The paper gives conditions for e¢ ciency and ine¢ ciency of equilibrium allocations in an overlapping-generations model with a constant rate of population growth and with multiple assets, but without labour. Optimal portfolio choice implies that, for any period and history up to that period, the conditional certainty equivalents of the one-period-ahead marginal rates of return must be the same for all assets that are held in positive amounts. The e¢ ciency or ine¢ ciency of equilibrium allocations depends on whether this common conditional certainty equivalent of returns on assets is larger or smaller than the population growth rate. If the growth rate is uncertain, the standard of comparison is the certainty equivalent of the population growth rate when interpreted as a marginal rate of return on an asset.

The paper discusses normative issues that arise when scholars provide policy advice. Economics has a tradition, which goes back to the origins of the discipline in the enlightenment, of warning against value judgements in theory and making value judgements in practice. Policy recommendations in pursuit of "efficiency" do not provide a convincing justification for the practice; the distributional consequences matter even if they are kept under the rug. The more recent practice of using "efficiency" as a basis for descriptive analysis introduces a source of serious bias. The lack of a professional routine for choosing which tools are appropriate for studying a given sludge of facts makes for an additional reason to exercise caution. Whereas academic freedom precludes the imposition of such normative appeals from the outside, critical open discussion should provide a needed disciplining mechanism.

Abstract The article discusses the German government’s reaction to the perception of an excessive dependence on Russian gas that was caused by the Ukraine war and to the reductions in Russian gas supplies that have taken place. First, the article lists various policy deficits: Naivité of the expectation that Russia would watch German attempts to reduce its dependence without interfering, restricting thinking about gas scarcity to the mobilization of additional supplies, without paying much attention to demand, complete neglect of the allocative role of prices, finally an inability or unwillingness to communication the bad news to the population that we have become poorer. Thereafter, the article addresses some of the difficulties that stand in the way of flexible price adjustments, existing contracts as well as social concerns. Finally the article discusses the concept of supply security, indicating the difference between private and social concerns, and pleading for an assumption of government responsibility for those concerns that cannot be expected to be met by private suppliers.

The paper contributes to the discussion on whether real interest rates below real growth rates can be taken as evidence of dynamic inefficiency so that some fiscal intervention may be called for. A seemingly killing objection points to land, a non-produced durable asset in positive supply, as a reason why dynamic inefficiency can be ruled out. If real interest rates were expected to be below real growth rates forever, the value of land would be unbounded, which is incompatible with equilibrium. The paper shows that this objection is not robust to the presence of an arbitrarily small per-unit-of-value transaction cost. The paper also specifies fiscal interventions that provide for Pareto improvements even though they involve a resource cost. For the debate about public debt policy, the land argument is a red herring because it is incompatible with the presence of fiat money and debt denominated in units of fiat money.

ECB President Christine Lagarde and others have suggested that climate change creates risks for price stability and for the viability of counterparties to central bank interventions and therefore monetary policy should contribute to fighting climate change. However, pursuit of this new objective may occassionally conflict with price stability, in which case the legal mandate as well as the underlying rationale for this mandate and for ECB independence call for prioritising price stability. However, monetary policy will have a sustainability problem of its own if the viability of the monetary system is threatened by financial and fiscal instability.

ABSTRACT This article comments on the Consultation Report published by the Financial Stability Board (FSB) evaluating the success of regulatory reforms since the global financial crisis of 2007–2009. It argues that the FSB’s assessment of the role of equity is too narrow, being phrased in terms of bankruptcy avoidance and risk-taking incentives, without attention to debt overhang creating distortions in funding choices, the systemic impact of ample equity reducing deleveraging needs after losses, or equity contributing to smoothing of lending and asset purchases over time. The FSB’s treatment of systemic risk also pays too little attention to the mutual interdependence of different parts of the system, which is not well captured by linear causal relationships. Finally, the article points out that bank resolution of systemically important institutions is still not viable, due to lack of political acceptance of single-point-of-entry procedures and bail-in. Within the European Union, this viability is further undermined by the lack of sufficient funding for banks in resolution and the lack of fiscal backstops.

The paper studies efficient public-good provision in a model with private values whose distribution depends on a macro shock; conditionally on this shock, values are independent and identically distributed. A generalization of the Bayesian mechanism of d’Aspremont and Gérard-Varet is shown to implement an efficient provision rule with budget balance. However, first-best implementation and budget balance are incompatible with a requirement of weak robustness whereby incentive compatibility of the mechanism is independent of the stochastic specification within the class of specifications defined by the structure of the model. Budget imbalances with robust implementation are small if there are many participants, as surplus from the Clarke-Groves mechanism converges to zero in probability when the number of participants becomes large. In the limit, with a continuum of agents, a first-best provision rule with equal cost sharing is robustly incentive-compatible. In this limit, information about the macro shock, which is the only thing that matters for public-good provision, can be elicited without any efficiency loss.

The paper contributes to a symposium of the Oxford Review of Economic Policy on “Capitalism: What has Gone Wrong, What Needs to Change, and How can it be Fixed?”. The analysis starts from the observation that, in the United States, the United Kingdom and continental Europe, widespread discontent has become an important political force. I attribute this discontent to a sense on unfairness in developments of the past few decades. I relate this sense of unfairness to: (i) negative effects of structural change, including joblessness and regional decline, (ii) the observation of extraordinary growth in executive remuneration and financial-sector remuneration, coupled with government bailouts in the global financial crisis, and (iii) changes in public policy and public discourse, with a retrenchment of public services and public investment, except for bailouts and a focus on “efficiency”, the meaning of which is driven by the perceptions of corporate executives rather than standard welfare economics. To capture these developments, one needs to think about “capitalism” in the sense of French “capitalism” or German “Kapitalismus”, with a focus on the symbiosis of wealth and power, including the elimination of competition, rather than the English sense of merely another term for the market economy.

Escape variants can cause new waves of COVID-19 outbreaks and put vaccination strategies at risk. To prevent or delay the global spread of these waves, virus mobility needs to be minimised through screening and testing strategies, which should also cover vaccinated people. The costs of these strategies are minimal compared to the costs to health, society and the economy from another wave.

An anonymous social choice function for a large atomless population maps cross-section distributions of preferences into outcomes. Because any one individual is too insignificant to affect these distributions, every anonymous social choice function is individually strategy-proof. However, not every anonymous social choice function is group strategy-proof. If the set of outcomes is linearly ordered and participants have single-peaked preferences, an anonymous social choice function is group strategy-proof if and only if it can be implemented by a mechanism involving binary votes between neighbouring outcomes with nondecreasing thresholds for “moving higher up”. Such a mechanism can be interpreted as a version of Moulin’s (1980) generalized median-voter mechanism for a large population.

Zusammenfassung Die Interpretation des Zinssatzes als Preis ist problematisch. Im Gegensatz zum Preis ist der Zinssatz kein Austauschverhältnis. Modelle, in denen der Zinssatz mit einem Preis für die Nutzung von Kapital identifiziert werden kann, sind sehr speziell. In allgemeineren Modellen sind Zinssatz und Mietpreise für Kapital verschieden. Die dogmengeschichtliche Entwicklung hinter dieser Diskussion deutet auf eine apologetische Funktion der Interpretation des Zinssatzes als Mietpreis für Kapital. Im Hintergrund steht die Frage, in welchen Einheiten Zinssatz und „Kapital“ gemessen werden.

Abstract The paper criticises interpretations of the interest rate as a price. Prices are exchange ratios for different objects; the interest rate is a parameter characterising an intertemporal exchange ratio but is not itself an exchange ratio. Therefore, negative (real) interest rates can arise naturally without policy interventions. Interpretations of the interest rate as a rental rate for capital are shown to be untenable when there are many goods. The paper also sketches the historical background of the discussion, in particular, the English classical economists and Marx, the neoclassical model of Clarke and Wicksell, and Joan Robinson’s criticism of this model.

The paper gives conditions for dynamic inefficiency of laissez-faire allocations in an overlapping-generations model with safe and risky assets. If the rate of population growth is certain, the conditions given depend only on how the rate of return on safe assets compares to the growth rate. If no safe assets are held, the implicit relative price for non-contingent intertemporal exchanges takes the place of the safe rate of return. Returns on risky assets do not enter the comparison. The conclusion holds regardless of whether welfare assessments are made from an interim perspective, taking account of the information that people have, or from an ex ante perspective. If a laissez-faire allocation is dynamically inefficient, a Pareto improvement can be implemented by a suitable fiscal policy intervention, which includes specific taxes or subsidies that neutralize incentive effects on risky investments and the price effects they induce.