Jeffrey Sachs: Rethinking Macroeconomics

Jeffrey Sachs has an interesting new essay on the priorities for macroeconomic research: you can read it here (requires registration but it is free).

2 replies on “Jeffrey Sachs: Rethinking Macroeconomics”

“Greenspan was in fact tricked by globalization. He thought that as long as inflation remained low, he could – and indeed should – spur credit expansion to the hilt, the better to maximize economic growth (and his repeated appointment as Fed Chairman). Yet in a globalized economy, the US overheating didn’t show up in the CPI, but instead mainly as a massive trade deficit with Europe and Asia. (The credit boom also showed up in soaring housing prices, which are not properly treated in the US CPI). China, notably, was happy to provide on credit all of the goods that the US demanded and that the Fed policy encouraged. The CPI simply doesn’t register the imbalance of an open economy importing heavily from the rest of the world. Now, to rebalance the world economy, it’s clear that the US must cut back on foreign borrowing while China and others must spur their own domestic demand. Global macroeconomic cooperation is needed to smooth this short-run transition and to avoid future mega-imbalances.”

Does Jeffrey Sachs think that over stimulating aggregate demand does not create domestic inflation and in fact shows up as asset price bubbles and a trade deficit?

If so, does he explain the transmission mechanism anywhere else in more detail?

Do you think that someone might buy Sachs a bottle of Cop-On? We (the human race) live in a finite box (the biosphere) and the box is becoming a tad crowded and filling up with trash. There is a correlation of 1.00 between consumption of fossil-fuels and economic and technological development since the 1890s. This is going to change. It has to change. It will change.

An intelligent bloke like Sachs must know that ‘sustainable growth’ has to be a negative economic trend. If he in fact does not understand this, then why are we paying any heed to him, or any other so called economic expert who peddles the idea that ‘economic growth’ always will increase. Its sheer madness.

If any of you think that this debt crisis is difficult – just wait ’till you experience your first real energy shock.

B Peter

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