The Fall and Rise of Keynesian Economics

The Fall and Rise of Keynesian Economics

The Fall and Rise of Keynesian Economics

The Fall and Rise of Keynesian Economics

Synopsis

During the 1970s, monetarism and the new classical macroeconomics ushered in an era of neoliberal economic policymaking. Keynesian economics was pushed aside. It was almost forgotten that when Keynesian thinking had dominated economic policymaking in the middle decades of the twentieth century, it had coincided with postwar economic reconstruction in both Europe and Japan, and the unprecedented prosperity and stable growth of the 1950s and 1960s. The global financial crisis of 2007-2009 and the recession that followed changed all that. Influential voices in both academic economics and amongst policy-makers and commentators began to remind us how useful Keynesian ways of thinking could be, especially in coming to terms with our current economic predicaments. When politicians across the globe were confronted with economic crisis, they introduced pragmatic and workable measures that bore all the hallmarks of Keynesianism. This book is about the fall and rise of Keynesian economics.

Eatwell and Milgate range widely across the landscape that defines their subject matter. They consider how powerful Keynesian ideas can be when applied to past and present economic problems. They show how helpful these ideas are in explaining why we came to find ourselves in the disorder we are in. They examine where and how the analytical and methodological foundations of conventional macroeconomic wisdom went wrong. They set out a blueprint for an alternative that provides a clearer, more consistent, and more applicable approach to understanding how markets work. They also highlight the interpretive shortcomings that have come to characterize Keynes scholarship itself. They do all of this within the context of a provocative reconsideration of some of the most pressing economic problems that confront financial markets and the global economy today. They conclude that Keynesian ideas are not just for crises, but for constructive economic policy making at all times.

Excerpt

The global financial crisis and the world recession it produced were the latest in a series of crises that have come to plague the international economy. Such crises have become increasingly frequent and more intense as the liberalization of financial markets accelerated after the collapse of the Bretton Woods system some forty years ago. That each of them cannot be treated as an isolated event with solitary causes, but were instead events that shared common origins, has become clear to us all. Their origins, we now find, reside in part in the consequences of a process of financial liberalization that was allowed to proceed without sufficient consideration being given to the magnification of systemic risk it entailed, and in part in the consequences of the neoliberal dogmas that came to dominate practical policymaking during those same years.

The almost hypnotic power of these failed dogmas should not be underestimated. There are grown men and women—some even among professional economists—who continue to maintain that there are no multiplier effects to be had from loan expenditure undertaken by governments during a slump. It is still possible to hear the wrong-headed opinion that while an increase in public indebtedness during a recession is to be avoided at all costs, an increase in the aggregate of private indebtedness on a similar scale (supposedly easily engineered simply by getting credit channels flowing) offers an entirely unproblematic solution to our present problems.

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