Sir James A. Mirrlees 1936–2018

Sir James A. Mirrlees interacts with young econimists at the 6th Lindau Meeting on Economic Sciences. Photo/Credit: Christian Flemming/Lindau Nobel Laureate Meetings

The Council and Foundation Lindau Nobel Laureate Meetings mourn the loss of laureate Sir James A. Mirrlees, who died on 29 August 2018, age 82. The British economist co-received the Sverige Rikesbank Prize in Economics in Memory of Alfred Nobel in 1996 for fundamental contributions to the economic theory of incentives under asymmetric information.

He was Emeritus Professor of Political Economy at the University of Cambridge, UK, and Master of Morningside College, Chinese University of Hong Kong.

Sir James Mirrlees participated in five Lindau Meetings on Economic Sciences since 2004. The Council and the Foundation offer his wife, Lady Patricia Mirrlees, and his family their sincerest condolences.

Cryptocurrencies and the Blockchain Technology

 

During the late 1990s, investors were eager to invest in any company with an Internet-related name or a “.com” suffix. Today, the word “blockchain” has a similar effect. Like the Internet, blockchains are an open source technology that becomes increasingly valuable as more people use it due to what economists call “the network effect”. Blockchains allow digital information to be transferred from one individual to another without an intermediary. Bitcoin was the first use of the blockchain technology. However, the volatility, transaction fees, and uncertain legal framework have stalled Bitcoin’s widespread adoption.

The creator of Bitcoin, Satoshi Nakamoto, combined several ideas from game theory and information science to create Bitcoin. The basic idea for the blockchain technology originated with two cryptographers named Stuart Haber and Scott Stornetta. Their research focused on how to chronologically link a list of transactions. Today, when people refer to a blockchain, they are referring to a distributed database that keeps track of data. The type of data that the Bitcoin blockchain tracks is financial. Bitcoin users can send accounting units that store value from one user’s account to another user’s account without intermediaries. Since the Bitcoin Blockchain sends financial data and relies on cryptography, the accounting units in the blockchain are referred to as cryptocurrencies. The accounting units are stored in digital wallets, which are like bank accounts.

As a cryptocurrency, Bitcoin was designed to be a store of value and a payment system combined in one. Bitcoin has a fixed supply capped at 21 million and the currency’s inflation rate is programmed to decrease by half about every four years. Since Bitcoin was launched in 2009, the transactions on the network have doubled every year and the value of Bitcoin has increased by 100,000 percent. The current market price of approximately $11,500 is the result of the cryptocurrency’s limited supply and increasing demand.

The blockchain is a distributed database that stores a continuously growing list of all the transactions between the users. Imagine a Google Drive Document that has thousands of collaborators around the world that are constantly updating the information in the document. Like Google Docs, each editor sees the same information in the document, and when updates are made, each editor’s Google Doc shows the new changes. Like Google Docs, the Bitcoin blockchain stores the same duplicate database in thousands of locations throughout the world. This ensures that the database and the network cannot be easily destroyed.

When your hard drive crashes right before your doctoral dissertation is due, you are in big trouble. If you had used Google Docs or Overleaf instead, your data would be easily recoverable. To destroy an open source software, every single computer that has downloaded the software must be destroyed. This feature of the blockchain technology makes it the best method for preserving important information.

In addition to being hard to destroy, Bitcoin is a major technological breakthrough because Bitcoin solves the double-spend problem. Double-spending is the digital version of counterfeiting fiat currency or debasing a physical commodity money, such as gold. To solve the double-spend problem, Bitcoin relies on the “proof-of-work” consensus mechanism that I explained in my last article for the Lindau Nobel Laureate Meetings Blog. Proof-of-work is an incentive structure in the Bitcoin software that rewards Bitcoin users who make successful changes to the database. The users that are responsible for these changes are called “miners”. These individuals or groups of individuals listen to new incoming Bitcoin transactions using special hardware. Miners create blocks containing a list of the newest transactions that have been broadcast to the network by users. After approximately ten minutes, the transaction will be confirmed by all of the computers in the network. Next, blocks are added one after the other in a chronological order, creating a chain, hence, the name, blockchain. Each miner stores a copy of the entire Bitcoin blockchain and can see all changes that are being made as new transactions are settled on the network. Transparent accounting ensures that users cannot double-spend the same Bitcoin or create new bitcoin out of thin air.

Advancements in technology are a constant factor of the world around us. Artificial Intelligence (AI), Internet of Things (IOT), and Geolocation are just some of the buzzwords that we must add to our vocabulary. Bitcoin and Blockchain are two more terms to add to the list of potentially life-changing technologies. Whether the cryptocurrency market’s value will follow the same trajectory as the dot-com stocks is yet to be seen; however, the blockchain technology, like the Internet, is a revolutionary technology that is most likely here to stay.

 

Further reading:

Demelza Hays publishes a free quarterly report on cryptocurrencies in collaboration with Incrementum AG and Bank Vontobel. The report is available in English and in German.

Breaking the Shyness Barrier

Sir Christopher Pissarides discussing with young economists during the 6th Lindau Meeting on Economic Sciences. Photo/Credit: Lisa Vincenz-Donnelly/Lindau Nobel Laureate Meetings

Sir Christopher Pissarides in discussion with young economists during the 6th Lindau Meeting on Economic Sciences. Picture/Credit: Lisa Vincenz-Donnelly/Lindau Nobel Laureate Meetings

 

When I was growing up as an economist, first at Essex University and then at the London School of Economics, I was hearing about the Nobel Prize and all the gossip around it and I thought those winning it must be some kind of superhumans, that every word that came out of them is a word of wisdom. I guess in economics in my formative years, there were indeed some superhumans around: Samuelson, Hicks, Arrow, Friedman, to name a few who made the subject what it is. But it is still puzzling to me why, as human beings, we attach so much importance to the few who have the medal in their hand. And it’s not new: in Classical Greece, a city would destroy part of its city walls when one of its young men got the Olympic wreath because with men like him it did not need walls to protect it. What would I not have given in those days to be in the company of the Nobel Laureates (or the Olympic athletes, for that matter) for a few days? Lindau does just that for a few hundred lucky young people. 

Lindau succeeds in breaking the shyness barrier between young people still struggling with degree studies and silver-coloured gentlemen.

 

Sir Christopher Pissarides during a Press Talk at the 6th Lindau Meeting on Economic Sciences. Picture/Credit: Julia Nimke/Lindau Nobel Laureate Meetings

Sir Christopher Pissarides during a Press Talk at the 6th Lindau Meeting on Economic Sciences. Picture/Credit: Julia Nimke/Lindau Nobel Laureate Meetings

Of course, today, being on the other side of the fence, I also count myself lucky to be in the company of so many bright young people and so many of my fellow laureates. In Lindau, I enjoy most the quiet discussions around the dinner table or talking with a cup of coffee in hand until the coffee gets cold and undrinkable (please, next time hire an Italian barista!). Lindau succeeds in breaking the shyness barrier between young people still struggling with degree studies and silver-coloured gentlemen who have forgotten what it is like to study for a degree (regrettably, there are no living women laureates in economics), to the extent that the organisers feel they should set aside certain times where the laureates can be on their own. Credit should go to the organisers, Countess Bettina Bernadotte and the staff of the executive secretariat.

I decided to lecture about my more recent interests rather than the work that won me the prize: the future of work in the age of automation and robots. It is a fascinating topic, which has attracted a lot of attention on both sides of the argument – the doom and gloom scenario that there will be no meaningful work left for humans and all the profits from the robots will go to a few wealthy individuals and the optimists who claim that society as a whole will be better off and the sooner the robots take over the work the better off we will all be. I belong to the second category but not unconditionally. A lot of jobs will no doubt be taken over by robots but many more will be created, ranging from software engineers who will develop and feed the robots with data and instructions to carers who will look after the children and ageing parents of men and women engaged in the new economy. But inequality and the question of who will get the rewards from the robots’ work is a big unresolved issue; governments need to work hard to come up with credible policies for how to reduce poverty and achieve more equality if the optimistic scenario is to materialise. These last topics were hotly debated both at the side gatherings and in the final panel session of the meeting, of which I was fortunate enough to be a member, on a beautiful day in the lush gardens of Mainau Island.

 

Pissarides talking to young economists during the 6th Lindau Meeting on Economic Sciences. Photos/Credit: Julia Nimke/Lindau Nobel Laureate Meetings

Pissarides and young economists during the Lindau Meeting in 2017. Photos/Credit: Julia Nimke/Lindau Nobel Laureate Meetings

 

Lindau has been going on for a long time but it is an evolving organisation. This year, we had several 5-minute presentations by graduate students, which are much better than poster sessions where you wander around a room with posters hanging on its walls and students standing by them in the hope that someone will pay attention. The 5-minute presentations put laureates and student participants into the picture, enabled the students to say what their research objectives were and generated lively discussions afterwards in the gardens and coffee rooms of the island. If I have a grievance, it is that despite the length of the meeting (arrived Tuesday and left Sunday) there was still no time to visit the other attractions of Lindau Island, including, from what I am told, a wonderful old library. A free afternoon would have been welcome! This year, there were also more journalists with requests on one’s time for interviews, which interfered with participation in other laureates’ presentations, which is a shame given how much you learn from them. Journalists can reach many more people than can be present in Lindau so their presence should be welcome, but where one strikes the balance between time taken up in interviews with them and attendance at the scheduled events is something not easy to resolve. 

Overall, this was an excellent meeting; regretfully, we have to wait three whole years for the next one.

 

 

More reviews and highlights of the 6th Lindau Meeting on Economic Sciences can be found in the Annual Report 2017.

Eine Chance, die man nutzen muss

Read in English

 

Ich muss gestehen, dass mich die Aussicht, an der 6. Lindauer Tagung der Wirtschaftswissenschaften teilzunehmen, sehr eingeschüchtert hat. Mehr als zwanzig der klügsten Köpfe in der Geschichte würden zusammen mit Hunderten der begabtesten Nachwuchswissenschaftler auf einer Insel verbringen – ich fühlte mich wie ein blinder Passagier auf einer exklusiven Kreuzfahrt und fragte mich, wie in aller Welt es mir gelingen sollte, mich an den Gesprächen zu beteiligen, ohne als Blender entlarvt zu werden.

 

David Smerdon (right) with Countess Bettina Bernadotte and laureate Jean Tirole. Picture/Credit: Lisa Vincenz-Donnelly/Lindau Nobel Laureate Meetings

Gräfin Bettina Bernadotte, Nobelpreisträger Jean Tirole und David Smerdon. Photo: Lisa Vincenz-Donnelly/Lindau Nobel Laureate Meetings

 

Doch im Nachhinein waren meine Befürchtungen unbegründet. Schon bei den allerersten Kontakten nach der Ankunft am Flughafen war jeder, dem ich begegnete, engagiert, aufgeschlossen und vor allem freundlich. Mit Nathan aus Chicago fachsimpelte ich auf der Taxifahrt vom Flughafen darüber, wie sich die Qualität von Lehrkräften am besten messen lässt, und wir tauschten Geschichten über die Kämpfe auf dem Jobmarkt aus. Nach einer Begegnung mit Veronika, einer Physikerin aus Russland, staunte ich über das, was ich über die Entwicklungen in der Finanzierung des Klimaschutzes erfahren hatte. Später beim Abendessen saß ich Banji gegenüber, der mich über die Folgen der nigerianischen Handelspolitik auf die Energiemärkte aufklärte, während mir Eleni von den ersten Ergebnissen einer Pilotstudie zum Bargeldtransfer in Äthiopien berichtete. Im Bus führte mich Roxana aus Rumänien in eine Form der Ökonometrie ein, von deren Existenz ich bis dahin nichts gewusst hatte. Als ich an diesem Abend todmüde ins Bett fiel, war mein Notizbuch bereits voll mit flüchtig festgehaltenen Notizen über die Menschen, denen ich begegnet war, und die geführten Gespräche – und dabei hatte das offizielle Programm noch nicht einmal begonnen.

Es waren dann die Begegnungen mit den Nobelpreisträgern selbst, die mich wirklich überraschten. Ich hatte ja erwartet, dass diese angesehenen Staatsmänner freundlich und zuvorkommend sein würden – was sie auch waren – aber ich hatte nicht erwartet, dass sie soweit über ihre offiziellen Pflichten (mir fällt kein besseres Wort ein) hinausgehen würden. Die Laureaten waren nicht nur unermüdlich bereit, auf unsere zahllosen übergriffigen und unterwürfigen Selfie-Wünsche einzugehen, sondern suchten aktiv den Kontakt zu uns auf intellektueller Ebene und führten bei jeder möglichen Programmpause anregende Gespräche mit unterschiedlichen Gruppen von Wissenschaftlern. Sie ermutigten uns geradezu dazu, die großen Fragen zu stellen, sei es nun zu ihrer Arbeit, unseren eigenen Karrieren oder dem Stand der Wissenschaft selbst. Sie hörten sich unsere Ansichten an, und das nicht in einer herablassenden Attitüde oder mit perfekt herausgearbeiteten Gegenargumenten, sondern in einer Haltung des echten Interesses. Ihre intellektuelle Ausstrahlung war kaum zu ignorieren. Aber dennoch zeigten uns die Laureaten bei mehreren Gelegenheiten auch ihre menschliche Seite und bewiesen beispielsweise, dass sie auch mal gerne feiern (wer hätte gewusst, dass sie so tanzen können?). Ein Ratschlag, der sich für mich wie ein roter Faden durch alle Empfehlungen der Nobelpreisträger zog, war ihr aufrichtiger Wunsch, dass junge Wirtschaftswissenschaftler relevante, die Lebensbedingungen verbessernde Forschungsthemen aufgreifen, statt sich lediglich am klassischen Veröffentlichungsmarathon zu beteiligen. Als jemand mit politischem Hintergrund und deshalb eher ein ‘Spätentwickler’ in der Welt der Wissenschaft hat mir diese Warnung sehr gut gefallen – obwohl man solche Botschaften mit einem Nobelpreis im Rücken natürlich auch leichter austeilen oder gar befolgen kann… Gleichwohl stellte ich fest, dass dieser Idealismus auf Resonanz bei meinen Forscherkollegen stieß, und so war es auch eine besondere Freude, ihren Präsentationen und den Anmerkungen der Nobelpreisträger in den Parallelveranstaltungen zu folgen – ganz zu schweigen von den vielen angeregten Gesprächen, die wir beim Essen, in den Kaffeepausen und sogar beim Schwimmen im See führen konnten. Allein aufgrund dieser kurzen Forschungseinblicke konnte man sich vorstellen, einige von ihnen irgendwann in Zukunft selbst vor dem schwedischen König stehen zu sehen.

Ich hätte diesen Positivismus in einem Raum voller Wirtschaftswissenschaftler nicht erwartet.

Besonders genossen habe ich den Austausch mit Menschen aus ganz anderen Forschungsgebieten als meinem – einschließlich, wohlgemerkt, die Begegnungen mit anderen Teilnehmern wie den Partnern der Nobelpreisträger und der Wissenschaftler, Mitgliedern des Lindauer Kuratoriums und Mitarbeitern der Geschäftsstelle sowie Industriepartnern. In der knallharten Welt der Wissenschaften kann man sich so leicht in den engen Silos verlieren, in denen wir uns heute spezialisieren. Deshalb war es ein unerwartetes Vergnügen, solch anregende Debatten führen zu können, die alle Bereiche der Wirtschaft und der Politik miteinander kombinierten, um sich auf Probleme der echten Welt zu konzentrieren (ich hatte wirklich vergessen, dass Makroökonomie Spaß machen kann). Noch wichtiger war die Entdeckung, dass offensichtlich eine gemeinschaftliche Motivation unter den Wissenschaftlern besteht, unsere Arbeit möge auf gewisse Weise von Bedeutung für die ‘Welt da draußen’ sein und dass es die Investition, die wir selbst und andere in unsere Ausbildung gesteckt haben, verdient, durch relevante Beiträge zur Verbesserung der Lebensbedingungen zurückgegeben zu werden. Um ehrlich zu sein, hätte ich diesen Positivismus in einem Raum voller Wirtschaftswissenschaftler nicht erwartet. Aber wenn ich jetzt darüber nachdenke, ist das wohl genau das, worum es bei den Lindauer Tagungen eigentlich geht.

Es war irgendwie traurig, Lindau nach dieser kurzen, aber bewegenden Zeit wieder verlassen zu müssen. Klar, ich habe mich eine Woche lang fast nur durch Koffein und kurze Nickerchen wachgehalten, das Erste-Hilfe-Zelt zweimal aufsuchen müssen und am Ende fehlten mir auch saubere Socken. Aber die Lindauer Tagung war, man verzeihe mir das Klischee, ein unvergessliches Erlebnis. Ich kam mit einer überfüllten Mappe mit Vortagsnotizen, auf Servietten gekritzelten Forschungsideen und zerknitterten Visitenkarten von Wissenschaftlern und anderen Teilnehmern nach Hause zurück – das alles dank der wunderbaren Gelegenheit, die die Stiftung und das Kuratorium für die Tagungen der Nobelpreisträger in Lindau uns geboten haben. Eine Chance, die ich nicht ungenutzt lassen werde.

Neben Nobelpreisträger Jean Tirole hielt David Smerdon eine Abschiedsrede bei #LiNoEcon.

 

Diesen und weitere Berichte über die 6. Lindauer Tagung der Wirtschaftswissenschaften finden sich im Jahresbericht 2017.

An Opportunity Not to Waste

Zur deutschen Version

 

I must admit to being incredibly intimidated about attending the 6th Lindau Meeting on Economic Sciences. About twenty of history’s greatest minds coupled with hundreds of the world’s most talented young scholars on one island – I felt like a stowaway on a celebrity cruise, and I wondered how on earth I’d participate in their conversations without being discovered for the imposter I was.

David Smerdon (right) with Countess Bettina Bernadotte and laureate Jean Tirole. Picture/Credit: Lisa Vincenz-Donnelly/Lindau Nobel Laureate Meetings

Countess Bettina Bernadotte, laureate Jean Tirole and David Smerdon. Photo: Lisa Vincenz-Donnelly/Lindau Nobel Laureate Meetings

 

But in hindsight, my fears were ill-founded. From the very first interaction at the airport arrivals, everyone I met was enthusiastic, approachable and, above all, friendly. I discussed how to best measure teacher quality and swapped job-market war stories with Chicago-based Nathan in the taxi ride from the airport and was amazed by the developments in climate finance after meeting Veronika, a Russian physicist, in the hotel lobby. Rushing off to dinner, I sat opposite Banji, who educated me about the consequences of Nigeria’s trade policy on its energy markets, and Eleni, who detailed the early results of a cash transfer pilot study in Ethiopia. On the bus, Roxana from Romania taught me a form of econometrics I didn’t even know existed. By the time I fell asleep that night, my notebook already had pages full of scribbles about the people I’d met and the conversations I’d had – and the official programme hadn’t even begun.

But it was the interactions with the laureates themselves that really surprised me. I had expected these esteemed statesmen to be cordial and pleasant – which they were – but I had not expected them to go so far beyond their official obligations (for lack of a better word). The laureates were not only tirelessly willing to acquiesce to our floundering flattery and sycophantic selfies, but were eager to interact with us on an intellectual level, engaging in stimulating conversation with different groups of scholars at every possible break in the programme. They actively encouraged us to ask the big questions, whether it was about their work, our own careers or the state of the science itself. They listened to our views, not dismissively or with well-crafted rebuttals but with real consideration. And while it was hard to ignore their obvious intellectual aura, on several occasions the laureates showed us their human sides and let their hair down (who knew they could dance like that?). One common thread of advice I picked up from the laureates was their earnest desire that young economists take up relevant, welfare-improving research topics, rather than just playing the classic publishing game. Coming from a policy background and thus a ‘late-starter’ to the world of academia, I very much appreciated hearing this admonishment – though one could imagine it is easier to dish out, let alone follow, with a Nobel Prize hanging in one’s office… Having said that, I found that this idealism was echoed by my fellow scholars, and it was a delight to listen to their presentations and the laureates’ comments in the parallel sessions – not to mention the many animated conversations we had over dinners, coffees and even swims in the lake. Judging by these short snapshots of research, it was even possible to imagine a few of them standing in front of the Swedish monarch at some point in the future.

I didn’t anticipate such positivism in a room full of economists, but on reflection I guess that’s what the Lindau Meetings are all about.

I particularly enjoyed chatting with people from vastly different streams of research to mine – including, mind you, other attendees such as the laureates’ and scholars’ partners, members of the Lindau Council and its executive secretariat and industry partners. In the cut-throat world of academia, it’s so easy to lose one’s self in the narrow silos into which we now specialise, so it was an unexpected pleasure to have such stimulating debates that combined all branches of economics and policy, joined by a common focus on real-world issues (I’d forgotten that macroeconomics can actually be fun). More importantly, there appeared to exist a collective motivation among the scholars that our careers should matter in some tangible way to the ‘outside world’ and that the investment made by ourselves and others in our education deserved to be returned with real contributions to improving welfare. To be honest, I didn’t anticipate such positivism in a room full of economists, but on reflection I guess that’s what the Lindau Meetings are all about.

It was surprisingly sad to leave Lindau after such a brief but hectic event. Sure, I’d been running on caffeine and naps for a week, visited the first-aid tent twice and had run out of clean socks, but attending the Lindau Meeting was, pardon the cliché, an unforgettable experience. I landed home with a folder overflowing with lecture notes, research ideas scribbled on napkins and crumpled business cards of the scholars and other attendees, all thanks to the wonderful opportunity that the Foundation and the Council for the Lindau Nobel Laureate Meetings provided. It’s an opportunity I’m not going to waste.

 

David Smerdon gave the farewell address of #LiNoEcon alongside Nobel Laureate Jean Tirole.

 

More reviews and highlights of the 6th Lindau Meeting on Economic Sciences can be found in the Annual Report 2017.

New Series of Mini Lectures on Inequality

One of the most discussed topics at the 6th Lindau Meeting on Economic Sciences was the issue of rising global inequality. In order to tackle inequality in developing nations, new policies are needed, but many factors have to be taken into account. To shed light on some of these aspects, we have produced a new series of Mini Lectures on inequality, which explain economic theories around the subtopics redistribution, lending and globalisation and feature perspectives of laureates Sir James Mirrlees, Joseph Stiglitz and Eric Maskin. In the mediatheque, the three short videos are available in English as well as in German.

 

 

 

Richard Thaler: No Regular Economist

Richard Thaler of the University of Chicago has been awarded the 2017 Nobel Prize in Economic Sciences “for his contributions to behavioural economics”. This column, written by his first behavioural collaborator, provides a personal perspective on the development of three key areas of research to which the new laureate has been a major contributor: people’s limited rationality, their perceptions about fairness, and their lack of self-control.

 

A bowl of cashew nuts inspired Thaler to a thought experiment in behavioural economics. Picture/Credit: Altayb/iStock.com

A bowl of cashew nuts gave Thaler the idea of performing a thought experiment on self-control. Picture/Credit: Altayb/iStock.com

 

Behavioural economist Richard Thaler is the 2017 recipient of the economics Nobel Prize. Yet, despite having been president of the American Economic Association (AEA) in 2016, he is no regular economist. In fact, Stanford economist and past AEA president Robert Hall once characterised Thaler as his “favourite offbeat economist”.

The award marks Thaler’s transition from the fringe to the mainstream. But it is instructive to look back at the time when his views were regarded as offbeat by mainstream economists. To be sure, Hall is a mainstream economist and an excellent one at that. As chair of the Business Cycle Dating Committee of the National Bureau of Economic Research (NBER), Hall often makes the call on when the US officially enters and exits recessions. His academic work teaches us how to establish equitable and efficient consumption taxation in a world of rational actors.

By contrast, Thaler’s academic work teaches us to beware of the limits of assuming that the world is populated by rational actors. The Royal Swedish Academy of Sciences identified the following three areas to which he has been a major contributor: limited rationality; perceptions about fairness; and lack of self-control.

In the mid-1970s, I began to work with Thaler on two of these issues and eventually applied his insights to the third. With this as context, I would like to provide a personal perspective on how these three key ideas developed.

Before getting down to details, I need to say something about what Richard Thaler does better than any other economist: he constructs simple and incisive thought experiments. Most economists, including me, are trained to think in terms of formal models. Thaler is more of a qualitative thinker. As I will explain, he is able to pierce through the formality to get right to the soft spot of where those models are unrealistic in key ways.

Lack of Self-Control

Cashew nuts are calorie-rich – and I like them a lot. I have in my office a bowl of cashews, which look very tempting, but fortunately for me, these cashews are not real, but ceramic. I got them as a souvenir at a gathering to celebrate Thaler’s 70th birthday. There is a self-control story behind the cashews.

In the 1970s, Thaler and his wife threw a dinner party for some friends. Before they served dinner, they placed a large bowl of cashews in front of their hungry guests. The guests began to devour the cashews and soon realised that continuing to do so would interfere with their ability to enjoy dinner. But they couldn’t stop. The cashews were too tempting. So they begged Thaler to take the bowl away.

What would you do if you were really hungry, the cashews were in easy reach and you knew that continuing to eat them would ruin your dinner? To a neoclassically trained economist, asking that the cashews be removed is puzzling – and Thaler was trained as a neoclassical economist.

Classical Greek philosophers taught that rational human beings choose the best means to achieve their desired ends. The neoclassical approach formalises ‘choosing the best’ as a problem in mathematical optimisation. In the neoclassical approach, people are assumed to optimise without effort. If they think that eating more cashews is not optimal, they don’t need somebody else to prevent them from doing so; they can costlessly choose to do something other than eat more cashews.

Thaler realised that his dinner guests were not acting rationally in the face of temptation, at least not rationally in the sense of being neoclassically rational. He engaged in one of his thought experiments, asking himself what would prevent him from reaching for more cashews when he didn’t want to eat more cashews. That question led him to think about an internal dialogue within his brain between the part of his brain that was ‘planning’ to stop eating cashews and the part of his brain that was actually ‘doing’ the reaching and eating.

Like Thaler, my interest in self-control also stemmed from issues about eating. But in my case, it was because I became intrigued by my wife’s research on the role of healthcare professionals in treating eating disorders – not as compelling as the cashew story!

In any event, Thaler and I managed to find each other and began to collaborate on a formal economic model that would capture how people make decisions when their internal planners and doers fail to agree (Thaler and Shefrin 1981, Shefrin and Thaler 1988).

Limited Rationality

Some credit unions offer a programme called Christmas Clubs. People who join such a club regularly deposit funds during the course of a year into a special account, with the goal of having a balance at year-end that will fund their Christmas gifts.

When Thaler and I first worked on our self-control model, Christmas Clubs were more popular, offered by many banks and, moreover, did not pay interest, even though interest rates on savings accounts were much higher than they are today. This meant that people who used the clubs to save for gifts earned less interest than they could have by just using a regular savings account.

From a neoclassical perspective, someone who joins a Christmas Club and forgoes interest is operating in the interior of his or her budget set, a clear violation of neoclassical rationality. Were these people that stupid?

Some people choose to have too much of their income withheld to pay income tax, in order to get a large tax refund. Less money withheld means more money to invest for a return. Do people not understand the time value of money? Are they that stupid? How about you? Would you withhold at the lowest rate allowable by law?

In a neoclassical world, the answer to the previous two questions is yes, people are that stupid. But hold on a minute. In a world where planners need to deal with difficult doers, which can lead to a lack of self-control, it might be perfectly sensible for people to join Christmas Clubs and for people to have too much tax withheld in order to receive large tax refunds.

Both behaviours might lead to higher savings than would otherwise occur and, if higher savings is the goal, then such behaviours might be eminently reasonable. In theory, the behaviours might not be neoclassically rational, but in practice they might well be ‘good enough’; and as the late economics Nobel Laureate Herbert Simon noted, going for what’s good enough is “satisficing behaviour” that is “boundedly rational”.

Christmas Clubs and tax over-withholding are not foolproof. People can rob their Peters to pay their Pauls. Someone with a severe self-control problem might borrow heavily during the year using her credit card, to the extent that when the year-end arrives, she finds herself compelled to use the proceeds from her Christmas Club to pay her credit card balance rather than to purchase gifts. Perverse? Yes. Boundedly rational? I don’t think so.

People need enough impulse control to prevent perverse behaviour. There are at least three ways for doing so:

  • The first way is using willpower. Of course, if willpower were easy to exert, then there would be no need for Christmas Clubs or tax over-withholding.
  • The second way is through external enforcement: no credit cards at all, which raises all kinds of issues, not the least being the consequences of not having a credit history.
  • The third way is through internal enforcement, using habits.

Planner-doer theory suggests that people segregate their wealth into separate ‘mental accounts’, such as take-home pay, liquid assets, future income and home equity. Mental accounting habits are ‘pecking order’ rules that specify the order in which different accounts are accessed.

Many people find it easiest to spend first from take-home pay. If they wish to spend more than their take-home pay, the first place they go is to their liquid assets (such as checking or savings account balances, bonds and stocks). If these are insufficient, then people can borrow or, as a last resort, dip into their home equity by borrowing or selling their property.

Mental accounts can be somewhat arbitrary. Their levels are not finely tuned. Therefore, following mental accounting rules can lead people to appear as if they are not operating at the margin. But operating at the margin is not the goal – someone can operate at the margin and overspend very easily.

Thaler pointed out that people use all kinds of mental accounts. One of his thought experiments involves a person who mows their own lawn, but would never mow any part of their neighbour’s lawn for compensation.

Thaler suggests that such behaviour is unlikely to involve operating at the margin by setting marginal benefit equal to marginal cost. By this he means that the property line is arbitrary and, in a neoclassical sense, he might be right. But people might use boundaries as rule parameters, just as much as they use boundaries to separate types of wealth (take-home pay, liquid assets, etc.).

Thaler wrote: mental accounting matters (Thaler 1980, 1985). Now mental accounting might not be neoclassically rational. But given the limits of the human mind, it might be sensible – and good enough. Moreover, striving for perfect rationality might be counterproductive, with the end result being an outcome that is not good enough.

Perceptions of Fairness

In the late summer of 2017, a series of hurricanes struck the Caribbean, the Gulf of Mexico, Houston and Florida. After Hurricane Irma, which struck Florida, local residents registered over 8,000 complaints of price gouging with the state Attorney General’s office. These complaints mostly related to excessive prices being asked for water, ice, food and fuel.

Why are Florida residents complaining about price gouging? Do they not realise that keeping a lid on prices in these circumstances means that demand will exceed supply and that, as a result, some would-be purchasers will be rationed? Do they not realise that keeping a lid on the prices of these items lowers incentives to increase supply? From a neoclassical point of view, preventing the increase of prices to perceived gouging levels, irrationally induces rationing and insufficient supply.

Thaler, together with his colleagues Daniel Kahneman and Jack Knetsch, suggest an alternative way of thinking about market clearing prices (Kahneman et al. 1986a, 1986b). The alternative stems from Thaler’s concept of ‘transaction utility’ – the psychological pleasure or pain associated with how good of a deal a person associates with a transaction.

In the fairness framework, people have notions of reference transactions that they deem to be ‘fair’. Media reports indicate that some Florida hotels doubled their hotel rates in the wake of Hurricane Irma. Paying double for the normal price of a hotel room generates the experience of loss – negative transaction utility, if you like – if there is no corresponding increase in the costs that the hotel incurs as a result of the hurricane.

According to the fairness framework, hotels that charge double but do not incur higher costs are acting unfairly. In contrast, hotels that charge double to cover higher costs and do not reap additional profits as a result are acting fairly.

These are the rules of fairness that people follow. Fairness matters, just as mental accounting matters. Many people would rather be rationed and arrange for alternative accommodation than be gouged. If they feel pain from perceived unfair treatment, it is by no means obvious that the maintenance of fair prices that do not clear markets is necessarily irrational.

Conclusion

Psychologist Daniel Kahneman received the 2002 economics Nobel Prize for his work on ‘prospect theory’, a way of understanding how people make decisions under conditions of risk and uncertainty. The Royal Swedish Academy of Sciences noted that Kahneman had done this work together with the late Amos Tversky. Prospect theory, first published in 1979, was foundational for the development of behavioural economics and finance. That said, without Thaler, I am not sure that prospect theory would have had the traction it ultimately had.

There is much to say about Thaler’s accomplishments, beyond the three specific issues discussed above. Thaler was the first economist to reach out to Kahneman and Tversky, and he did so in the mid-1970s. It was Thaler who saw the connection between his fledgling thought experiments, such as the lawn-mowing example, and prospect theory.

 

Richard H. Thaler. Picture/Credit: By Chatham House, CC BY 2.0

Richard H. Thaler. Picture/Credit: By Chatham House, CC BY 2.0

It was Thaler’s entrepreneurial talents that found ways to bring open-minded economists together with Kahneman, Tversky and their psychology colleagues. In part, he did so through his efforts to secure support from the Sloan Foundation, the Russell Sage Foundation and eventually the NBER.

It was Thaler who wrote an ‘Anomalies’ column for the Journal of Economics Perspectives, which regularly piqued economists’ interest about the shortcomings of neoclassical thinking.

It was Thaler who, together with Shlomo Benartzi, ingeniously applied our work on self-control to help people save more, through their Save More Tomorrow (SMT) programme.

And it was Thaler who, together with Cass Sunstein, extended insights gained from SMT to develop ‘nudging’, the idea of using ‘choice architecture’ based on behavioural insights to induce people to make better decisions. This concept has had widespread influence in both US and UK public policy.

Richard Thaler’s accomplishments certainly merit his being awarded the 2017 economics Nobel Prize. For those accomplishments, we are all the better.

 

References

Kahneman, D, J L Knetsch and R H Thaler (1986a), “Fairness and the Assumptions of Economics”, Journal of Business 59(4): S285-300.

Kahneman, D, J L Knetsch and R H Thaler (1986b) “Fairness as a Constraint on Profit Seeking: Entitlements in the Market”, American Economic Review 76(4): 728-41.

Shefrin, H M and R H Thaler (1988), “The Behavioral Life-Cycle Hypothesis”, Economic Inquiry26(4): 609-43.

Thaler, R H (1980), “Toward A Positive Theory of Consumer Choice”, Journal of Economic Behavior and Organization 1(1): 39-60.

Thaler, R H (1985), “Mental Accounting and Consumer Choice”, Marketing Science 4: 1999-214.

Thaler, R H and H M Shefrin (1981), “An Economic Theory of Self-Control”, Journal of Political Economy 89(2): 392-406.

 

This article was first published by VoxEU.

Young Women Economists in Lindau: Powerful Encounters

One of the reasons I applied to attend the 6th Lindau Meeting on Economic Sciences was the expectation of coming back brimming with self-motivation. Moreover, I expected to be deeply fascinated by the commitment of the pioneers of economic sciences, by their bravery in addressing world issues and by their lives as common individuals facing successes and failures. My expectations were by far exceeded.

I have always genuinely aspired to become an active participant in economics and to make a difference. My passion for the subject started with my postgraduate studies and further developed during my work at the United Nations and my academic experiences. A special opportunity offered by this meeting is the possibility of interacting with Nobel Laureates and other young academics, while sharing passions and values, understanding different cultures and exchanging ideas and future collaborations.

But what also fascinated me and made this experience even more magic and overwhelming was the passion, the eagerness and the determination of the many young women economists I had the pleasure of meeting in Lindau.

 

Zeinab Aboutalebi (left) and Angela De Martiis during the 6th Lindau Meeting on Economic Sciences. Picture/Credit: Lisa Vincenz-Donnelly/Lindau Nobel Laureate Meetings

Zeinab Aboutalebi (left) and Angela De Martiis during the 6th Lindau Meeting on Economic Sciences, Picture/Credit: Lisa Vincenz-Donnelly/Lindau Nobel Laureate Meetings

 

One of the ideas that particularly got my attention during the meeting is what Nobel Laureate Bengt Holmström called serendipity. Among the various questions to the laureates, many young economists were eager to know the secret of their success: how did they do it?

A common answer was indeed serendipity. An unexpected discovery that occurs by chance, a valuable finding that was not looked for by others, being in the right place at the right time, or simply luck. Nevertheless, the role of chance – or luck – in science is also driven by passion and determination. Often, such unexpected findings come from an error in the scientist’s own methodology, according to scientists Kevin Dunbar and Jonathan Fugelsang. Passion and determination were in fact the two main elements that I sensed when talking with young women economists about their research interests.

During my week at the meeting, I had the honour of presenting my research in front of five Nobel Laureates – an invaluable experience – and the pleasure of interviewing several young women economists from different countries, cultures and backgrounds. They came from Africa, Russia, Iran, China, the United States, Germany and Italy, and they all have one element in common: passion.

When I asked them about their motivation for doing academic research, the first answer was indeed passion, eagerness to learn, to understand and provide valuable results to inform some of today’s most debated issues – such as climate change, economic sanctions, information asymmetry, inequalities, labour markets, growth theory and monetary policy. The women economists, and women’s participation in the economy more generally, provide a diversity of economic thinking, as Janet Yellen recently emphasised in a speech at Brown University.

This diversity of thinking comes from the fact that, as one of these women economists told me, economics is not just economics. Being an economist implies knowing about mathematics, statistics, natural sciences, law, politics, psychology, history, sociology and more. Economics means dealing with issues that involve institutions and individuals. All these elements together make it a powerful tool for improving people’s welfare and lives.

On the one hand, welfare is one of the motivations driving Linda Glawe, a young German economist from the University of Hagen, to focus on prolonged growth slowdowns in emerging market economies and on the concept of the middle-income trap. In a world in which more than five billion people live in middle-income countries, representing more than 70% of the world’s poor population, a slowdown in emerging markets will have strong implications for low and high-income countries. Therefore, the danger of a middle-income trap is of great relevance for future welfare. After publishing a literature survey on the middle-income trap, Linda’s current research aims to provide a theoretical contribution to discussions of future growth in China.

On the other hand, when we talk about welfare we often refer to the fact that countries have unequal living standards that makes them grow faster or slower than others. Therefore, some countries display higher inequalities in incomes, wealth and human capital. These issues are among the main research interests of Rong Hai, a Chinese young assistant professor in economics at the University of Miami.

In one recent paper, she and laureate James Heckman investigate the determinants of inequality in human capital with an emphasis on the role of credit constraints. The results show that both cognitive and non-cognitive abilities are important determinants of human capital inequality. In addition, credit constraints are important because young people cannot borrow enough against their future human capital and thus suffer from lower consumption when they are in school.

In a second paper, Rong finds that reducing income inequality between low and median income households improves economic growth. But reducing income inequality through taxation between median and high-income households reduces economic growth.

 

Angela De Martiis and other young economists during the 6th Lindau Meeting on Economic Sciences,  Picture/Credit: Julia Nimke/Lindau Nobel Laureate Meetings

Angela De Martiis and other young economists during the 6th Lindau Meeting on Economic Sciences, Picture/Credit: Julia Nimke/Lindau Nobel Laureate Meetings

 

When investigating economic inequalities, there are many reasons to explore inequality within cities or states, especially if we consider that individuals move across space. Thus, the disparity of a particular area is also a reflection of the skills of these individuals as potential workers. From a labour economist perspective, Sarah Bana, an American Ph.D. candidate at the University of California, Santa Barbara, is interested in understanding the returns to skills and the role that skills play in earnings inequality in the US labour market.

One of her current research papers looks at displaced workers, those who lose their jobs as a result of a firm or plant closing. Analysing comprehensive occupational employment data, the results of her research suggest that vulnerable displaced workers’ difficulties in the labour market are a function of their skills and less related to the goods and services they were previously producing. This is due to the fact that the same set of tasks can be applied in the production of various goods and services, but there appears to be little scope for workers from shrinking occupations to find work with similar earnings, which may help to explain the large earnings losses.

As a researcher in labour economics, Sarah thinks of an individual’s work as their contribution to their family, community and society. But this may be hard for those workers who are displaced in worse labour market conditions.

Several studies investigate the effects of the global financial crisis on the labour market. The data from the displaced workers survey from 1984 to 2014 clearly show a sharp increase in the rate of job loss. Besides the effects on the labour market, the long-lasting impacts of the financial crisis on the economy and wider society have questioned the adequacy of the traditional tools in explaining periods of financial distress as well as the adequacy of the existing policy response.

At the same time, the financial crisis has shown that complex interconnections among financial institutions represent a mechanism for the propagation of financial distress and they are nowadays recognised as one of the key elements of potential financial instability or systemic risk.

This is one of the crucial issues that the young Italian economist Chiara Perillo, Ph.D. candidate at the University of Zurich, is investigating. In particular, she is exploring the implications of the unconventional monetary policies (such as quantitative easing) in the euro area by combining financial network analysis with econometric methods. Using the time evolution of loans granted from euro area banks to different institutional sectors operating in the euro area, her results show that since the beginning of quantitative easing there has been an increase in bank lending, but mostly addressed to the banking system itself.

Another element that drew my attention while getting to know the young women economists was their diverse backgrounds, another powerful tool for academic research in the diversity of thinking. Being Russian by origin and doing research based in Germany, Maria Kristalova, Ph.D. candidate at the University of Bremen, investigates the impact of the mutual sanctions between the EU and Russia, followed by the escalation of the Ukraine conflict in 2014. Her results show a division pattern of all EU-27 countries in two groups: the West European countries that recovered from the sanctions shock, and the East European and Baltic countries, which are still suffering with negative consequences.

Angela De Martiis (right) and Maria Kristalova during the 6th Lindau Meeting on Economic Sciences

Angela De Martiis with Maria Kristalova, Picture: Courtesy of Angela De Martiis

According to Maria, this topic is of crucial importance for gaining a better understanding of the costs of political decisions that might affect the aspired convergence of Europe. In a second research topic, Maria also looks at long-run co-evolution of innovation activities and public funding in German regions. The results show strong empirical evidence of its existence.

Another issue of crucial importance, one of the most controversial, is climate change. According to Jennifer Uju Okonkwo, a young Nigerian economist based at the University of Kiel, regardless of what sceptics think, research shows evidence that the climatic system is changing and this change has several negative consequences, such as rising sea levels, coastal flooding, droughts, global warming and changes in precipitation. Hence, there is a dire need to understand optimal ways to adapt to the changing climate. Her research thus aims at finding cost-effective strategies to manage climate change that could be beneficial to developing countries with limited adaptation funds.

When investigating the issue of climate change, we immediately come across divergent views and an asymmetry in information, thus generating inefficiencies in addressing and solving such a phenomenon. As a young Iranian economist working on applied microeconomic theory at Warwick University, Zeinab Aboutalebi is investigating the role of information asymmetry.

Her research is dedicated to tracing inefficiencies created through the strategic interaction among economic actors. The role of information asymmetry is crucial in shaping the resulting consequences and in reducing the inefficiencies using, for example, different incentive schemes, designing incentive mechanisms, delegation or persuasion techniques.

Zeinab is currently working on feedback in experimentation and how the goodwill of a principal to not discourage an agent, while providing him/her feedback about the result of the experiment, could cause large inefficiencies and uninformative communication between the principal and the agent. Information asymmetry and the lack of informative communication are thus the building blocks of most of today’s big phenomena.

From climate change, to inequality, displaced workers, sanctions, growth, monetary policy and information asymmetry, it was a pleasure to make this journey into the lives and research interests of seven young women economists – to discuss new research ideas, exchange views and laugh while talking about science and about a world that is a fascinating place still to be discovered with a pinch of serendipity and a lot of determination. Thank you for sharing your passion!

Only as Strong as the Weakest Link: Global Food Supply Chains

This article appeared in a shorter form in the German newspaper Handelsblatt on August 24, 2017.

A ‘Marshall Plan for Africa’ – 300 million Euro in total. This is Angela Merkel’s bold development promise ahead of the Federal election. Germany has also placed Africa at the heart of its G20 presidency. So the future chancellor, whoever it is, needs a solid development strategy. This strategy should put farmers’ needs first and leverage the scientific expertise of companies, like Mars, that are networked throughout Africa through their supply chains.

As Bill Gates has said, “if you care about the poorest, you care about agriculture.” This is why I am joining the best economists in the world at the Lindau Nobel Laureate Meetings in Germany 22—26 August. We are convening an event to discuss economic inequality, agriculture and the role of businesses.

 

I was discussing economic inequality at the 6th Lindau Meeting on Economic Sciences with economists Romesh Vaitilingam, Eric Maskin (Nobel Laureate) and Devaki Ghose.

I was discussing economic inequality at the 6th Lindau Meeting on Economic Sciences with economists Romesh Vaitilingam, Eric Maskin (Nobel Laureate) and Devaki Ghose.

 

Why is this such an important issue? Over 475 million of the world’s 570 million farms are smaller than two hectares. Even though these smallholder farms produce over 80% of the world’s food, 80% of the global population deemed “chronically hungry” are farmers. This is the 80-80 paradox.

Agricultural supply chains in food-insecure regions like Africa need an upgrade — but this won’t happen without a concerted and long-term effort. Look at China, where they managed the ‘structural transformation’ from a mostly farming to a mostly industrial economy well. From 1952 to 2004, the structure of China’s economy shifted, from agriculture providing half the country’s GDP to providing only 14% in 2004. During this transition, the non-farm rural sector boomed – services, transport, processing, etc. The rural non-farm sector went from providing almost none of the GDP to more than one-third. Importantly, the Chinese government sent engineers and scientists into the countryside to transfer knowledge and technology to farmers and encourage non-farm business growth. Knowledge sharing combined with better infrastructure linkages between small farmers, processing facilities and retailing companies lies at the core of China’s success.  

Yet, while we can take inspiration from China, replicating the transformation process of a highly regulated, state-managed economy is not feasible elsewhere. Many governments do not have the capacity to effect these changes. I believe multinational corporations can fill this void. Companies need to be part of the international development strategy and leverage their unique position at the apex of global supply chains to share technical skills and cutting-edge innovation.

Indeed, this is already starting to happen. For example, the staple food crops grown by African smallholder farmers are finally getting attention. Traditionally, crops suited to Western climatic conditions, like potato, wheat and corn, have received all the scientific investment. Their yield, for example, has increased by a factor of five or six since the 1930s. The yield of traditionally African crops, on the other hand, is much the same as it was 100 years ago.

 

The average yield of maize and wheat has tripled since 1961 whereas the yield of millet, a crop traditionally grown in areas of Africa and India, has only increased by 50 percent

The average yield of maize and wheat has tripled since 1961 whereas the yield of millet, a crop traditionally grown in areas of Africa and India, has only increased by 50 percent.

 

Through a lack of R&D, finger millet, Bambara groundnut, teff and other staple African crops are still vulnerable to disease, pests and drought. The resulting low yields mean that African farmers have too little food to feed their families. It is no wonder that 80% of the global population deemed “chronically hungry” are farmers.

When we saw that this was happening, a group of uncommon collaborators came together for one of the most ambitious projects in the history of plant science. Mars, NEPAD, Illumina, BGI, WWF, the UN Food and Agriculture Organization, the World Agroforestry Centre and others partnered to sequence 101 African orphan crop genomes to accelerate breeding programs and improve food security for the farmers who depend on these crops. The genomes are being made available to the public so that plant breeders everywhere can breed new cultivars of the African crops with higher yields and more resistance to disease, pests and climate change. Better crops create jobs and can stimulate the rural non-farm sector in Africa. African seed companies will spring up to distribute the new cultivars to farmers; transport companies will bring surplus to markets; processors will take on the role of making food ready for the consumer, and so on.

 

Taro is a traditional crop in areas of Africa and one of the 101 crops whose genomes we are sequencing to improve nutrition, yield and resistance to drought, diseases and pests. Picture/Credit: karimitsu/iStock.com

Taro is a traditional crop in areas of Africa and one of the 101 crops whose genomes we are sequencing to improve nutrition, yield and resistance to drought, diseases and pests. Picture/Credit: karimitsu/iStock.com

 

We welcome the German government’s initiative to boost development aid to Africa, but to maximize the impact of taxpayers’ money, we need more inclusive private-public partnerships to play their role and bring the Marshall Plan for Africa to life. An inclusive approach is the only way to address one of the travesties of our age: people who grow food that don’t have enough to eat.

Looking Ahead to Economics in 2020

Young economists and laureate Oliver Hart during the 6th Lindau Meeting on Economic Sciences.

Nobel Laureate Oliver Hart and young economists during the 6th Lindau Meeting on Economic Sciences. Photo/Credit: Christian Flemming/Lindau Nobel Laureate Meetings

 

The last four triennial Lindau Meetings on Economic Sciences have managed to come at significant moments for the global economy and the debate over how it should be run.

In 2008, there were emerging signs that the ‘Great Moderation’ of the previous decade had come to an end. But most people expected that the turbulence would be confined to the subprime mortgages of the United States.

 

Joseph Stiglitz in 2011 during the 4th Lindau Meeting on Economic Sciences. Picture/Credit: Christian Flemming/Lindau Nobel Laureate Meetings

Joseph Stiglitz in 2011 during the 4th Lindau Meeting on Economic Sciences, Picture/Credit: Christian Flemming/Lindau Nobel Laureate Meetings

Three years later and the economics profession was in the dock for failing to give any warning of what had turned out to be a global financial crisis and subsequently, a ‘Great Recession’ that cast millions into unemployment and left the major western economic powers reeling. Lindau 2011 was a focus of media attention as laureates such as Joseph Stiglitz lambasted his colleagues.

At this year’s meetings, the atmosphere was calmer with few signs of an imminent external crisis. Yet given the tenth anniversary of the onset of the global financial crisis, much of the media attention was on the defence of the European Central Bank’s quantitative easing programme by its president Mario Draghi, who gave the opening keynote speech.

Participating journalists were also intrigued by comments by German Federal Minister Peter Altmaier on Brexit and by laureate Chris Pissarides demanding that Germany reduce her current account surplus to bring a better balance to the eurozone and relief to countries such as Greece.

 

Christopher Pissarides during his lecture at the 6th Lindau Meeting on Economic Sciences, Picture/Credit: Julia Nimke/Lindau Nobel Laureate Meetings

Christopher Pissarides during his lecture at the 6th Lindau Meeting on Economic Sciences, Picture/Credit: Julia Nimke/Lindau Nobel Laureate Meetings

But at the same time, the Nobel Laureates and young economists at the Lindau Meeting were engaged in discussing a huge amount of new economic research that is going on at universities around the world that may well lead to new theories on how to make people wealthier, healthier and happier.

A total of 85 young economists made presentations on their research to a panel of laureates. These included: an experiment to achieving a collective agreement on which transactions using the cryptocurrency Bitcoin are valid and which are invalid by Demelza Hays of the University of Lichtenstein; the potential for education investment in China to combat child labour by Tang Can of Renmin University; and the work by Cindy Lopez-Bento of Maastricht University on knowledge spillovers from subsidised R&D – to name just three.

Assuming that the world economy continues on its path of consistent – albeit weak – growth, then the next Lindau Meeting on Economic Sciences in 2020 may be the first for 12 years where the focus will be far more on looking forwards than backwards.

How can economics tackle the growing problem of inequality? What can be done to boost levels of productivity that are essential for growth in per capita income and wealth? What does economics have to say about high levels of poverty and ill health in developing countries? All these issues were discussed at Lindau with two science breakfasts on productivity and inequality.

But hopefully in three years time these issues will be the ones grabbing the media limelight.