It also argues that the promised 'expansionary fiscal consolidation' was never realised. The fluctuating views on fiscal policy and particularly on the size of fiscal multipliers, as expressed by the international financial institutions (IMF, World Bank, OECD), are examined. The paper concludes by considering the lessons to be drawn from the experiences on fiscal policy over the past decade.

 

PAPER 3
Author: Ahmad Seyf

Professional affiliation: Regent's University, UK

Title of proposed paper: The Need for Alternative Policies to Tackle Inequality

No one today can deny that there is a great and widening income and wealth divide in the global capitalist economies. This paper will investigate if this divide has widened since the global financial crisis of 2007-2008. With the further development of a rentier capitalism, the super rich, and big corporations, have learned how to hide their wealth and even in some cases, their income. This paper will discuss the scale of tax evasion and tax avoidance, and evaluate their impacts on state’s tax base. Proposals for tax reforms will be discussed. Given the scale of tax evasion and avoidance, for progressive taxation to be effective in reducing the gap, other measures may be needed and will be discussed. This paper will also discuss how this higher revenue should be spent in order to narrow income and wealth divide. As a case in point, education will be highlighted.

 

PAPER 4
Author: Eckhard Hein, Petra Dünhaupt, Ayoze Alfageme and Marta Kulesza

Professional affiliation: Berlin School of Economics and Law, Germany; University of Applied Sciences, Germany; PhD student, Berlin School of Economics and Law, Germany; PhD student, Berlin School of Economics and Law, Germany

Title of proposed paper: The Financialisation and Distribution in Six OECD Countries - Before and After the Crisis
 
The period of finance-dominated capitalism has contained as a main feature the re-distribution of income from labour to capital, from workers to top-managers, and from low income households to the rich. This has contributed to the severity of the recent financial and economic crises. The recovery from the crisis has been rather sluggish so far, and this has given rise to a renewed discussion about stagnation tendencies in mature capitalist economies. Kaleckian/Steindlian approaches focus on income distribution, as well as on the stance of macroeconomic policy, when it comes to explaining stagnation tendencies. Therefore, in the current paper we will focus on the development of income distribution since the outbreak of the crisis for a set of mature capitalist economies. The focus will be on functional distribution (wage and profit shares), personal or household distribution (Gini coefficient, top-income shares) and on wage dispersion.

 

PAPER 5
Author: Michelle Baddeley

Professional affiliation: Institute for Choice, University of South Australia, Australia

Title of proposed paper: Secular Stagnation and the Cyber revolution

Internet and mobile technologies have brought many benefits, including total factor productivity rises and new market opportunities. However, negative impacts from secular stagnation, productivity losses and falling employment are often ignored. Labour productivity and wages decline if workers are obliged to spend time complying with complex and unwieldy security policies. Online social networks, easily accessible via mobile technologies, create opportunities for distractions and shirking at work. Automation of an increasing range of jobs dampens labour demand and accelerates substitution of capital for labour, with implications for consumer demand, employment and unemployment. This paper explores relationships between computerisation and secular stagnation, taking into the distinctive features of information and communication technology (ICT) investment, including accelerated depreciation, reduced inventory investment and network effects. The relationships will be explored empirically using OECD data, analysed using panel estimation techniques. The paper will conclude with an analysis of policy implications and potential solutions.

 

PAPER 6
Authors: David Bailey and Philip R. Tomlinson

Professional affiliation: University of Aston, and University of Bath, UK

Title of proposed paper: UK Industrial Policy after the Crisis: What does the Future Hold?

In the aftermath of the global financial crisis (GFC) (2008), the economic debate began to shift towards upon rebalancing Western economies with a particular emphasis upon promoting more sustainable productive activities. Within the UK, this led to an initial acceptance – among some policy makers - that the dominant neo-liberal model was no longer relevant and that the state could in a positive way, utilise ‘industrial policy’ to revitalize manufacturing. However, while some of the early industrial policy initiatives - such as the Automotive Council and the Catapults -  have been promising, the Conservative government’s stance on industrial policy has been at best ‘muddled’ and at worst, is often ‘empty rhetoric’. In this chapter, we explore and evaluate the role of UK industrial policy since the GFC, paying particular emphasis upon initiatives at both the sectoral and regional level. We conclude with some suggestions for the future course of UK industrial policy.

 

PAPER 7
Author: Jesus Ferreiro and Carmen Gomez

Professional affiliation: University of the Basque Country UPV/EHU, Spain

Title of proposed paper: The Great Recession and Labour Markets in Europe

The Great Recession has had a significant impact on the performances (employment and unemployment) of European labour markets. The objective of this chapter is to analyze whether this impact significantly differs among EU countries. To a great extent the impact on European national labour markets in terms of employment is directly related to the effect of the Great Recession on national GDPs. To know whether the evolution of employment is explained by the evolution of the GDPs we will analyze the employment-to-GDP elasticities. These will give a clue to detect whether employment performances are associated to structural features of national European labour markets. We will also analyze whether employment performances are associated to differences existing in the share of non-standard (temporary and part-time) employment before the onset of the crisis. Finally, the chapter will analyze the main labour market reforms approved in EU countries during the Great Recession.

 

PAPER 8
Authors: Emanuele Campiglio, Antoine Godin, Eric Kemp-Benedict and Sini Matikainen

Professional affiliation: Vienna University of Economics and Business, Austria; Kingston University, UK; Stockholm Environment Institute, Sweden; and London School of Economics and Political Science, UK

Title of proposed paper: The Tightening Links between Financial Systems and the Low-Carbon Transition

This paper investigates the implications of the Great Financial Crisis on the prospect of a low-carbon transition and the policies aimed at supporting it. The immediate effects have mostly been negative: national governments have retracted from public spending and fiscal support to clean technologies; new financial regulation has discouraged banks from lending to low-carbon projects; unconventional monetary policies seem to have perpetuated the high-carbon lock-in of the economic system. However, the transformed policy and institutional setting have also created space for new concepts: sluggish growth has favoured the development of the ‘green growth’ policy narrative; the high-carbon bias of financial regulation spurred a debate around climate-aligned macroprudential policy; and the unprecedented level of central banks’ intervention suggested the implementation of a ‘green Quantitative Easing’. While still far from becoming reality, these proposals might prove instrumental in strengthening the contribution of the financial system to the low-carbon transition.



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