modern macroeconomics is on the Wrong track

E VERYONE is painfully aware that we are in the middle of a major global economic and financial crisis. During a visit to the London School of Economics late last year, Queen Elizabeth ll asked why no economists had forecast the crisis. But indeed some had sounded warnings. A more interesting question is why no one, including policymakers, was inclined to listen. Perhaps the most important reason was that, in the runup to the crisis, many were making large sums of money. Another, the subject of this article, is that the prevailing paradigm of macroeconomics allows no room for crises of the sort we are experiencing. Simply improving our macroeconomic analytical frameworks will likely not be sufficient to avoid future crises. Nevertheless, a reevaluation is necessary. There are many dead ends from which to escape, but there are also many promising strands of thought to be pursued.