Toward a Rethinking of Macroeconomics

Abstract

The discussion in this chapter complements that of Chap. 3 by examining how the global financial crisis and Great Recession have raised fundamental challenges to the new macroeconomic consensus (NMC) that warrant adaptation and/or alternative approaches to thinking about finance and the aggregate economy. One of these challenges arises from the phenomenon of “hysteresis” or long-term damage to potential GDP stemming from sustained periods of high unemployment. Some of the thinking associated with behavioral finance and complexity theory is discussed as examples of alternative analytical approaches that should be blended with the NMC. The chapter closes with a discussion of recent demands for alternative approaches to university training in economics arising from discontent with the perceived lack of relevance of mainstream economics in accounting for the outbreak of the crisis and its resolution.