In this and the following chapter we introduce elements of realism in our conception of the economic discipline.

In doing so, we want both to underline the important feedbacks for the theory that can be derived from a closer approxima­tion to reality and to show the possibility of fruitfully apply­ing our discipline - which has ensured taming of the Great Recession in most countries.

In this chapter we first look at the main issues that have risen to pre-eminence in the last decades, i.e. crisis, rising personal inequalities, a tendency to stagnation and globali­sation (Section 5.1). We then deal with the pivotal role of the crisis, for the limits it has imposed on the use of fiscal and monetary policy (Section 5.2) and the need to devise new effective instruments. This, on the one hand, has imposed more stress on monetary policy, as new monetary policy tools and macro-prudential instruments have been intro­duced or projected (Section 5.3); on the other hand, it has provided an incentive to search for new rules of fiscal policy (Section 5.4) and coordination of macroeconomic tools (Section 5.5). The remaining three sections of this chapter deal with the policy deriving from rising inequality, stagna­tion and globalisation. The need to issue proper signals to avoid crises or reduce their size will be one of the objects of Chapter 6.

5.1