It is very interesting to see how the narrative about the current crisis, which in my view is clearly a global one, stays on the national level. This is true for the policy makers, the media, as well as the investment banking chatter. Part of the reason is that the institutions that could do something about it are on the national level, such as central banks, treasuries, as well as regulatory bodies. However, that is perhaps the problem: current regulation, monetary and most of the fiscal policies operate on the national level. And not only the legitimacy and the mandate come from local rather than global entities, but the intellectual focus, the data, and the models stay there too.
As a consequence, we tend to overemphasize the national at the expense of learning about the global. While things were looking bright, prices tended to go up, and risk aversion was at historical lows, this did not matter. It was only a few scarecrows scratching their heads. Now, amidst the crisis, this limitation might impede effective intervention.
It seems that although there is a general recognition about ‘new economy’ and ‘globalisation’, the economics profession, as one, comes to terms with the new reality with a considerable lag. Thus, we keep discussing localised effects, either in geographic or in sectoral sense, rather than getting down to dealing with it on the global level. In the old times, when, say, a national economy recession took place, the economics profession did not have separate solutions for only part of the country, or a few sectors. The entire economic system was modeled, with the sub-national regional or sectoral dynamics making the analysis more refined, but only as part of the overall model or policy.
Now, it's as if we only focused on parts of the global economy, trying to figure out the dynamics of only that part, while ignoring the rest. If the global economy really is a system, this is not very likely to work.