The financial crisis that began in 2007, preceded by a spectacular boom and bust in asset prices that REH models implied could never happen, has spurred a quest for fresh approaches to macroeconomic analysis. While the alternatives to REH presented in Rethinking Expectations differ from the approach taken in the original Phelps volume, they are notable for returning to its major theme: understanding aggregate outcomes requires according expectations an autonomous role. In the introductory essay, Frydman and Phelps interpret the various efforts to reconstruct the field--some of which promise to chart its direction for decades to come.
The contributors include Philippe Aghion, Sheila Dow, George W. Evans, Roger E. A. Farmer, Roman Frydman, Michael D. Goldberg, Roger Guesnerie, Seppo Honkapohja, Katarina Juselius, Enisse Kharroubi, Blake LeBaron, Edmund S. Phelps, John B. Taylor, Michael Woodford, and Gylfi Zoega.
Yet indigenous innovation and flourishing weakened decades ago. In America, evidence indicates that innovation and job satisfaction have decreased since the late 1960s, while postwar Europe has never recaptured its former dynamism. The reason, Phelps argues, is that the modern values underlying the modern economy are under threat by a resurgence of traditional, corporatist values that put the community and state over the individual. The ultimate fate of modern values is now the most pressing question for the West: will Western nations recommit themselves to modernity, grassroots dynamism, indigenous innovation, and widespread personal fulfillment, or will we go on with a narrowed innovation that limits flourishing to a few?
A book of immense practical and intellectual importance, Mass Flourishing is essential reading for anyone who cares about the sources of prosperity and the future of the West.
The financial crisis, Frydman and Goldberg argue, was made more likely, if not inevitable, by contemporary economic theory, yet its core tenets remain unchanged today. In response, the authors show how imperfect knowledge economics, an approach they pioneered, provides a better understanding of markets and the financial crisis. Frydman and Goldberg deliver a withering critique of the widely accepted view that the boom in equity prices that ended in 2007 was a bubble fueled by herd psychology. They argue, instead, that price swings are driven by individuals' ever-imperfect interpretations of the significance of economic fundamentals for future prices and risk. Because swings are at the heart of a dynamic economy, reforms should aim only to curb their excesses.
Showing why we are being dangerously led astray by thinking of markets as predictably rational or irrational, Beyond Mechanical Markets presents a powerful challenge to conventional economic wisdom that we can't afford to ignore.
Economists disagree on what ails the economies of continental western Europe, which are widely perceived to be underperforming in terms of productivity and other metrics. Is it some deficiency in their economic system—in economic institutions or cultural attitudes? Is it some effect of their welfare systems of social insurance and assistance? Or are these systems healthy enough but weighed down by adverse market conditions?
In this volume, leading economists test the various explanations for Europe's economic underperformance against real-world data. The chapters, written from widely varying perspectives, demonstrate the shortcomings and strengths of some methods of economics as much as they do the shortcomings and strengths of some economies of western continental Europe. Some contributors address only income per head or per worker; others look at efficiency and distortions of national choices such as that between labor and leisure; still others look at job satisfaction, fulfillment, and rates of indigenous innovation. Many offer policy recommendations, which range from developing institutions that promote entrepreneurship to using early education to increase human capital.