The stability of microeconomics have been increased the last decade. Short-term growth performance became more important and determinant for long-term growth. In my opinion, economist and policymakers should take measurements and rules to stabilize macroeconomic activities.
For example, current macroeconomics has an issue with the following:
- High inflation;
- Weakness in the financial sector;
- Exchange rate misalignment.
The policymakers and economists should adopt policies that influence macroeconomic performance in each of these areas. The EU summit in Berlin (Sunday 22 Feb.) agreed on practical steps to strengthen supervision of financial markets. The authorities will monitor especially the speculation of the hedge fund and credit rating agencies.
Macroeconomics instability tends to generate uncertainty, and in particular, uncertainty about the relative available jobs. An area that cannot be left untouched and that will be automatically stabilizes by itself.
The downturn of an economy is measured by gross domestic Product, prices, inflation, exchange rate, etc indicators which is measured in a long term. In the short term, policymakers implement automatic stabilizers to respond to when “red” flags are raised like increase in inflation or unemployment.
Yet, the traditional automatic stabilizers are no longer working correctly to meet long term objectives. Current market and financial instability created a new macroeconomic “concept” and new automatic stabilizers need to be created that could have a positive effect on the economy and avoid recent activities like:
- Banks are involved in risky investment;
- Investors invested their money with unknown people in unknown and uncontrolled funds;
- Firms and even countries built their economy growth on unstable capital without taking efficient risk measures.
Economist and policymakers did not figure out yet how to deal with current issues and challenges and therefore not knowing how to transfer current automatic stabilizers to these that make difference and contribute to solve the current financial crisis. Greedy investors and risky bankers that seek easy money will remain.
