Modern macroeconomics was cast in the crucible of the Great Depression and for
many years was driven by the social objectives of full employment and the social welfare
regimes associated with it. Its policy instruments were also constrained by these
social objectives. In its developmental form macroeconomics paid special attention
to economic growth and structural changes as instruments for the social objective of
eradicating poverty and improving social welfare. In the 1980s, macroeconomics was
detached from these social moorings, becoming increasingly socially blind.
Economic policies and the instruments chosen to implement them were no longer
constrained social objectives, such as protecting people’s incomes or eradicating
poverty. Instead they were almost exclusively assigned the tasks of reducing the twin
deficits, containing public debt and inflation, liberalizing product and factor markets,
privatizing state assets, and liberalizing external trade and capital flows. Their
main function was to re-establish the preconditions for growth; growth itself and
safety nets were to take care of poverty. While some of these objectives have been
achieved, as in the field of inflation control and trade liberalization, the impact on
growth and poverty alleviation has been unsatisfactory in most cases.