Bad macroeconomic stabilization policy is a tremendous source of avoidable suffering for millions.
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In his 2003 presidential address to the American Economics Association, Robert Lucas, a distinguished practitioner of the field and a Nobel laureate, proclaimed that “macroeconomics was born as a distinct field in the 1940s, as part of the intellectual response to the Great Depression,” and that he was able to say confidently “that macroeconomics in this original sense has succeeded: Its central problem of depression prevention has been solved, for all practical purposes, and has in fact been solved for many decades.”
This was, of course, untrue.
Just four years later, in 2007, the United States began to tip into recession. About a year after that, the recession triggered a financial crisis that led to a much more rapid collapse of demand — setting off a period that we don’t formally refer to as a “depression” but that certainly had most of the relevant characteristics of one. And that Great Recession became, though not strictly universal, certainly a global phenomenon, striking Britain, Japan, and the European Union, with spillover effects to South Africa, most of Latin America, and beyond.
