Economics in times of crisis

I'm just entertained by the economic debates which rage in times of crisis like which our generation has found itself in. With interest rates at an all time low, at close to zero across the developed world, some of the conventional policy tools have become obsolete in influencing economic activity. Hence an opportunity to engage in policy engineering presents itself. Therefore much debate stems from what do we do now? Rational expectations ideologues have suffered a lot because their complex, mathematically influenced methodologies failed to predict the financial crisis and also their forecasts are constantly being proved wrong by the real economy. In my opinion simple theories like the IS and liquidity trap theory are proving to be the true oracles of the economy.

Wereas the developed world is having low interest rates, the rest of the world seems to be having fairly high interest rates but lower compared to "normal" times. Economies in the developing world seem to suffer from structural rigidities which favour a stagflation-like scenario. From my own experience, such situations are difficult to manouvre than zero interest rate regimes. Policy mechanisms induce economic tradeoffs at economic activity levels which wouldn't be optimal for the country. Although inroads have been made, the current economic literature is insufficient to offer concrete solutions to such problems. Much scholarship is biased towards the economic environments of the developed world. The common view is that other developing countries are expected to achieve structural identity to the economies of the developed countries. But the rapid growth of countries such as China has shocked people of the common view ideology. This clearly shows that economic development is a field still to be fully understood.

Looking at the various positions, different economies are finding themselves in, I have noticed how economic actions cause paradoxies to occur. In high interest rate and inflation countries expansionary policies sometimes have a negative impact on jobs either be it as a result of high sovereign debts caused by such policies. At the same time inflation rates will soar. In countries at the zero lower bound, some paradoxies do occur. A situation coined the paradox of toil by economist Gauti Eggertsson is such that in a depressed economy with declining output, workers will work harder, as a result driving down wages and a decrease in overall employment. So therefore their actions becomes self defeating in achieving their objectives of having more disposable incomes. This paradox is also analogous to the paradox of thrift.

These are some of the things which happen in unique times of crisis. In the future, people will look at our time with the same scope with which we look and analyse the Great Depression era of the late 1920s and early 1930s. I hope then a logical consesus will have been reached on how our problems could have been solved earlier.