“If man is not to do more harm than good in his efforts to improve the social order, he will learn that in this, as in all other fields where essential complexity of an organized kind prevails, he cannot acquire the full knowledge which will make mastery of the events possible. He will therefore have to use what knowledge he can achieve, not to shape the results as the craftsman shapes his handiwork, but rather to cultivate a growth by providing the appropriate environment, in the manner in which the gardener does this for his plants.”- Friederich Von Hayek, Nobel prize speech,1974  

• As the above quote from Hayek (1974) illustrates, the blueprint starts from the philosophy that economies are intricately interwoven systems.
• Therefore, they can neither be meaningfully viewed in silos nor can they be analysed without accounting for dynamic effects over time.
• Moreover, economies may rarely be in a state of equilibrium.

While writing about economic theories following the Global Financial Crisis, Rodrik (2018) laments: “Why do we focus so much on the perfectly rational individual even though real people do not seem to behave quite that way? Shouldn’t we be paying a wee bit more attention to disequilibrium, in addition to equilibrium? Why do our models exclude social and institutional features without which markets could not work? Why do we emphasize math so much and disregard things that cannot be easily quantified?”

To highlight the inadequacies in economic models following the Global Financial Crisis, the OECD created the group New Approaches to Economic Challenges (NAEC).

In a blog post on NEAC, Ramos (2017) highlights: “The very name of (traditional economic) models, general equilibrium, shows that they assume that the economy is basically in balance until an outside shock upsets it. They assume that you can understand the economy by studying a representative agent whose expectations and decisions are rational. This view is essentially linear, and the policy advice it generates is tailored to a linear system, where an action produces a fairly predictable reaction… Real life is not like that… We need a new approach to economics that isn’t just about quantitative economics. An approach that integrates behavioural economics and complex systems theory, as well as economic history.”

• The meltdown of economic activity following the Global Financial Crisis highlighted that economies may be in a vicious cycle, where moderation in demand, jobs and investment feed into each other and thereby dampen the animal spirits in the economy.
• Therefore, as highlighted by Romer (2015), Ramos (2017) and Rodrik (2018), economic thinkers now recognise the need for economics to embrace the learning from other fields.
• They acknowledge that the concept of treating an economy as always being in equilibrium may “force fit” the “standard” framework to an ever-changing world.
• Instead, thinking about economies as being in the constant disequilibrium of virtuous or vicious cycles provides a more apt framework for the current times.

Therefore, when the economy is viewed, proper sequencing of policy levers assumes importance, especially because of the presence of complementarities between different elements of an economy.