Professor Willi Semmler Unpacks the Economics of Climate Change

This is the first in a series of Research Matters articles profiling the interdisciplinary climate change work of students, faculty, and alumni at The New School for Social Research. Check back for more!

Despite his contributions to scholarship in the economics of climate change, Willi Semmler—the Arnhold Professor of International Cooperation and Development in the Economics Department at The New School for Social Research—considers himself a relative latecomer to the field.

“I stepped in just a few years ago,” he explained, reflecting on decades-long efforts to understand the implications of a warming world for global growth.

Semmler suggested that serious discussions about these issues began with the first meetings of The Club of Rome, an international group of scholars and practitioners from across fields and areas of expertise that first met in 1968. “They recognized that growth has limits,” he said, “It affects the environment. And it uses up resources that won’t be available for future generations.” If given the opportunity, Semmler can trace the highlights and lowlights of climate change policy throughout the half-century that followed the 1968 meeting—from Rome to Rio, Kyoto to Cancun, and Doha to the 2015 United Nations Climate Change Conference in Paris.

Semmler now serves as the Director of the Climate Change Project at The Schwartz Center for Economic Policy Analysis, and was recently named Senior Researcher on climate change issues at the International Institute for Applied Systems Analysis (IIASA) in Laxenburg, Austria. With Lucas Bernard—PhD alumnus of The New School and Professor at NYC College of Technology—Semmler edited The Oxford Handbook of The Macroeconomics of Global Warming. In their introduction, they write, “The developed world can protect itself against climate change through infrastructure improvement and will use more energy to adapt to climate change effects. But it is in developing countries where some of the most dangerous consequences of climate change will be concentrated.”

In this sense, questions about the economics of climate change can rehash fundamental debates about the winners and losers of globalization, and the haves and have-nots within an interdependent global economy. “The losers of globalization were not compensated, and this has produced inequality,” Semmler said. As a result, the current political moment—in which climate change is already a hot-button issue—is made more complicated by debates about globalization itself. He explained, “We are seeing imbalances within individual countries and across borders [and] people are more skeptical about what type of globalization we really want.”

Semmler argued that this is especially the case in countries like the United States, where large swaths of the manufacturing labor force has been affected by globalization over the last three decades. He pointed out that the negative fallout for workers is particularly pronounced, “if you don’t have a proper social system where the victims or the losers of globalization and the free markets don’t have much in the way of unemployment benefits, welfare benefits, or opportunities to do re-schooling or reskilling.”

In this context of considerations about both climate change and the consequences of globalization, Semmler is examining whether financial markets can be used to help shift investment toward green technologies, nudging policy toward regulations that will promote sustainability and growth.

Semmler again returns to fundamental debates about the role of financial markets and regulation of industry to illuminate the stakes of his analysis. Breaking down the argument in his recent book Sustainable Asset Accumulation and Dynamic Portfolio Decisions, Semmler said, “There are basically two views on financial markets: the first is that you can’t constrain operations of the market and you can’t too much constrain investment choice.” In this approach, if social problems or unexpected needs emerge, then the markets should be free to allocate resources to address them. “You make your money freely and then you give it to social needs.”

But Semmler’s research suggests that, “There can be guidelines for more responsible investment: investment that takes into account environmental responsibilities, or that creates social impact.” Against the notion that such guidelines limit growth potential, Semmler has suggested that such strategies—which consider the responsibility to address social dilemmas like climate change—can produce better results for investors. “It doesn’t necessarily mean that you will lose money,” Semmler said, “Because you may be better off in the long run.”

If there is something that concerns Semmler most, it is the possibility that political uncertainty might be a drag on growth. “The global uncertainty comes from the global world order,” he said, “It’s now the global world disorder. Economies, corporations, people, and firms are affected by these macroeconomic phenomena.”

Potential solutions to these enormously complex challenges, in Semmler’s estimation, will continue to require nuanced and collaborative solutions that can better understand the often-hidden forces that are driving economic change. To celebrate Semmler’s contributions to the field of economics, several of his students and colleagues assembled a festschrift—13 essays on his work and career—in 2016. Of his work, New School for Social Research economics PhD alumnus Aleksandr Gevorkyan writes that, “Semmler’s macroeconomic analysis penetrates the most deeply hidden and convoluted aspects of the complex modern global economy.” Judging by the essays included in the collection, titled Dynamic Modeling, Empirical Macroeconomics, and Finance, climate change is less of a hidden aspect now than when Semmler began working on the issue.

And judging by the pace of news and persistence of uncertainty in the field, it seems that the economics of climate change will only continue to demand new research and insight.

Duncan Foley wins Guggenheim Prize in Economics

Duncan Foley, the Leo Model Professor of Economics at The New School for Social Research, has won the 2017 Guggenheim Prize in Economics. In the announcement of its decision, the Guggenheim Prize Committee at Ben Gurion University of the Negev cited Professor Foley’s “major contribution to the field.” Awarded bi-annually, The Guggenheim Prize recognizes lifetime achievement in the field of economics. Foley is the fourth winner of the Guggenheim Prize, joining Professors Bertram Schefold (2009), Sam Hollander (2011), and David Laidler (2015).

“Duncan’s work spans from modeling the contemporary economy to the history of ideas and how it forms our understanding of the present,” said Will Milberg, Dean and Professor of Economics at The New School for Social Research. Milberg added, “As one of the most creative and original thinkers in economics for decades, he is very deserving of this honor.”

Professor Foley joined The New School for Social Research in 1999. He was previously Professor of Economics at Columbia University, and Associate Professor at the Massachusetts Institute of Technology and at Stanford University. Joining his numerous papers on topics as diverse as the economics of climate change, financialization and the information economy, and the labor theory of value, his most recent book Adam’s Fallacy (Harvard) presses back against a fundamental assumption at the heart of orthodox economics: that the “economic sphere […] in which the pursuit of self-interest is led by the invisible hand of the market to a socially beneficial outcome,” can be separated from the rest of social life.

In addition reading to his many books and articles, those interested in Professor Foley’s teaching can find video of his 2016 Advanced Microeconomics class at The New School is available on The New School’s YouTube page.

Democratizing Economics: the Heterodox Approach of Two NSSR Graduate Students

Like many students in the Economics Department at The New School for Social Research, Ebba Boye and Ingrid Kvangraven want to widen the lens through which we examine economies. Their approach to economic issues inside and outside the classroom not only offers a critique of our most established theories but also fosters alternative ways of thinking about economics, politics, and education.

“The field of economics used to be much broader than what it is now,” said Boye. She attributes its narrowing to the hardening of neoclassical economic theory into rigid doctrine. It can often seem as though this doctrine has become, “the singular way of understanding how the economy works.” In this context, the practice of economics becomes a question of learning and applying a single set of laws, rather than exploring alternative pictures of the economy.

“You don’t have the idea that academia is about learning about different theories in order to compare them and critique them,” Boye said.

The neoclassical approach to economics—sometimes referred to simply as mainstream economics—would likely sound familiar to anyone who has taken an introductory undergraduate course in the subject, as it still dominates the landscape of the discipline. It builds on assumptions that free market competition leads to the most efficient allocation of resources. To address economic problems such as unemployment, orthodox economists typically ask what imperfections might be preventing markets from achieving what they call a Pareto efficient equilibrium, and how these imperfections can be removed or remedied.

By contrast, heterodox economists—and heterodox economics departments at institutions like The New School for Social Research— ask whether perfect markets and general equilibrium might not be the best starting points for real-world analysis, and instead propose other theoretical frameworks. Whereas many of the neoclassical models aspire to the articulation of trans-historical and universal laws, many heterodox economists try instead to integrate historical and context-specific analysis into their picture of how economies work.

Influential Economics Alumni in the News for Research, Teaching and Policymaking

Doctoral alumni from the Department of Economics at the New School for Social Research count as some of the most influential in the discipline, ranking highly on recent lists of leading economists published by Politico and Richtopia. They are also among the most productive researchers at national liberal arts colleges, according to a recent study that appeared in November’s issue of the International Journal of Pluralism and Economics Education.

Alumnae Stephanie Kelton (PhD’01, Economics) and Heather Boushey (PhD’98, Economics) were both listed by Politico as two of 2016’s top “doers and visionaries” transforming American politics, specifically in the areas of Economics and Inequality. Boushey, who is described as part of a trio of policy advisers that played a prominent role in the Clinton Presidential Campaign, was characterized by The Atlantic as the former candidate’s “economic inequality whisperer.” In the wake of the election, Boushey continues to serve as Executive Director and Chief Economist at the Washington Center for Equitable Growth, where her research focuses on inequality and public policy. Her most recent book, published last year by Harvard University Press, is Finding Time: The Economics of Work-Life Conflict. In it, she argues that for decades the American Wife played the role of, “a behind-the-scenes, stay-at-home fixer of what economists call market failures. When women left the home—out of desire and necessity—the old system fell apart. Families and the larger economy have yet to recover.” According to Boushey, policy solutions must entail the creation of opportunities for American workers to better balance their home life and work obligations.

Kelton serves as Professor of Economics at the University of Missouri-Kansas City, a department with close ties to The New School for Social Research. Politico describes her as a leader in “Modern Monetary Theory,” which stands as “a major break, even with many Keynesian economists on the left who trumpeted fiscal stimulus after the financial crisis.” Kelton was an economic adviser to Bernie Sanders during his 2016 presidential run, and was also ranked the 26th most influential economist in the world on Richtopia’s end-of-year list (up two spots from 28th in 2015).

The prominence of recent New School doctoral alumni isn’t limited to the States. Joining Kelton on Richtopia’s list was Jim Stanford (PhD’95, Economics), who recently relocated to Sydney, where he is Director of the Centre for Future Work at the Australia Institute. Previously, Stanford was the Harold Innis Professor of Economics at McMaster University and has been a longtime commentator on economics in the press. In a recent article in The Globe and Mail, Stanford analyzed the changing rules of globalization in the auto industry during the Trump Administration.

Like Stanford, Mariana Mazzucato (PhD’99, Economics) was recently named as the Director of an important economics research center, the Institute for Innovation and Public Purpose at UCL in London. She was also counted as one of the most-cited industrial policy sources for the UK Labour Party during debate in Parliament. For the sake of comparison when considering economists cited as authoritative in Parliamentary debate, Mazzucato ranks fifth—tied with Karl Marx and falling behind only Adam Smith, John Maynard Keynes, Joseph Stiglitz, and Milton Friedman. Mazzucato’s book The Entrepreneurial State, which was reissued in the US by Public Affairs in 2015, “debunks the myth of a lumbering, bureaucratic state versus a dynamic, innovative private sector.”

Boushey, Kelton, Mazzucato, and Stanford exemplify the New School for Social Research’s emphasis on conducting critical research that can drive policy discussions. This research excellence extends into the classroom. In “Engaged in Teaching, and Scholarship Too,” three economists examined the “research productivity of economists affiliated with the top 100 national liberal arts colleges,” as measured by the output of publications. Both Matías Vernengo (PhD’99, Economics) of Bucknell and Rajiv Sethi (PhD’93, Economics) of Barnard College were in the top 20. Vernegno’s scholarship emphasizes the history of ideas in the development of economic theory, while Sethi currently works on the economics of inequality, crime, and communication.

“It is exciting to see our alumni producing such diverse research while at the same time playing critical roles influencing policy and teaching the next generation of students,” said Mark Setterfield, Chair of the Department of Economics. He was listed as the fourth most productive researcher at the top 100 liberal arts colleges during his time at Trinity College. Setterfield added, “Our department plays such a special role in the discipline, both domestically and internationally. It’s evident from the accomplishments of our alumni that this role is widely recognized, both within the economics profession and beyond.”

The Economics Department welcomes “friends and family” to a celebration at the University Center that will coincide with the annual Meetings of the Eastern Economics Association on February 24. Details are forthcoming, and all with affiliations to The New School for Social Research Department of Economics are invited to connect with faculty, alumni, and others for an informal gathering. For more information, please reach out.

Anwar Shaikh publishes an important economic analysis of modern capitalism

Whether for academic work or a personal pursuit, those who are interested in capitalism may want to add a new book to the shelf: Capitalism: Competition, Conflict and Crisis by Anwar Shaikh, Professor of Economics at The New School for Social Research.

Earlier this semester, NSSR and the Schwartz Center for Economic Policy Analysis (SCEPA) held a book launch to celebrate Oxford University Press’s publication of Shaikh’s magnum opus. Speaking to a crowd, Shaikh thanked everyone who inspired him and helped him successfully complete the project.

“In teaching, we try to influence others and, of course, we ourselves are influenced by our teachers,” Shaikh said.

Shaikh started the book 25 years ago, and “as my ideas evolved, I realized I wanted to talk not about what Ricardo had said, and Smith had said, and Marx had said.” For Shaikh, the questions that he wanted to answer had become about capitalism itself, and “not the genealogy of the ideas.” Shaikh became more interested in the actual patterns of capitalism over time, and decided to abandon the manuscript he had been working on for ten years to begin anew.

Shaikh shared that “competition and conflict are intrinsic features of capitalist societies, inequality is persistent, and booms and busts are recurrent patterns throughout capitalist history. And when we talk about the state, we see that the state intervenes to modify these patterns, but it does not abolish them.” Shaikh explained that the book diverges both from orthodox economics and the dominant elements of heterodox economics, because “there is no reference… to any idealized framework as a foundation, rooted in perfect firms, perfect individuals, perfect knowledge, perfectly selfish behavior, rational expectations, and optimal outcomes.”

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