The global financial crisis has got economists thinking in new ways. Today, long-lasting imbalances in economies are considered more important in modern economic theory.
This is the reasoning behind the opening of a new research centre at the University of Copenhagen, the Institute for New Economic Thinking INET. It is intended to make room for new and innovative thinking on current economic challenges.
Behind it according to the press release from the University of Copenhagen are two very wealthy financiers.
Co-founder worth USD 800m
George Soros, is known as the man who in 1992 speculated against the Bank of England, ultimately forcing the British Pound out of the European currency mechanism which later led to the Euro. According to Forbes magazine he has a net worth of USD 22bn making him the 46th richest person in the world.
He has given away USD 8bn to charities and non-profit uses over the last decades.
Jim Balsillie, another businessman and philanthropist is ranked by Forbes as the 692th wealthiest in the world with a net worth of USD 800m.
Cannot predict markets
The new centre is to develop economics away from the focus on mathematics, according to economics professor Katarina Juselius, who will be the director of the new centre
»Economics has moved in a mathematical direction, where everything that does not fit is cut away. The demands for mathematical precision mean that economists lose the most essential, namely the imbalances. But economics is fundamentally a social science which influences and is influenced by human behaviour. If this interaction is not a part of the model analysis, it can prevent us achieving results that can be used,« she explains.
At the opening Monday, George Soros focussed on how we cannot predict how markets work.
»It is not possible to know the consequences of our actions today in the financial markets there is a gap between reality and expectations; and this leads to the creation of bubbles, hence to market collapse, resulting in crises like the current one,« he says.
Commenting on the current instability of the financial system, George Soros said that
»Financial markets are likely to produce bubbles. The trendy reality and the misconceptions are causing reinforcements. The negative feedback is biased by the concepts because reality does not match expectations«.
»Market regulations were eased after World War II and in the 1980’s, finances became globalised. This was a great success as it enabled the escape from taxes and regulations. It was like a virus that created a super bubble that is the current crisis«.
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