Resurgence of Interest in Keynesian Economics

Competing views on macroeconomic policy

Macroeconomic policy focuses on high level government decisions which affect overall national economies rather than lower level decisions concerning markets for particular goods and services.

Keynes was the first economist to popularize Macroeconomics and also the notion that governments can and should intervene in the economy to alleviate the suffering caused by unemployment. Before the Keynesian revolution that followed Keynes's 1936 publication of his General Theory, the prevailing orthodoxy was that the economy would naturally establish full employment. So successful was the revolution that the period spanning the aftermath of WWII to about 1973 has been labelled the Age of Keynes. Stagnating economic performance in the early 1970s provided support for a counter revolution in successfully shattering the previous consensus for Keynesian economics. Milton Friedman monetarism school was prominent in displacing Keynes ideas both in academia and from the practical world of economic policy making. For an overview on the different perspectives concerning the optimal balance between public and private power in the economy, seeLiberal, Realist & Marxist. For more detail on specific systems of thought relevant to debate on this fiscal policy see Keynesian economics,Monetarism, Austrianism, New Classical economics, Real business cycle theory, and New Keynesian economics. A key common feature of the anti Keynesian schools of thought is that they argued for policy ineffectiveness or policy irrelevant; though the theoretical justifications vary, the various schools all hold that government intervention will be much less effective than Keynes had believed, with some advocates even claiming that in the long run interventionist policy will always be counterproductive.^[5]

Keynesian economics followed on from the Keynesian Revolution. In contrast to the recent resurgence of Keynesian policy making, therevolution initially comprised a shift change in theory.^[6] There had been several experiments in policy making that can be seen as precursors for Keynes ideas, most notably Franklin D. Roosevelt's famous "New Deal" (Roosevelt was US president from 1933 to 1945). These experiments however had been influenced more by morals, geopolitics and political ideology than by new developments in economics, although it is notable that Keynes had found some support in the US for his ideas about counter-cyclical public-works policy as early as 1931.^[7] According to Gordon Fletcher, Keynes' General Theory provided a conceptual justification for 'New Deal'-type policies which was lacking in the established economics of the day; this was immensely significant, as in the absence of a proper theoretical underpinning there was a danger that ad hoc policies of moderate intervention would be overtaken by extremist solutions, as had already happened in much of Europe.^[6] However, Keynes did not agree with all aspects of the New Deal; he considered that the almost immediate revival of business activity after the program's launch could only be accounted for by psychological factors, which are dangerous to rely on,^[7] such as the boost to confidence by Roosevelt's inspiring oratory.

Since the 1940s, the influence of Keynesian economics on government policy makers has both waxed and waned, under pressure from free market economics; in 2008 and 2009, Keynes' ideas were to rise in prominence once again. ^[8] [9]

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