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61. Eight Contradictions of the Imperialist ‘Rules-Based Order’

Author:
Tricontinental: Institute for Social Research
Publication Date:
03-2023
Content Type:
Case Study
Institution:
Tricontinental: Institute for Social Research
Abstract:
We are now entering a qualitatively new phase of world history. Significant global changes have emerged in the years since the Great Financial Crisis of 2008. This can be seen in a new phase of imperialism and changes in the particularities of eight contradictions.
Topic:
Economics, Human Rights, Imperialism, Financial Crisis, Capitalism, Global South, Socialism, and International Order
Political Geography:
China, Asia, Global Focus, and United States of America

62. The Perils of Antitrust Econometrics: Unrealistic Engel Curves, Inadequate Data, and Aggregation Bias

Author:
Gabriel A. Lozada
Publication Date:
05-2023
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
Some economists argue antitrust policy should be based on empirical methods used by the Industrial Organization subdiscipline of economics, but non-economists must understand that those methods contain certain highly restrictive assumptions. Those assumptions involve econometric “identification,” and treating aggregate demand as if it were generated by a representative consumer (Muellbauer’s “generalized linear” preferences). We derive new results illustrating how restrictive the representative consumer assumption is; we explain aggregation bias in Almost Ideal Demand System models; and we show that data limitations make it even harder to justify economists’ restricting aggregate demands as one would the demand of a single individual.
Topic:
Economics, Antitrust Law, Data, and Econometrics
Political Geography:
Global Focus

63. The Anatomy of Cyber Risk

Author:
Rustam Jamilov, Hélène Rey, and Ahmed Tahoun
Publication Date:
05-2023
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
This paper employs computational linguistics to introduce a novel text-based measure of firm-level cyber risk exposure based on quarterly earnings conference calls of listed firms. Our quarterly measures are available for more than 13,000 firms from 85 countries over 2002-2021. We document that cyber risk exposure predicts cyber attacks, affects stock returns and profits, and is priced in the equity option market. The cost of option protection against price, variance, and tail risks is greater for more cyber-exposed firms. Cyber risks spill over across firms and persist at the sectoral level. The geography of cyber risk exposure is well approximated by a gravity model extended with cross-border portfolio flows. Back-of-the-envelope calculations suggest that the global cost of cyber risk is over $200 billion per year.
Topic:
Economics, Markets, Cybersecurity, Business, and Risk
Political Geography:
Global Focus

64. Why The Monetary Policy Framework in Advanced Countries Needs Fundamental Reform

Author:
William White
Publication Date:
08-2023
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
The objective pursued by most central banks in recent decades has been a low level of inflation. Since inflation was believed to respond to changes in unemployment, this implied a primary focus on labor markets and output gaps in the “real” economy when setting monetary policy. In contrast, “financial” sector developments were thought to be of no great importance.
Topic:
Economics, Monetary Policy, Reform, Inflation, and Labor Market
Political Geography:
Global Focus

65. The Horizontal Merger Efficiency Fallacy

Author:
Mark Glick, Gabriel A. Lozada, Pavitra Govindan, and Darren Bush
Publication Date:
08-2023
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
The Department of Justice and Federal Trade Commission Merger Guidelines (the “Merger Guidelines”), including the much improved latest revision in 2023 (the “New Merger Guidelines”), have continued to perpetrate what we call in this paper the horizontal merger efficiency fallacy. The fallacy arises because in the Guidelines the term “efficiencies” has become unmoored from its foundations in economic theory and has been reduced to the business school construct of cost savings. We show that cost savings can only be considered universally socially beneficial by acceptance of what is termed “the Consumer Welfare Standard” (antitrust) or “the surplus theory of welfare” (economics), a theory that has been discredited and abandoned by welfare economists. In economic theory, efficiency means Pareto Efficiency. We explore the various attempts to tether the cost savings definition of efficiency to Pareto Efficiency and explain why these attempts have failed. We conclude that there is no sound way to theoretically reconcile cost savings with the economic meaning of efficiencies. We then move beyond the efficiency fallacy and show how modern welfare economics can be used to integrate Congressional antitrust goals into the New Merger Guidelines. This requires abandoning the unsupported “standard deduction” for efficiencies and replacing it with an evidence-based assessment of how a specific merger under review potentially impacts Congressional antitrust goals. This change renders the present efficiency rebuttal section of the New Merger Guidelines superfluous, and we provide specific reasons why this section as currently drafted is flawed and should be jettisoned.
Topic:
Economics, Government, Markets, Business, and Efficiency
Political Geography:
Global Focus

66. The Art of Paradigm Maintenance: How the ‘Science of Monetary Policy’ tries to deal with the inflation of 2021-2023

Author:
Servaas Storm
Publication Date:
10-2023
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
The macroeconomic models used by major institutions including the Federal Reserve and the International Monetary Fund (IMF) failed to predict the inflation surge during 2021-2023. The output gap, the unemployment gap, the New Keynesian Phillips curve and inflation expectations did not give timely and relevant signals. The re-emergence of inflation thus threw the ‘science of monetary policy’ off the rails. Faced with the choice between changing their paradigm and proving that there is no need to do so, the ‘scientists of monetary policy’ got busy on the proof. As a result, a number of ad-hoc epicycles have been added to the New Keynesian analytical core—with the help of which one can claim to be able to explain the sudden acceleration of inflation post-factum. This paper critically reviews the theoretical and empirical merits of three recent tweaks to the New Keynesian core: using the vacancy ratio as the appropriate measure of real economic activity; hammering on the considerable risk of an imminent wage-price spiral; and the resurrection of the non-linear Phillips curve. The paper concludes by drawing out sobering lessons concerning the art of paradigm maintenance as practiced by the ‘scientists of monetary policy’.
Topic:
Economics, Monetary Policy, Institutions, Inflation, and Macroeconomics
Political Geography:
Global Focus

67. Accounting for Non Economic Loss & Damage changes perspective of L&D as a whole

Author:
International Centre for Climate Change and Development (ICCCAD)
Publication Date:
11-2023
Content Type:
Policy Brief
Institution:
International Centre for Climate Change and Development (ICCCAD)
Abstract:
Adverse impacts induced by climate change is already occurring and manifesting in the form of losses and damages which are expected to accelerate as climate change worsens and tipping points in eccological systems are reached. Failure to address climate-driven loss can trap populations in a state of vulnerability. Such kinds of losses and damages can be either economic or non-economic in nature. Economic losses and damages can be measured using market prices. In contrast, non-economic loss and damage (or ‘NELD’) refers to a broad range of harmful impacts that are not so easily quantified, especially in financial terms. This makes it difficult to evaluate the non economic nature and the intensity of the losses and damages faced by frontline communities.
Topic:
Climate Change, Economics, Vulnerability, and Loss and Damage (L&D)
Political Geography:
Global Focus

68. Does Gravity Matter for Trade in Intermediate Services?

Author:
Anmol Kaur Grewal
Publication Date:
10-2023
Content Type:
Working Paper
Institution:
Centre for Trade and Economic Integration, The Graduate Institute (IHEID)
Abstract:
This paper makes a twofold contribution to the literature on trade in services. First, I construct a novel bilateral dataset of trade in services differentiating between final consumption and intermediate consumption following the most recent classification of UN’s Broad Economic Categories (BEC Rev. 5). Second, I use this dataset to estimate a gravity model of trade in intermediate and final services for a sample of 48 economies for the time period 2010-2019. Using a robust model specification consistent with the recent advancements in the gravity literature, I find that trade in services exhibits a sensitivity to bilateral distance between trading partners, similar to trade in goods. Intermediate services tend to be more sensitive to distance relative to final services due to the distinct nature of these services (B2B versus B2C). Common language and common borders are important determinants of both trade in intermediate and final services. I also find evidence of non-linear effects of time zone differences on trade in services.
Topic:
Economics, Services, Trade, Consumption, and Intermediate Services
Political Geography:
Global Focus

69. Foreign Linkages, Innovation & Productivity: Evidence from Enterprise Surveys

Author:
Anmol Kaur Grewal
Publication Date:
04-2023
Content Type:
Working Paper
Institution:
Centre for Trade and Economic Integration, The Graduate Institute (IHEID)
Abstract:
This paper estimates a three-stage structural model of how foreign linkages affect innovation which in turn affects firm productivity. Using harmonized firm-level data from the World Bank Enterprise Surveys, I construct a panel dataset for 47 developing countries spanning 2003 to 2019. I distinguish between four types of foreign linkages (exports, imports, inward foreign direct investment (FDI) and the use of foreign-licensed technology), and two types of innovation (product innovation and process innovation). To mitigate concerns regarding sample selection and endogeneity biases, I employ advanced panel data methods. In the first stage, I find that being an exporter, using foreign inputs, and using foreign-licensed technology makes firms more likely to invest in R&D, relative to other firms. I also find evidence of sample selection bias which is corrected by using a two-step Heckman selection model. In the second stage, I find that while increases in the R&D intensity increase the probability of product innovation, they have no statistically significant effect on the likelihood of process innovation. In the third stage, I find that product or process innovation is associated with increases in firm-level productivity. These results remain robust across alternative measures of innovation and firm productivity.
Topic:
Economics, Innovation, Trade, and Productivity
Political Geography:
Global Focus

70. Why Diagnostic Expectations Cannot Replace REH

Author:
Roman Frydman and Halina Frydman
Publication Date:
01-2022
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
Gennaioli and Shleifer (GS) have proposed diagnostic expectations (DE) as an empirically-based approach to specifying participants’ expectations, which, like REH, can be applied in every model. Beyond its supposedly general applicability, GS’s formalization of DE implies that participants systematically and predictably overreact to news. Here, we present a formal argument that Kahneman and Tversky’s compelling empirical findings, and those of other behavioral economists, do not provide a basis for a general approach to specifying participants’ “predictable errors.” We also show that the overreaction of participants’ expectations is not a regularity, but rather an artifact of GS’s particular specification of DE.
Topic:
Economics, Models, and Predictability
Political Geography:
Global Focus