Special symposium of discretionary fiscal policy: fiscal policy is back!

Abstract

the recent real-world events have brought back to the attention of private citizens the role of discretionary fiscal policy for the purpose of stabilizing the economy. Policymakers in the united Kingdom, united States, China, France, Germany, and Spain, just to mention a few, have all proposed a fiscal stimulus in order to prevent the 2007–8 financial crisis and real economic slowdown from leading their economies into a 1930s-style depression. Academics have been forced to catch up with real-world events, but not without problems. the past two decades have seen a spectacular convergence in macroeconomics between new classical economics and new Keynesian economics. the “three-equation new consensus macroeconomic model” is the outcome of this convergence. the main policy implication of the model is that all that matters for stabilization purposes is monetary policy, which now takes the form of interest rate management with the aim of hitting a particular inflation target. the three -equation new consensus macroeconomic model has no role for fiscal policy, except for limiting any interference with the use of monetary policy and balancing the budget of the government. Post Keynesians have always been on the front line in defending a stabilization role for fiscal policy. however, with few exceptions, the reader will look in vain for recent Post Keynesian papers on the role of fiscal policy in modern macroeconomics. It is really astonishing that the journals that typically publish contributions within the Post Keynesian tradition have few or no papers dealing with the stabilization role of discretionary fiscal policy. the purpose of this symposium is to amend this