The Blurry Frontiers of Economic Policy
— September 19, 2013
By A. Michael Spence
But economic policies are set at the national level, and, with a few notable exceptions like trade negotiations and the tracking of terrorist funding and money laundering, policymakers set goals with a view to benefiting the domestic economy. And these policies (or policy shifts) are increasingly affecting other economies and the global system, giving rise to what might be called “policy externalities” – that is, consequences that extend outside policymakers’ target environment.
Of course, such externalities have always existed. But they used to be small. As they grow more significant (the result of greater global connectedness), they inevitably become harder to manage. After all, global optimization would require a global policymaking authority, which we do not have.
Read the full article as published in Project Syndicate
A. Michael Spence is the William R. Berkley Professor in Economics & Business.