The Dismal State Of Macroeconomics And The Opportunity For A New Beginning

The Queen of England famously asked her economic advisers why none of them had seen "It" (the global financial crisis) coming. Obviously, the answer is complex, but it must include reference to the evolution of macroeconomic theory over the postwar period - from the "Age of Keynes," through the Friedmanian era and the return of Neoclassical economics in a particularly extreme form, and, finally, on to the New Monetary Consensus, with a new version of fine-tuning. The story cannot leave out the parallel developments in finance theory - with its efficient markets hypothesis - and in approaches to regulation and supervision of financial institutions.