Here are my thoughts to Blanchard’s 9 points:
1. We’ve entered a brave new world in the wake of the crisis; a very different world in terms of policy making and we just have to accept it.
Indeed we have. Nonetheless I have doubt that the world of policy is going to change drastically as we see in the US and Europe, Keynesians and the School of Second Best is still fighting a tough battle. Furthermore, IMF is the only major international institution that “strongly" recommend a change. See the conventional madness.
2. In the age-old discussion of the relative roles of markets and the state, the pendulum has swung—at least a bit—toward the state.
I think the idea of a paradigm swift does not capture the whole issue. State has its role to play but it depends on the issue and location. Although China is doing well by conventional measures, it comes at a high cost of political instability and civil rights. It is not solely a matter of state doing more, but also of how. States also need to educate their citizens about economics, otherwise, the citizenry will follow whatever ideology they like the most, and that will lockdown a democracy.
3. The crisis made it clear that there are many distortions relevant for macroeconomics, many more than we thought earlier.
Agree wholeheartedly. Add that this knowledge has to be diffused to political scientists, sociologists and, more importantly, lawyers (especially those involved with WTO), who are making many decisions in the legislature and elsewhere (I’m looking at you, Obama)but are generally ignorant of economics.
4. Macroeconomic policy has many targets and many instruments
Rodrik would add that we should rethink about industrial Policy. How are we going do it in this world with WTO?
5. We may have many policy instruments, but we are not sure how to use them
This is mainly an ideologically problem. Once a narrative has taken hold, it will be difficult to break the hold. The pressing issue right now is how are we going to kill the zombie ideas. I would add that an idea has become zombified not ony because it keeps coming back after it has been riddled with holes, but also because it infects people who are not following the economics research.
6. While these instruments are potentially useful, their use raises a number of political economy issues.
Agree. Prudential (what does it mean by prudential? would counter-cyclical be a better word?)tools/policies and especially those that are contrary to public beliefs are difficult to employ. We need Sen’s Possibility Theorem to be operational at many levels inside a country. We have a long way to go, but first we need to get rational public discussion going, which I find is an extremely difficult task.
7. Where do we go from here? In terms of research, the future is exciting.
No doubt about it. However, Keynesian and especially the School of Second Best are still in the minority. The Dark Age of Economics is still raging on.
8. Things are harder on the policy front. Given we don’t quite know how to use the new tools and they can be misused, how should policymakers proceed?
Same as 5&6. We should definitely study the Chinese “model" (it’s more like a pattern of a bunch of policies in a similar style), but the problem with the Chinese is that they never plan ahead, so the policies will collide and all reach a bottleneck at some point, maybe at the same time, as it is currently showing.
9. We have to keep our hopes in check.
Yes.
KaHing
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