This book charts the fall of productivity and the rise of inequality within global economies and societies. Set out through a series of economic models, the impact of falling rates of productivity, particularly in the USA, are examined in relation to lowering interest rates, the lifting of the stock market, and an increasingly unequal distribution of wealth. The economic impact of COVID-19, including the increased tendency to work from home and renewed public debt pressures, are contextualised within broader issues of wage suppression and discontent within the labor force to highlight how average workers have been left behind. The rise of China and the geopolitical tensions that it has created is also discussed. This book sets out the macro and microeconomic innovations that can create a revival in productivity growth in the coming years. It will be relevant to students and researchers interested in global economic trends and the political economy.

These volumes focus on the most significant developments in macroeconomic theory since the late 1960s. Professor Phelps presents important recent articles and papers in both the Keynesian and monetarist tradition as well as work by adherents to new classical, neoclassical and supply side economics.Recent Developments in Macroeconomics will be an essential reference source for students, instructors and researchers concerned with new initiatives at the frontier of modern macroeconomic theory.

In Enterprise and Inclusion in Italy, Edmund Phelps weaves together and applies to Italy his two principal interests of the past decade -the imperative of restoring initiative, enterprise and dynamism in a great many industrialized economies, most acutely needed in the eastern European economies amid the wreckage of their experiments with market socialism and communism, and the imperative of extending self-support and involvement in the business sector to the large number of marginalized workers, where his focus was on the high rates of dependency, idleness and crime among less educated in the United States.

An inclusion failure has become highly visible in the advanced economies of the West. Too many able-bodied people are subject to chronic joblessness and, when employed, cannot earn a living remotely like that in the mainstream of the population. One policy response has been to give such workers a range of goods and services without charge, another has been to single out some groups for tax credits tied to their earnings. However, many of the welfare programs actually weaken people's incentive to participate in the labour force and wage-income tax credits appear to have made hardly a dent in joblessness. This volume brings together leading economists to present four studies of methods to rebuild self-sufficiency and boosting employment: a graduated employment subsidy, a hiring subsidy and subsidies for training and education. It is of interest to anyone with a serious interest in the economics of subsidies to raise inclusion.

Economists may suppose that low-wage work can result in correspondingly low productivity. The best solution to high unemployment and turnover and low productivity is to pay users of low-wage labor a subsidy for each unit of labor they use. Top economists examine the best ways to address the problem of low wages and employment in the low-skilled labor pool.

In Enterprise and Inclusion in Italy, Edmund Phelps weaves together and applies to Italy his two principal interests of the past decade -the imperative of restoring initiative, enterprise and dynamism in a great many industrialized economies, most acutely needed in the eastern European economies amid the wreckage of their experiments with market socialism and communism, and the imperative of extending self-support and involvement in the business sector to the large number of marginalized workers, where his focus was on the high rates of dependency, idleness and crime among less educated in the United States.

New Institutional Economics open a new methodological perspective in political economy by posing the question of why economic institutions are created. This state-of-the-art collection examines this question of Arrow's looking at how these man-made constraints condition political, economic and social integration both informally and formally. New developments in game theory are applied to many case topical studies including corruption, central bank independence, globalization and other issues in contemporary economic governance.

Growing out of a conference on Expectations Formation and Economic Disequilibrium held in New York City in 1981, the papers in this volume provide a complex view of market processes in which individual rationality is no guarantee of convergence to the 'correct' model and the equilibrium coordination of agents' plans. They reject the 'optimality' argument for the rational expectations hypothesis, opening the door to other hypotheses of optimal expectations of agents in the decentralized market economy.

In the post-war period, spending on social security, health and education has grown continuously in the leading industrialized countries. The considerable size of this spending as a percentage of GDP together with the ageing population raise doubts on the sustainability of welfare spending. These doubts have been accompanied in recent years by an increasing awareness of the allocational inefficiencies and the distributive inequalities caused by the provision of some social services. The welfare state should therefore be reconstructed not only through readjustment of the social security system but also a change in unemployment benefits and the taxation of workers to avoid the perverse spiral that may be produced in the future by cuts in welfare benefits, growing unemployment and the need to further reduce the social security services.

At the beginning of the 1990's unemployment grew in all industrialized countries: the essays in this collection focus on the causes and cures of this worrying phenomenon. The volume starts by analysing the disparities in the different national experiences and then focusing on European unemployment. This is followed by more theoretical discussions using econometric models. The volume ends with policy recommendations.

Privatising firms and liberalizing their market environment generates in Eastern Europe a variety of problems, many of which are not common to the analogous attempts in industries countries. A first difference between the two experiences resides in establishing the value of the firm or of the assets that are being privatized. A second main difference concerns the lack of the record of market performance for the firm. The book explores these open questions through an overview of on-going and proposed processes in Section 1. In Section 2 theoretical foundations of privatization processes are proposed with respect to the financial market, industrial relations and foreign trade. A final key question is faced in Section 3: 'is there any alternative to privatization?'

Privatising firms and liberalizing their market environment generates in Eastern Europe a variety of problems, many of which are not common to the analogous attempts in industries countries. A first difference between the two experiences resides in establishing the value of the firm or of the assets that are being privatized. A second main difference concerns the lack of the record of market performance for the firm. The book explores these open questions through an overview of on-going and proposed processes in Section 1. In Section 2 theoretical foundations of privatization processes are proposed with respect to the financial market, industrial relations and foreign trade. A final key question is faced in Section 3: 'is there any alternative to privatization?'

The subject of this book is the kind of economic interaction and interdependence that has arisen among nations in the contemporary world economy, the nature and significance of the pattern of trade balances that have resulted from them, and the question of what, if anything, should be done by national governments about that pattern. The need for international coordination of economic policies is also investigated.

This book discusses the economic interaction and interdependence that has arisen amongst nations in the contemporary world economy, the nature and significance of the pattern of trade balances that have resulted from them and the question of what, if anything, should be done by national governments about that pattern. The need for international coordination of economic policies is also investigated.

"This marvelous book by Frydman and Goldberg documents . . . invaluable insights of the 'early modern' theory of capitalism that were lost when the profession endorsed rational expectations equilibrium. . . . Happily for me and, I believe, for the profession of economics, this deeply original and important book gives signs of bringing us back on track--on a road toward an economics possessing a genuine microfoundation and at the same time a capacity to illuminate some of the many aspects of the modern economy that the rational expectations approach cannot by its nature explain."--from the foreword by Edmund S. Phelps, winner of the 2006 Nobel Prize in economics

"Anyone who has ever studied markets for financial assets such as currencies knows that it is very difficult to explain, much less predict, short to medium term fluctuations. In their innovative new work, "Imperfect Knowledge Economics," Roman Frydman and Michael Goldberg make a strong case that it would be particularly helpful to improve our understanding of how financial markets process new knowledge and information. In addition, the book offers a useful guide to understanding existing empirical exchange rate models."--Kenneth Rogoff, Harvard University

"The centrality of expectations in understanding economic fluctuations has long been recognized, but their formation has not been adequately described. The rational expectation hypothesis was a bold and ingenious attempt, but it has proved empirically very far from satisfactory, most strikingly, in the field of foreign exchange markets, where the good documentation makes the failure easier to establish. Frydman and Goldberg open new doors by a more realistic understandingof the process of forming expectations; by recognizing that universal rules are intrinsically impossible, they exhibit a more creative understanding of the recent history of foreign exchange spot and futures markets."--Kenneth J. Arrow, Nobel Prize-winning economist

"If you are looking for a way to escape from the Procrustean bed of rational expectations equilibrium--and, if you pay attention to real-world data, you should be--try reading this imaginative and intelligent book. It will amply repay your efforts."--Alan S. Blinder, Princeton University

"If you have been puzzled by the difficulty of reconciling uncertainty with the equilibrium models that economists use to explain market outcomes, this is the right book to read and reread. It launches a new approach, "Imperfect Knowledge Economics," which highlights the long-recognized failure of prespecified general equilibrium modeling to account for the behavior of agents under changing conditions. Frydman and Goldberg are thus proposing models that are able to generate robust qualitative predictions, leading to a better understanding of short- and long-term swings in economic variables. In macroeconomics, there will undoubtedly be a 'before' and 'after' this book."--Jean-Paul Fitoussi, president, l'Observatoire francais des conjonctures economiques, Paris

"The record of contemporary economics in explaining the behavior of exchange rates is a sorry one. Frydman and Goldberg make the foreign exchange rate problem the particular object of a searching critique of current macroeconomics and use it also as the vehicle for demonstrating how they would break its methodological 'stranglehold.' Their own alternative, imperfect knowledgeeconomics, is systematically worked out and persuasively argued. It is my hope that the book will be widely read and debated."--Axel Leijonhufvud, UCLA and the University of Trento

"This is a major and controversial contribution to macroeconomics that cannot fail to make an impact in several areas. Academics will read it for the comprehensive critique of much macroeconomic theory. More empirically motivated economists will look carefully at the rich scope for empirical analysis that the book opens up. Policymakers too will want to look at it--and will be relieved to see that they come off much better than the main authors of the rational expectations school."--Niels Thygesen, University of Copenhagen

In this book, Nobel Prize-winning economist Edmund Phelps draws on a lifetime of thinking to make a sweeping new argument about what makes nations prosper--and why the sources of that prosperity are under threat today. Why did prosperity explode in some nations between the 1820s and 1960s, creating not just unprecedented material wealth but "flourishing"--meaningful work, self-expression, and personal growth for more people than ever before? Phelps makes the case that the wellspring of this flourishing was modern values such as the desire to create, explore, and meet challenges. These values fueled the grassroots dynamism that was necessary for widespread, indigenous innovation. Most innovation wasn't driven by a few isolated visionaries like Henry Ford and Steve Jobs; rather, it was driven by millions of people empowered to think of, develop, and market innumerable new products and processes, and improvements to existing ones. Mass flourishing--a combination of material well-being and the "good life" in a broader sense--was created by this mass innovation. Yet indigenous innovation and flourishing weakened decades ago. In America, evidence indicates that innovation and job satisfaction have decreased since the late 1960s, while postwar Europe has never recaptured its former dynamism. The reason, Phelps argues, is that the modern values underlying the modern economy are under threat by a resurgence of traditional, corporatist values that put the community and state over the individual. The ultimate fate of modern values is now the most pressing question for the West: will Western nations recommit themselves to modernity, grassroots dynamism, indigenous innovation, and widespread personal fulfillment, or will we go on with a narrowed innovation that limits flourishing to a few? A book of immense practical and intellectual importance, Mass Flourishing is essential reading for anyone who cares about the sources of prosperity and the future of the West.

This book originated from a 2010 conference marking the fortieth anniversary of the publication of the landmark "Phelps volume," "Microeconomic Foundations of Employment and Inflation Theory," a book that is often credited with pioneering the currently dominant approach to macroeconomic analysis. However, in their provocative introductory essay, Roman Frydman and Edmund Phelps argue that the vast majority of macroeconomic and finance models developed over the last four decades derailed, rather than built on, the Phelps volume's "microfoundations" approach. Whereas the contributors to the 1970 volume recognized the fundamental importance of according market participants' expectations an autonomous role, contemporary models rely on the rational expectations hypothesis (REH), which rules out such a role by design.

The financial crisis that began in 2007, preceded by a spectacular boom and bust in asset prices that REH models implied could never happen, has spurred a quest for fresh approaches to macroeconomic analysis. While the alternatives to REH presented in "Rethinking Expectations" differ from the approach taken in the original Phelps volume, they are notable for returning to its major theme: understanding aggregate outcomes requires according expectations an autonomous role. In the introductory essay, Frydman and Phelps interpret the various efforts to reconstruct the field--some of which promise to chart its direction for decades to come.

The contributors include Philippe Aghion, Sheila Dow, George W. Evans, Roger E. A. Farmer, Roman Frydman, Michael D. Goldberg, Roger Guesnerie, Seppo Honkapohja, Katarina Juselius, Enisse Kharroubi, Blake LeBaron, Edmund S. Phelps, John B. Taylor, Michael Woodford, and Gylfi Zoega.

In the post-war period, spending on social security, health and education has grown continuously in the leading industrialized countries. The considerable size of this spending as a percentage of GDP together with the ageing population raise doubts on the sustainability of welfare spending. These doubts have been accompanied in recent years by an increasing awareness of the allocational inefficiencies and the distributive inequalities caused by the provision of some social services. The welfare state should therefore be reconstructed not only through readjustment of the social security system but also a change in unemployment benefits and the taxation of workers to avoid the perverse spiral that may be produced in the future by cuts in welfare benefits, growing unemployment and the need to further reduce the social security services.

In Eastern Europe privatization is now a mass phenomenon. The authors propose a model of it by means of an illustration from the example of Poland, which envisages the free provision of shares in formerly public undertakings to employees and consumers, and the provision of corporate finance from foreign intermediaries. One danger that emerges is that of bureaucratization. On the broader canvas, mass privatization implies the reform of the whole system, the creation of a suitable economic infrastructure for a market economy and the institutions of corporate governance. The authors point out the need for a delicate balance between evolution - which may be too slow - and design - which brings the risk of more government involvement than it is able to manage. A chapter originating as a European Bank working paper explores the banking implications of setting up a totally new financial sector with interlocking classes of assets. The economic effects merge into politics as the role of the state is investigated. Teachers and graduate students of public/private sector economies, East European affairs; advisers to bankers or commercial companies with Eastern European interests.

This volume of twelve interlocked essays in mathematical economics deals with a central problem of modern economic theory: the search for a path to an optimum level of economic growth. The meaning of the Golden Rule concept is thoroughly expounded, and certain analogues are presented to show that the fundamental notion of a "commanding" growth path is encountered even in models in which no pure and simple Golden Rule path exists. The Golden Rule concept is tested and applied to a number of theoretical formulations and then extended to several kinds of investment other than capital formation, as the author postulates a Golden Rule of Research, a Golden Rule of Education, and even a concept dealing with population control-a Golden Rule of Procreation. This thorough and original work is important reading for students of macroeconomic theory, growth, development, and capital theory.

A major advance toward understanding the forces that lead to inflation and unemployment, this study takes a cost-benefit approach to monetary planning. Professor Phelps views a reduction of inflation by monetary means as a social investment and argues that such an investment must be subjected to cost-benefit tests. By extending his analysis into questions of efficiency and resource allocation, he integrates the modern microeconomic theory of unemployment with the theory of optimal inflation. Another element of the analysis, the doctrine of optimum liquidity, is reassessed and found to require important revisions.