2015 Reports

What Ails Greece? The Two Perspectives in Macroeconomics

Phelps, Edmund S.

Greece’s failed economy is attracting the attention of a great range of economists. Some prominent economists adopt the reductionist theory that the rewards sought from a nation’s economy boil down to employment--and employment is determined by “demand.” They say that a fiscal shift to a newfound “austerity” has decreased demand and thus depressed employment. But the evidence does not verify that austerity is the main cause. We must not be obsessed by a monistic theory of everything. A fuller understanding requires more than one model. It would be useful if economists would draw on the modern idea that a person’s rewards from work in the nation’s economy derive, directly or indirectly, from entrepreneurial and innovative activity. Greece’s problem is that it is sorely lacking in that.