The IMF hosted a conference of macroeconomist's to learn more about what can be done to address our economic problems. There is high unemployment in most countries, but there were few suggestions about how to increase employment. A Nobel prize winning economist from the US argued that US economic policy was just about right. The Fed has been keeping interest rates low and there was nothing more that could be done. We have had six recent financial shocks to the economy, but the chief economist from the IMF claimed that we don't understand financial stability. Perhaps the best approach is to continue to do what we have been doing. That means that we wait for a financial shock to occur and then we try to fix it. Nobody had any ideas about how to keep the next financial shock from hitting weakened economies that have limited resources to address the next shock. The fixation on reducing public debt has been counterproductive. Some troubled economies have been forced to cut government spending and to raise taxes. Those countries have seen their debt to GDP ratios increase. Countries like the US and the UK which can borrow at very low interest rates are also cutting government spending and raising taxes in order to reduce their debt to GDP ratios. The fetish on debt reductions has a higher priority than cutting unemployment. It will very likely result in lower GDP and higher debt to GDP ratios as well.
Keynes once said that a real practical goal for the economics profession might be to become as good as dentists at solving practical problems. It looks like the profession has not made much progress towards that goal. Perhaps that is because many economist have forgotten what we have learned from history. Its almost as if they learned nothing from the Great Depression.
No comments:
Post a Comment