Rebuilding Macroeconomics is a research network structured around a concept of Research Hubs. Each Hub addresses a specific “real world” macroeconomic issue, chosen after extensive consultation with academics and the public. Hubs are settings for scholars and practitioners to explore and learn from each other, and to consider possible new methods of investigation.
We have six Research Hubs that will provide a setting for scholars, policymakers and practitioners to coalesce around a substantive macroeconomic policy question.
We have designed each hub to exploit the potential for new policy-relevant ideas that can flow from interdisciplinary engagement. There may be traditional and heterodox economists, practitioners and policymakers as well as a range of academics from different branches of psychology, anthropology, sociology, neuroscience, economic history, political science, biology and physics. Hubs will issue calls for pilot research projects to be funded by the Rebuilding Macroeconomics network. Hubs will have sufficient resources to fund innovative and risky research ideas.
Macroeconomists typically approach globalisation in terms of greater market access. More goods and services are available for consumption, budget constraints are loosened by the ability to borrow and lend overseas and access to external asset markets allows greater diversification of risk. Yet the domain of economic policy is primarily the nation-state; fiscal and monetary policies operate mostly through the domestic economy. At this simple level, globalisation can be shown to lead to higher standards of living. Economists also have specialised models for specific markets, which can raise challenges to this macroeconomic approach.
Economists have long argued the case that trade is beneficial. But the gains from trade do not necessarily benefit all without a complementary domestic policy. Why should changes in relative prices from trade as opposed to, for example, technology justify a policy intervention and what would constitute fair and effective compensation? Is financial compensation enough or is something else required? Macroeconomics does not fully integrate international trade and international finance theories. Can the distributional and spatial consequences of trade be incorporated into standard macroeconomic models? Does global finance intensify rather than diminish risk, and is the comovement of capital markets preventing countries from operating an independent monetary policy? Macroeconomics takes its primary objective to be the nation-state. Is this appropriate in a globalised economy and what might be the welfare benefits? We also look for research which examines the legitimacy and political economy of the Nation-State in the world economy when the domain of domestic policymaking is diminished.
Modern macro models are based on the premise that agents will respond to any unforeseen disturbance in such a way that their actions will co-ordinate activity toward the optimal use of resources. The task for policymakers is then merely to reduce economic volatility. This self-stabilising structure appears to be at best questionable in the wake of the Great Recession. In recovery, the spectre of ‘secular stagnation’ has emerged, with no self-correcting mechanism.
We expect scholars to bring insights from sociology, psychology, anthropology and network theory in order to extend our understanding of preferences and decision making, and the implications for stability. Economists may ask how an inherent instability hypothesis can be usefully incorporated into models and used as a guide to policy. Scientists may query whether agent-based models can be revised, so that they may provide better predictions of policy outcomes or more robust policy options in unstable economies. Or perhaps some entirely new approach will emerge that we have not yet foreseen.
There is a low level of public knowledge in economic policy and a lack of trust in our institutions. This may reflect conservatism within institutions, a disconnect between academic macroeconomics and policymakers or simply a lack of progress in creating new ideas. Given the poor record of economics management over the last decade, why is there not more incentive to change? How can a more constructive relationship between institutions, academic macroeconomics and the public be created? Do we need more coordinated policies between economic institutions? Do we need to overcome barriers to innovation and monocultures within academic macroeconomics?
Macroeconomics assumes people act in their own self-interest, but we know from experience and psychological evidence that humans often cooperate. In a world of radical uncertainty, where we cannot know what might happen, working with others has been seen to deliver the best economic outcomes on average in our evolutionary history. But what does social cooperation mean for inclusive growth today, and how does it affect macroeconomic performance?
Economic policy is aimed at sustainable growth. Yet science and politics suggest our economy has physical and social limits.Our biosphere, atmosphere and energy supplies are almost certain constraints on future output. How can we include limits on physical resources into macroeconomics so as to create a more nuanced understanding of sustainability? Measures of well-being are diverging from economic growth, including rising health concerns and disengagement from economic activity. How can we create new measures of the standard of life? We welcome macroeconomic research proposals, building on other disciplines, which look beyond economic growth.
To many, the financial system seems to act more as a casino, instead of providing capital for welfare-improving projects. What is the role of finance and how do we judge its success? How do we make changes so that it better fulfils its function? Is risk created within economic systems and can this be modelled to generate helpful predictions? Households are managing more economic risks than ever, to income, housing, pensions, education costs, etc. Does our financial system support households in managing these risks? This is an opportunity for fresh thinking about finance in light of the crisis.