The State of Economics, the State of the World (The MIT Press)

Leading economists address the ongoing challenges to economics in theory and practice in a time of political and economic crises. More than a decade of financial crises, sovereign debt problems, political conflict, and rising xenophobia and protectionism has left the global economy unsettled and the ability of economics as a discipline to account for episodes of volatility uncertain. In this book, leading economists consider the state of their discipline in a world of ongoing economic and political crises. The book begins with three sweeping essays by Nobel laureates Kenneth Arrow (in one of his last published works), Amartya Sen, and Joseph Stiglitz that offer a summary of the theoretical foundations of modern economics—the twin pillars of general equilibrium theory and welfare economics. Contributors then turn to macroeconomic stabilization and growth and, finally, new areas of research that depart from traditional theory, methodology, and concerns: climate change, behavioral economics, and evolutionary game theory. The 2019 Nobel Prize laureates, Abhijit Banerjee, Esther Duflo, and Michael Kremer, contribute a paper on the use of randomized control trials indevelopment economics. Contributors Philippe Aghion, Ingela Alger, Kenneth Arrow, Abhijit Banerjee, Kaushik Basu, Lawrence Blume, Guillermo Calvo, Francesco Caselli, Asli Demirgüç-Kunt, Shantayanan Devarajan, Esther Duflo, Samuel Fankhauser, James Foster, Varun Gauri, Xavier Gine, Gäel Giraud, Gita Gopinath, Robert Hockett, Karla Hoff, Ravi Kanbur, Aart Kraay, Michael Kremer, David McKenzie, Célestin Monga, Maurice Obstfeld, Hamid Rashid, Martin Ravallion, Amartya Sen, Luis Servén, Hyun Song Shin, Nicholas Stern, Joseph Stiglitz, Cass Sunstein, Michael Toman, Jörgen Weibull Contents 6 Preface 8 Introduction: The State of Economics, the State of the World • Kaushik Basu 18 I Foundations 38 1 Equilibrium, Welfare, and Information • Kenneth Arrow 40 Comments by Shantayanan Devarajan and Karla Hoff 51 2 Social Choice and Welfare Economics • Amartya Sen 64 Comments by Célestin Monga and James E. Foster 94 3 The Revolution of Information Economics: The Past and the Future • Joseph Stiglitz 118 Comments by Ravi Kanbur and Hamid Rashid 156 II Macroeconomic Stabilization and Growth 168 4 From Chronic Inflation to Chronic Deflation: Focusing on Expectation and Liquidity Disarray since World War II • Guillermo Calvo 170 Comments by Gita Gopinath and Luis Servén 210 5 Global Liquidity and Procyclicality • Hyun Song Shin 224 Comments by Aslı Demirgüç-Kuntand Maurice Obstfeld 250 6 Growth and Development from a Schumpeterian Perspective • Philippe Aghion 270 Comments by Francesco Caselli and Aart Kraay 297 III New Areas of Research and Inquiry 310 7 Climate Change, Development, Poverty, and Economics • Sam Fankhauser and Nicholas Stern 312 Comments by Michael Toman and Gaël Giraud 338 8 Behaviorally Informed • Cass R. Sunstein 366 Comments by Robert Hockett and Varun Gauri 389 9 Morality: Evolutionary Foundations and Policy Implications • Ingela Alger and Jörgen W. Weibull 406 Comments by Lawrence E. Blume and Xavier Giné 434 10 The Influence of Randomized Controlled Trials on Development Economics Research and on Development Policy • Abhijit Vinayak Banerjee, Esther Duflo, and Michael Kremer 456 Comments by David McKenzie and Martin Ravallion 505 Contributors 516 Index 520 We live in troubled times. Over the past decade, the world economy has been wracked by financial crises, sovereign debt problems, backlash from political conflict and migrant crises, and, recently, a rise in xenophobia and protectionism. These issues raise major questions about the state of the world and also about the ability of economics to take on such challenges. Are these many economic and political crises and flare-ups symptoms of some deeper, underlying issues? Is economics as a discipline failing us at this time of soul searching? These are the questions that many are asking and that prompted the conference at the World Bank on which this book is based. We decided to bring in some of the finest minds in the profession - economists who have shaped modern economics--to ponder the state of the field and the state of the world in a series of papers. The conference consisted of 2 days of deliberation: The papers were presented, a distinguished group of economists commented on the presentations, and a large audience engaged with them in conversation and debate. This book is the outcome of these 2 days of deliberation