INET: a wealth of ideas

The Institute for New Economic Thinking was set up to examine alternatives to the existing financial system in the wake of the credit crunch. Vision looks at how it has the smartest young economists working to come up with new solutions to the global monetary crisis

Lying at the heart of Anatole Kaletsky’s prescription for new economic thinking is a paradigm: to get out of the economic hole in which Europe (and to varying extents, the rest of the world) now finds itself, it needs to stop listening to economists.

Or rather, economists need to start listening to other people and stop believing in their own invincibility. “Theoretical economists need to be taken down a peg,” he says. “They need to be confronted with economic and political reality. They need to reconnect to the study of history, politics and moral philosophy.”

Economic crisis

Kaletsky, the author of several books on economic thought and a widely admired commentator for The Economist, the Financial Times and The Times, then more recently for Reuters, helped to create the Institute for New Economic Thinking (INET) in 2009 in response to the economic crisis of 2008. He now argues that the pendulum that swung to the Keynesian left from the 1930s through to the early 1970s, during which time government intervention became common in order to stimulate an economy following a crisis, has subsequently swung in the opposite direction, allowing the markets free reign and leading to the problems we face today.

The Institute for New Economic Thinking was set up to examine alternatives to the existing financial system in the wake of the credit crunch. Vision looks at how it has the smartest young economists working to come up with new solutions to the global monetary crisis

Anatole Kaletsky, Chairman, INET


“We had a period [from the 1930s to the 1970s] where we believed that government is right and the markets are wrong. Then we had the opposite,” he says. He now believes we are in the midst of an economic revolution, of which 2008 was “only the beginning”. However, there will be no new economic theory to lead us to salvation. “We need to recognise that it was a mistake to consider economic models as the only foundation for a stable and prosperous society,” he says.

Rather than the heavy hand of the state or the light hand of the laissez-faire regulator, Kaletsky turns to chaos theory and the need to do away with unrealistic assumptions. (For example, that markets will always create solutions to problems.) Indeed, INET’s mission is to “challenge mainstream assumptions in contemporary economic thinking”.

Online presence

Financial supporters include investor George Soros, who famously bet that Britain would have to leave the European Exchange Rate Mechanism, and former Chairman of the Federal Reserve Paul Volcker. The organisation has so far funded a series of research scholarships and programmes to support new economic thinking, hosted conferences and developed a strong online presence to encourage debate on the big economic issues of the day. It has also nurtured a group of young economic students, known as the Young Scholars Initiative, an international body of economics students reassessing the global finance system.

Anatole Kaletsky recognises that the task of reordering the world’s economic mindset is herculean and takes aim at two particular targets. “There are two critical institutions in every Western economy: the finance ministry and the central bank. Until we get a change in the way PhD economists think and are taught, with much greater humility in the way they think, we won’t change the inner workings.” He points to the failure of Western governments to enact meaningful change in social, welfare or environmental programmes. “Whenever an idea like carbon pricing reaches the finance ministry, they block it, saying, ‘The market will create it,’” says Kaletsky. That argument was one of the main reasons to start INET, he says. “Unless you change the way economics is conducted, you’re never going to shift the organs of real power.”

Like the best columnists, Kaletsky doesn’t claim to have all the answers, but he’s a master at provoking debate, and that’s a valuable skill in a world of economic flux.