Macroeconomic policies on shaky foundations

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The current economic crisis, the most severe since the Great Depression, is reshaping macroeconomic policies. Just months ago, leading institutions endorsed laissez-faire approaches and viewed inflation targeting as essential for monetary policy. Now, they advocate for bank recapitalization, unconventional monetary strategies, and counter-cyclical fiscal measures. The mainstream economic policy framework, known as the New Neoclassical Synthesis or New Consensus Model (NCM), relies on utility-maximizing agents with rational expectations within a dynamic stochastic general equilibrium (DSGE) context. However, this model has faced longstanding criticism from Keynesian and Post-Keynesian scholars, who argue it is ill-equipped to address the current financial and economic turmoil. This raises questions about the future of economic theory and policy: Will the mainstream perspective endure with minor adjustments, or can it evolve to incorporate alternative views? Are heterodox approaches, particularly Post-Keynesian ones, prepared to engage with and influence current challenges? The chapters explore these themes, offering insights into the limitations of NCM, the role of government in fiscal policy, and the implications of behavioral economics, among other topics. This discourse aims to illuminate the path forward for macroeconomics and its policy applications.