What Macroeconomists Are Missing

Mainstream economic models failed to predict the 2007 global economic crisis. In an essay for CaixinOnline, Andrew Sheng suggests that the models overlook the impact of uncertainty and that fragmented analysis neglects global connections: “[S]pecialists and departmental agencies know more and more about less and less and are unable to connect the dots to view the economic and social system as a whole,” he writes. “Policy makers ignore the spillover effects of globalization on national policies, and there is no collective action at the global level because of geopolitical rivalries.” Political forces in some countries are dead-set against fiscal policies as economic tools, including adjustments to taxation or government spending. Thus, central banks in the US, Japan and Europe rely too much on monetary policies. Trends toward negative interest rates contribute to stagnant global growth. Sheng concludes that free markets do not solve all problems: “Financial liberalization and globalization as ideologies may fit some countries, but is a disaster when applied to the world as a whole.” – YaleGlobal

What Macroeconomists Are Missing

Political forces reject taxation and fiscal policies, forcing central banks to rely on monetary policy, causing drag on global growth
Andrew Sheng
Wednesday, May 25, 2016

Read the article from CaixinOnline.

Andrew Sheng is Distinguished Fellow at the Asia Global Institute in the University of Hong Kong.

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