Macroeconomics for the 21st Century

Macroeconomic theory has not yet come to grips with major issues of the twenty- first century. These include environmental pressures, demographic changes, the size, structure, and power of multinational corporations, and growing economic inequality. Existing macroeconomic theory also does not deal adequately with normative issues, focuses excessively on market solutions, assumes that a single macroeconomic theory can apply to all situations, and ignores issues concerning the scale of economic activity and the speed of change. Macroeconomic theory also does not distinguish between final and intermediate goals, and fails to take account of the implications of hedonic psychology for a theory of economic well-being. It implicitly accepts a consumerist ethos according to which increased consumption is treated as a final goal. It is also based on a competitive theory of markets, which is out of step with the contemporary reality of corporate power. For the industrialized world, macroeconomic theory needs to address the issue of whether it is possible, in the absence of continual growth, for an economy to promote human wellbeing. For the developing world, the prioritization of economic goals such as universal literacy and public health service should be an important element of macro theory. The diverging demographics of developed and developing nations pose further important macroeconomic issues regarding health care costs, tax burdens, immigration, and savings and investment rates. Evaluation of ecosystem carrying capacity, and distinctions between essentials and luxuries, should be important elements of a macro theory that is sensitive to environmental impacts. In addition, the rate of economic growth needs to be compared to the rate at which ecosystems can adapt to large scale, and sometimes irreversible, changes.