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Macroeconomics

Major reform of macroeconomics proposed to address 21st century social and environmental challenges at greater scale and speed

ILO Research Director Richard Samans' book calls for a macroeconomic overhaul, prioritizing societal well-being and robust policy over mere economic growth, to bridge the gap between wealth and living standards.

Article | 08 December 2023
GENEVA (ILO News) – Palgrave Macmillan in association with the International Labour Organization released a book this week proposing a reformulation of macroeconomic theory and policy to explicitly internalize the role of policies and institutions that enable social inclusion, environmental sustainability, and systemic and human resilience.

Authored by the ILO’s Research Department Director, Richard Samans, Human-Centred Economics: The Living Standards of Nations argues that modern economics has lost its way in this regard, having strayed from the more balanced model of economic progress framed by the field’s most influential founders and codifiers in their 18th and 19th century treatises.
  • AI and climate change seen as likely to worsen inequality and dislocation absent a new approach.
  • New human-centred concepts of economies’ “aggregate distribution function” and social “welfare gap” created to internalize household living standards and the social contract in macroeconomics, complementing traditional “aggregate production function” and “output gap” focused on GDP.
  • Corresponding Bretton Woods-like overhaul of international financial and trade architecture proposed to triple climate and sustainable development financing for developing countries, double climate R&D and replace over half of the world’s coal plants in next 15 years – an additional $2 trillion equal to over 3% of GDP per year for 100+ poor countries between 2024 and 2030 -- comparable in scale to the Marshall Plan and all possible without increases in bilateral aid.
  • Shifting economics to a more kitchen-table, standard-of-living framework of analysis and policy paradigm seen as key to revitalizing the liberal tradition and the multilateral system it inspired in an era of rising insecurity and polarization.
The current cost-of-living crisis is a reminder that people evaluate their country’s economic performance based on progress in their household’s and community’s standard of living, not the more abstract and indirect notion of GDP growth.

Adam Smith, John Stuart Mill and Alfred Marshall stated explicitly that markets and capital accumulation alone could be expected not deliver broad and lasting improvement in the material well-being of societies.

They argued that enabling policies and institutions were also needed in a wide variety of policy domains, which is to say that a robust social contract is every bit as essential as markets in delivering the bottom-line performance societies seek from their economies: broad and durable progress in household living standards. However, this macro-institutional context remains a residual consideration of modern economics, implicitly assumed to obtain over time as a natural by-product of economic growth.

The book traces decades of evidence to the contrary, notwithstanding growth’s crucial importance, especially for poverty reduction.