INET conferencing​ beyond disappointment

24 Oct, 2017 at 19:33 | Posted in Economics | 7 Comments

I’m sitting in a coffee shop opposite Haymarket Station in Edinburgh. Just up the road, the Institute for New Economic Thinking (INET) is holding its conference. I’m supposed to be there, as I was yesterday and the day before. But I am not at all sure I want to go. The last two days have left a very bitter taste.

Boring PresentationThis conference, grandly entitled “Reawakening”, is supposed to be a showcase for the “new economic thinking” of INET’s name. I hoped to hear new voices and exciting ideas …

Not a bit of it. In the last two days we have had panel after panel of old white men discussing economic theories developed by old white men, many of them dead. Economic beliefs that I thought had been comprehensively debunked have reappeared, dressed up as “new thinking” …

I returned for a panel on debt traps, public and private – and I despaired again … Oh dear. It went from bad to worse.

Pontus Rendahl … claimed that “banks don’t create money” and explained that Barclays creates its own currency “pegged at par to the central bank currency”, which apparently only works if the central bank “is complicit”. The Bank of England debunked this nonsense back in 2014. Why is it still being presented now? …

This is not “new thinking”, it is the same old elite economists’ voodoo in different clothes.

Frances Coppola

It is indeed difficult not to agree. A lot of the stuff presented at INET conferences are just regurgitations of the same old mainstream dogma. And to even for a second think that a visionless neoclassical economist like Rendahl should have anything to do with new thinking in economics is of course totally gobsmacking!


  1. Same tools, same data should produce the same theories. If you want new theories try agent based modeling or behavioral economics.

  2. Mehrling is affiliated with INET. I think he presents a better model of money and finance than anything else I’ve seen. He stresses the ability of banks to expand balance sheets, which is what the comment about Barclays creating its own currency pegged at par with the dollar means. Barclays creates dollar-denominated assets out of future promises to pay, and exchanges them at will for Federal Reserve dollars; when the promises are due, they can roll over the funding, or default and get an insurer to pay, or get the loan forgiven. The Bank of England’s 2014 paper doesn’t contradict any of this …

    I think Coppola is just trying to get attention. I think her comments say more about her than about INET, at least my experience of INET (mostly from Mehrling’s MOOC “Economics of Money and Banking” which I highly recommend.

    Note: I think Mehrling describes the world financial system well, but I disagree with his unquestioned support for dealers. He sees dealers as maintaining the coherence of the system; when the dealer system broke down in 2007-2008, the system was in danger of becoming incoherent (see Mehrling’s papers for his own view in his own words, of course). I see the current system as incoherent. I think Mehrling and his ilk are afraid of the incoherence reaching their level … they find it easy to ignore the incoherence in the current system as it appears to me, as it appeared to millions thrown out of homes in 2008.

    • I clicked through to Coppola’s piece. She writes:

      “Doesn’t he know that the pre-crisis Eurodollar market, made up of shadow banks and European banks, created billions of faux US dollars without the explicit backing of the Fed but priced them as if they had Fed backing? When the Fed declined to back them, the whole thing crashed – and the Fed changed its mind pretty damn quick, providing copious liquidity to shadow banks and European banks alike, some of it via swap lines to the ECB and Bank of England. The international banking system is perfectly capable of creating things it treats as money and expects central banks to honour, even if central banks have never agreed to do so.”

      I can see how “faux US Dollars” and “their own currency pegged at par to the dollar” is really the same thing.

      I think Coppola is wrong when she says the Fed declined to back toxic assets; the private dealer system stopped accepting Residential Mortgage-Backed Securities as collateral for funding. Liquidity dried up and the Fed stepped in to make a market in those “toxic” assets. The system had been functioning as if the dollar-denominated assets were real dollars until traders and dealers panicked and refused to accept them as collateral for daily funding needs of banks. It wasn’t the Fed who declined; it was private money dealers. I think Coppola gets that wrong and I think Mehrling could enlighten her. I don’t know if Mehrling was there. He isn’t mentioned, but he might have been one of all those “old white men” that she didn’t listen to because she is prejudiced …

      • Coppola says “billions of faux US Dollars”; it was hundreds of trillions, if you look at the BIS Statistics on derivatives.

  3. Norbert Haering: Is there such a Trojan horse being built?…World Economics Association News Letters:

    “Let’s assume that there is a financial oligarchy which exerts strong political influence due to the vast amounts of money it controls. Let’s further assume that this financial oligarchy has caused a serious financial crisis. If such a situation occurs, the leading figures of that financial oligarchy might recall that during and after the financial crisis of the 1930s, laws were passed which broke the power of the financial oligarchy and taxed their profits steeply.

    To prevent a loss of power as it happened hence, they might want to make sure first that economics, their most important ally, will continue to downplay the role of money and the power of the financial oligarchy and of power in general.

    However, the economic mainstream itself will have lost credibility due to its obvious failure to promote the public good. Students will not so gullibly trust their professors and their textbooks any more. Young and bright researchers, who have not yet invested too much into the old discredited theories and methods, might turn to the question of how the finance industry can be made to serve the public interest. This would contribute to turning public opinion against the interest of the financial oligarchy. Thus, it will be important for the financial oligarchy to identify the brightest and most influential critics and leading figures of reform initiatives and to neutralize them.

    This can best be done by putting yourself at the forefront of the movement. This requires money, notoriety and credibility. Credibility is in short supply. However, It can fairly easily be acquired. One of the more famous representatives of the financial oligarchy would have to publicly criticize economics for failing to prevent disaster. The failure of economics and of the finance industry will have become so obvious that an industry representative who acknowledges them will gain a lot of credibility without saying much that is not widely discussed already.

    The chosen finance representative should found an institute that is dedicated to the renewal of economics. He should provide the institute with very large funds, at least relative to what other initiatives with the same goal can command.

    First the institute has to build up its credibility with the critical crowd. It should hire people who really mean to reform economics, because it is hard to consistently fake it in a credible way. It will be important at the start to engage and fund even the most dangerous critics of the old mainstream and of the financial oligarchy. This will transfer their credibility with the critical crowd to the institute.

    A second focus would have to be on identifying the brightest and potentially most influential young critical thinkers. This can be achieved by organizing lavish conferences with the most renowned and established economists and letting the youngsters apply for (funded) participation. The meetings could also be used to check out and create a good rapport with leading representatives of initiatives and organizations which aim to reform economic research and teaching. On the other hand, significant financial support of initiatives that function independently from the institute would need to be avoided..

    After the institute has put itself successfully at the forefront of the movement and has identified all the potentially relevant reforms, the next task is to neutralize them as much as possible. The most important representatives of dangerous currents in economics should slowly be marginalized. Invitations to the prestigious meetings of the institute should increasingly be reserved to researchers whose critique is either harmless or who may even support the status quo in a new and original way. After a while, the more dangerous ideas and researchers to the interests of the financial oligarchy will be even more marginalized than before. They will continue to be shunned by the mainstream, but on top of that they will not even be part of the avant-garde of the challengers as defined by the institute.

    Young researchers with the highest potential should be given the opportunity to pursue an excellent international education and career. The challenges of this career and the temptations of gaining the respect of the most important people should suffice to domesticate most of them.

    Remaining grass root initiatives at the universities can be neutralized, if needed, by cutting them off from the supply of potential activists. The institute could form local groups of affiliated young researchers, preferably at universities with a strong base of independent initiatives. Since the competing local groups of the institute’s young affiliates will have the institute’s network and money of the institute in the background, they should be able to be more effective and more attractive to yet unaffiliated young minds.

    With a strategy as outlined above it should be straightforward for the financial oligarchy to secure the power to define what are viable new theories and methods and what is to be disregarded as outlandish deviations from scientific common sense. They will be able to make sure that the only kinds of new thinking that can take hold are those which do not fundamentally challenge the the supremacy of the financial oligarchy.

    A rich and famous hedge fund manager called George Soros has gained notoriety for criticizing the economic mainstream and the dealings of the financial elite after the crisis broke out. He contributed $50m to the foundation of the Institute for New Economic Thinking (INET) in October 2009. Other members of the financial elite and their foundations, including David Rockefeller, the Carnegie Corporation and former Federal Reserve Chairman Paul Volcker multiplied that sum with their contributions.

    However, this does not really prove anything about the real motivation. Neither do the next few criteria that I will mention, as they cannot distinguish between an honest strategy for improvement of economic science and a cynical maneuver to control and domesticate any reform movement.

    Since spring 2010 the institute has been organizing annual conferences. It has a Young Scholar Initiative (YSI). Students and young researchers can apply to be invited to the prestigious and lavish conferences, which always take part in one of the best large hotels in town.

    INET provides grants to researchers for projects “aimed at finding solutions for the world’s most pressing economic problems.” The grantees of the first years include many well-known critics of the economic mainstream and of financial deregulation, such as Steve Keen, for example.

    An indication for intentions that are not 100% constructive could be the institute’s restrictive policy regarding support of initiatives which function independently from INET, be they initiated by students and young scholars, or by professors, critical of the mainstream.

    It is already quite visible that the institute would like to control the movement that it funds. On its website, INET states about grants for student initiatives that these are supposed to serve conversation between new economic thinkers of the future and those of the present. The latter are being defined as “INET-grantees and other members of the INET-community”. Students have to document support from their university and the cooperation of at least one member of their faculty. This should eliminate the more radical reform groups from consideration. For the others, there is a chance to have their conferences or other projects funded with up to $5000, or “preferably less”. According to my talks with representatives of independent initiatives of students, young researchers and professors of economics in Germany, these are hardly ever successful in obtaining financial support from INET.

    How is grant-giving of INET developing? There is a steep decline in volume from about $7m in 2010 to $2.1m in 2013. In the first three years, many grantees and their projects have been quite far from the mainstream and have been proposing a radical rethinking of the workings and regulation of the financial system. In contrast, the list of sponsored projects for 2013, which is here, reads a bit like a mix of the contents of an economic history journal and any good mainstream economic journal.

    The programs of IINET’s annual meetings including the 2014-meeting in Toronto are here. My own take is that there has been a trend toward increasingly mainstream themes and researchers at these meetings.”

  4. Monty Python- How to irritate people – Banks!

    Monty Python- Merchant Banker!

  5. These are reasonable comments. However, don’t think that by having more representation from women or ethnic groups you will have more of a diversity of ideas. If they also went to MIT and worked at the IMF you can expect more Samuelson and Sargent. These are the same members of the same global elite.

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