How INET Evolved

Rob Johnson, President of the Institute for New Economic Thinking, is not your average economist. He’s got heart and soul, or if you’ll have it, the blues! With his deep connection to the arts and humanities, Rob leads the new economic thinking not just with a sharp mind, but also with sensibility.

This article is part of an ongoing series in which Rob shares his life experiences, and biggest lessons learned. If you’re an aspiring expert in economics or a related field, this is for you. It might mitigate the depth and duration of your mid-life crisisEarlier articles in this series can be found here.


12 – How INET Evolved

So INET started off with a focus on finance. Of course that’s what Soros and I understood best, and it needed fixing. But that was not all. Inequality, political economy, the environment, race, it all came to the surface. If we were to be effective, we had to enlarge our scope. So we started drawing on a wider range of experts. 

Tom Ferguson was extremely well equipped to be at the vanguard of political economy. With his direction, we learned about how representation in a democracy is destroyed by the ability to buy and sell policy, which is necessary for the survival of incumbent politicians.  

People like Andrew Sheng were of great influence in building allegiances with Asia. I had done a lot of work in the region in earlier years, and found that the Indian or Chinese philosophical systems are in marked contrast to the Cartesian enlightenment. They are much more in tune with the notion of radical uncertainty. So I found great enthusiasm, in China in particular, partly because I’d worked a lot there, but partly because philosophically, people like Andrew Sheng, Yu Yongding and others were really quite amenable to the notion of radical uncertainty. I had spent a lot of time in the area, and I could feel allegiance. In 2012, we did our plenary in Hong Kong with the Fung Global Institute, now called the Asian Global Institute, and recently, we have begun work with Luohan Academy

Then, of course, people like George Akerlof were able to address the flawed notion preferences. In Identity Economics, which he wrote with Rachel Kranton, he says that instead of having an identity that’s like ice frozen in your preferences, you have this dynamic identity that is shaped over time. Also the late Rene Girard; he had a notion called Mimetic Desire, where you formulate your preferences by learning from the people you admire. It relates to belonging. Not me feeding something into the market from my utility function. Instead, what I want is actually manipulable by marketing. Like the people in David Brooks’ Bobos in Paradise, buying certain things to signal their belonging to a particular group and or set of values that they wanted to be associated with.

Then we had my friend john powell join our board; he is very knowledgeable about race and inequality. There’s nothing, when you really study the data, that can justify the degree of inequality that exists in the United States. Black people, even with master’s degrees from Ivy League institutions have no leverage or momentum relative to their white male counterparts. We had a very profound conference on race inequality in Detroit, Michigan in November of 2016, which is not only my base, but also a good place to observe the fault lines of race and economy unfolding. If you look at the geography of economic distress, it maps out. You can then look at surveys of economic distress, and see that they fit like a glove with the rise and fall of racial animosity.  

Another way in which we broadened our scope was with the launch of the Commission on Global Economic Transformation. Lead by Mike Spence and Joe Stiglitz, this group would explore what economics isn’t getting right, and what the world needs to take command of.  What we ended up with was what I’ll call four disrupters and an induced disruptor: 

  1. First, globalization created an erosion of the power and the control of the nation state. There’s this dilemma. You can have global governance where everything’s under one roof. But how sensitive are you to any people in any region from on high? Similarly, you can have local governments. Then you’re very sensitive, but you have no control over the things that are disrupting people’s life. It strengthens factors of production that can move around, like technology and finance, and weakens the relative power of people. 
  2. Second is related to climate and the dynamics of distress, how it exacerbates inequality, how you would handle a full scale transformation, how people who are in power have to be responsive to the fossil fuel industry, even if it’s suicidal. 
  3. Third is the initial one: financialization. Deregulation was sold as something that created more potential for growth and more efficient allocation of funding. But what happened is a pumping up of collateralized assets. As Adair Turner says, it had very little to do with the growth of productivity. So why are we protecting all of these things that actually don’t contribute to progress at all? 
  4. Fourth is the relationship of technology; automation, machine learning to the future of work and the structure of society.  
  5. Fifth is what we call the induced disruptor: migration. It came from the commission’s study of Africa, because what we could see is that over the next 40 years, we have a situation where the working age population of Africa will probably double. But climate change will destroys arable lands for subsistence farming, and the development models of the past are not available anymore. You’ve got global supply chains and automation. The relative price of manufacturers is way down. What are these people going to do? We know how scared the world is of migration.  

So now we have a more multifaceted approach with which to slowly break down all these flawed building blocks of economics. Take a recent one: economic justice. What does that mean? Economics says your wage should equal your marginal productivity. If you get paid more, you’re being subsidized. If you get paid less, you’re being exploited. If your marginal productivity and what you’re getting paid are aligned, you have economic justice. But what if your marginal productivity is such that you can’t support yourself or a family in a decent life? Then people blame you. You didn’t stay in school, you didn’t persevere, you were stupid. But the fact of the matter is that the productivity of a person depends upon social institutions like health systems, nutrition systems, and education systems. We cannot blame it on the victims. 
 

My mind continues to be flooded with these contradictions. The ideology of economics vs the radical uncertainty, the instability, where preferences come from, the notion of collective versus individual responsibility, the questions of race, migration, technological change, the political economy, money in politics, who is represented in the design of our society.  

There’s still a long way to go.


Reading list: 

Nicholas Lehmann – The Promised Land 

Brendan O’Flaherty – The Economics of Race in the United States 

Peter Temin – The Vanishing Middle Class 

George Akerlof and Rachel Kranton – Identity Economics 


Earlier articles in this series can be found here.

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