The financial and economic crisis that started in 2007 has endured and the monetary remedies are not proving to be particularly effective. Quantitative easing (QE) is spreading through the global economy as a result of default monetary policies by government and central banks. The emerging problem is that the intended growth in finance to support innovation through investment in the real economy, so as to stimulate growth, is failing and its impact has been to divert such funds into assets and real estate where prices are rising rapidly. The growth in QE is undermining growth in productivity because of the incentives it provides to speculation and manipulation of financial instruments and products where productivity and income are measured in terms of money, profits or "shareholder value". The proportion of companies augmenting their stock values through the purchase of their own stocks to drive up values so as to benefit shareholders and executives has surpassed 50% of stock trades for the largest companies. Those who are well enough informed by insiders to manage their share holdings are ending up with significant financial gains. In the meantime physical productivity has stagnated and worker's wages also. A cost of living crisis spreads through the globe and this is not only affecting the poor but now this envelope of despair is engulfing the middle income segments of communities.
Finance ministers often assert that low interest rates keep the value of the currency low so as to reap the benefits of exports resulting from "increased competitivity". However, QE has turned out to be a beggar-thy-neighbour policy since each country is trying to devalue their currency to undercut other countries. QE sustains a currency war which is somewhat like the imposition of an undeclared range of mini-sanctions against other countries, leading to increasing instability. As a result the sought for growth in exports never materializes. Policies lack traction.
In the broadest sense macroeconomics policies are proving to be ineffective in stimulating growth and in more general terms there is a quest for a modern version of "development economics". It is therefore not surprising to find that some of the more apparently sound economic policy propositions are coming from development economists, people who have been very much concerned it the practical techniques that secure changes in production and productivity in the "real economy". A more promising dimension to these trends is the "Real Incomes Approach" to economics that has re-energized constitutional economics to represent the most likely theory and set of policy propositions providing a basis for shaping sustainable solutions. Nevit Turk, our economics correspondent, will post a review article on this topic on 7th December, 2015.