Some puzzles that economists thought they’d resolved have bounced back onto the policy agenda since 2008. Can an economy run short of aggregate demand, and suffer mass unemployment, even if its wages and prices are flexible? If so, can governments correct the problem by running budget deficits – or will these just push up prices and taxes in the longer run? Did banks lend too much because of financial deregulation, or do phases of long, steady growth always sow the seeds of credit-driven disruption? Are we suffering from the inevitable drop in investment when big new technologies become cheap and familiar, or is the full potential of the internet, bio-engineering and ‘green’ technology still to be realised?
And equally urgent: Which policy environment is best to meet the challenges of creating jobs, tackling inequality and deploying new technology? Should we continue to internationalise the markets for capital, goods, services and labour? Or is it time to rebuild some stronger national boundaries so that different economies can set their own priorities? Was the European Union right to try to replicate the single-market, single-currency areas enjoyed by the US and China; or has it devised a Eurozone that works against balanced development, financial stability and growth?
Leading economists from both sides of the Atlantic tackle these and related macro- and micro-economic questions in ‘Fiscal Responsibility and Monetary Policy’ (a video collection recorded in 2012 and 2013 in conjunction with The Open University’s new Running the Economy course). They explain how policymakers have had to adopt new ideas – and revive some old ones – in order to understand the unforeseen severity of the global financial crisis, identify the available fiscal and monetary responses, and gauge their consequences.
The presentations show how some once-neglected ‘Keynesian’ and ‘Classical’ ideas have been revived, and previous ‘Neoclassical’ orthodoxies (including ‘rational expectations’ and ‘real business cycles’) amended, to deal with the new reality. They reveal how ideas about money, banks’ role in creating it, and central banks’ role in controlling it are being substantially reassessed. And they anticipate the new concerns about distribution, inequality and the environment, now central to debate about how today’s economies can sustainably grow.