There are currently a number of hard problems tied one to another to be faced by economic policy: crises, stagnation, inefficiency and inequalities, globalization. The emergence of so-many problems has raised questions as to the ability of economic policy to adequately deal with them. In fact, a number of policy tools equal to that of policy objectives is required for reaching fixed policy targets.

Facing an increase of the number of targets there has been a net reduction in the number of policy tools, which makes it difficult to reach all the targets.

In recent years, a reduction in income growth rates has emerged, affecting practically the whole world. In past centuries, the reduction in growth rates in the most advanced countries occurred after they had passed the ’roaring’ years of industrialisation. The high number of innovations introduced has meant that the phases of stagnation were considerably limited. After the first Great Depression at the end of the nineteenth century, the prospect of stagnation became much more valid after the Great Crisis, which lasted practically throughout the 1930s and was overcome only by the significant increase in military expenditures. After the war, a substantial and long reduction in the growth rate occurred first following the oil crises in the Seventies, and then, with reference to Japan and Europe, for different reasons.

To enlarge the number of existing policy instruments, monetary policy has searched for unconventional tools (‘quantitative easing’ and ‘forward guidance’) to add to the usual interventions in the short-term market. Also macro-prudential policies have been devised. Finally, new rules of fiscal policies have been introduced.

The crises and stagnation have had multiple effects on efficiency and equity. With reference to dynamic efficiency, the effects of the crisis seem not to be negative, as the R&D/GDP ratio has not fallen. But this largely depends on the fact that the drop in the GDP makes the ratio to rise and the absolute amount of R&D expenses does not fall, as they are rather inflexible. Most indicators of poverty and inequality clearly show the negative effects of the crisis, even if the true effects are partially absorbed by the impact of the rise in welfare state expenditures.

The first instrument in favour of dynamic efficiency in general is offered by competition-oriented market policies. In order to foster innovation, proper fiscal or financial incentives can be implemented. As to environmental problems, public policy can focus on regulation, financial incentives, environmental taxes, voluntary agreements to achieve environmental objectives.

Some of the policies for inequalities act on primary distribution, such as the minimum wage, promotion of collective bargaining, guarantee of rights of workers to organize. Policies acting on secondary distribution are unemployment benefits, progressive taxation of income, differential taxation of labour and capital income.

This low growth can be interpreted as the - temporary - product of the financial cycle, reflecting the effects of the banking crises occurring during the crisis, or as the manifestation of a deeper trend, arising from multiple factors and accentuated by the Great Recession and the Covid-19 crisis, by growing inequalities and globalisation. Such a situation requires numerous policies, e.g., strengthening of the public budget, adoption of stimulative monetary policies

The financial crisis had disruptive economic effects not only in the USA and other countries, but also – and mainly – in the EU, where the GDP and employment decreased to a large extent. In the EU it caused also a crisis of public finances in peripheral countries, since the governments of these countries had to intervene to save their ailing banking sector.

To enlarge the number of existing policy instruments, monetary policy has searched for unconventional tools (‘quantitative easing’ and ‘forward guidance’) to add to the usual interventions in the short-term market. Also macro-prudential policies have been devised. Finally, new rules of fiscal policies have been introduced.