A scathing critique of mainstream economics, by someone with credentials and authority to do it. Primarily how divorced from reality it has become: it hasn’t (and cannot) predict important events like the GFC, and is actively harmful in downplaying potential impact of climate change.

Paul Romer, who received the Prize in 2018, argued in 2016 that economics had such a ‘noncommittal relationship with the truth’ that it deserved the label of ‘post-real’.

Climate change is the dominant issue for the human species – and all other species – during the twenty-first century, and the work that Neoclassical economists have done on climate change is, in my considered opinion, the worst work they have ever done.

This was a manifesto more than an academic paper, but still included some interesting suggestions to sketch what alternate policies could be contemplated with an alternate economic model that included the impact of debt:

At present, if two individuals with the same savings and income are competing for a property, then the one who can secure a larger loan wins. This reality gives borrowers an incentive to want to have the loan-to-valuation ratio increased, which underpins the finance sector’s ability to expand debt for property purchases. I instead propose basing the maximum debt that can be used to purchase a property on the income (actual or imputed) of the property itself. Lenders would only be able to lend up to a fixed multiple of the income-earning capacity of the property being purchased – regardless of the income of the borrower. A useful multiple would be 10, so that if a property rented for $30,000 p.a., the maximum amount of money that could be borrowed by anyone to purchase it, regardless of their income, would be $300,000.

I propose the redefinition of shares in such a way that the enticement of limitless price appreciation can be removed, and the primary market can take precedence over the secondary market. A share bought in an IPO (initial public offering) or rights offer would last forever (for as long as the company exists) as now, with all the rights it currently confers. It could be sold into the secondary market with all the same privileges. But on a subsequent sale, say the fifth, it would have a life span of fifty years, at which point it would terminate.

Cover image for The New Economics