Keynesian Ideas Research Articles

COINS TO CRYPTOS: TRACING THE THREADS OF ECONOMIC TRANSFORMATION

This comprehensive article offers a historical exploration of economic thought across different epochs, tracing the evolution of key paradigms and theories. Starting with the classical foundations of laissez-faire capitalism and the invisible hand, the article progresses through the Keynesian revolution and the emergence of macroeconomic policies. It examines the integration of neoclassical and Keynesian ideas, the rise of behavioral economics challenging traditional assumptions, and the modern challenges posed by globalization and sustainability. By weaving together insights from various economic eras, this article provides a holistic understanding of economic thought's transformative journey.

Presidents in deficit: are there historical rewards to deficits?

Buchanan and Wagner pointed to an asymmetry in the political rewards of deficits and surpluses, with the former being preferable to the latter. They assigned the rise of this asymmetry to the popularization of Keynesian ideas. We test both claims by relying on the historical reputation surveys of US presidents since 1948. Historical reputations have long been something presidents have cared about, and they constitute a reliable way to assess whether their reputations suffer or gain from having run deficits. We find evidence that the size of deficits tends to be associated with greater presidential scores and that this effect is stronger in more recent surveys, when Keynesian ideas were more popular.

A sectoral perspective on the persistence of economic sentiment: mere transitory effect or a long memory process?

Opposing the mainstream view that economic sentiment conveys information of purely short-term relevance, we assess the long memory characteristics of confidence indicators derived from Business and Consumer Surveys (BCS). We utilize a battery of fractional integration tests on five sectoral BCS indicators in 28 European economies. Conforming to social learning theory, we find that the examined confidence indicators in all five sectors exhibit noteworthy persistence. This finding stays intact in various robustness checks: across countries and for different fractional integration test specifications. Nevertheless, post hoc comparisons reveal that confidence in the construction and consumer sectors exhibits considerably more intensive persistence than in the industry, retail trade, and services. Since it is evident that shocks in economic sentiment have long-term or permanent effects, this calls for a revival of Keynesian ideas and the stabilization role of well-thought and timely countercyclical economic policy measures.

Cyclicality of Public Spending Theoretical and Methodological Approach Case of Morocco

This article is a contribution to the analysis of the impact of fiscal policy on economic activity in Morocco. It provides a concise overview of the literature on fiscal policy. Reviewing both theoretical and empirical literature, an abundant literature focuses on the effect of spending on output and other macroeconomic variables. Some studies find that an increase in public spending has little effect on output, while others find that an expansionary fiscal policy has a positive effect on the economy, thus supporting Keynesian ideas. Most studies use data from developed countries such as the USA, Japan and Europe, but developing countries seem to have received less attention.

A road not taken? Economic ideology and the articulation of policy alternatives in Irish state economic policymaking, 1948–58

Abstract In the midst of a seemingly unending economic crisis, the period 1948–58 saw a dramatic expansion of fiscal policy in Ireland. T. K. Whitaker’s Economic Development is traditionally represented as a landmark departure behind this change from traditional Department of Finance thinking and political inertia, propelled by the perceived Keynesian ideas of his fellow younger economists. However, by assessing the policy positions each actor adopted during major economic events of the period, this study argues that Whitaker’s economic outlook largely aligned with Finance’s, and that Economic Development must be viewed in large part as a reaction to the pre-existing fiscal commitments of the public capital programme. In tandem, it concludes that although the influential younger economists of the period are sometimes described as expansionist Keynesians – such as Patrick Lynch, who in the early part of the decade spearheaded Keynesian-type initiatives such as the capital budget principle – by mid decade their views aligned with the more classical economic outlook of the Department of Finance.

Die orthodoxe Wirtschaftspolitik der SPD zwischen 1929 und 1933

Abstract The SPD was not part of the government between 1930 and 1932, but tolerated the austerity and deflationary policies of the Brüning cabinet. The term tolerance suggests that the SPD supported the Brüning government against their economic policy convictions for the higher purpose of preserving democracy and peace. At least in the area of monetary and fiscal policy, however, it was more a matter of support than tolerance. Significant parts of the SPD even explicitly opposed early Keynesian ideas of an active economic policy. This gave the Nazis, of all people, the opportunity to appropriate an expansive economic policy programme developed by the trade unions and thus ultimately to use it for the labour movement. The zeal with which alternatives to orthodox economic policy were rejected can only be explained by the fact that the austerity and deflationary policies of the Brüning government coincided with the economic policy ideas and ideological convictions of many social democratic protagonists.

An analysis of productive investment decision marking in Brazil during the COVID-19 pandemic

The goal of this paper is to analyse, from the perspective of the supply, how Brazilian productive companies act in moments of uncertainty and identifies the main factors that are associated to the execution of productive investment between the beginning of 2020 and the end of 2021, which was marked by COVID-19. Beside that, it´s important to determinate the most important macroeconomic variables that impact the decision of the companies, as economic agents, to make productive investments in the country in times of economic instability. This is a qualitative work that has in its theoretical framework Keynesian theory as the main pillar and it’s also based on the scientific study of the most remarkable Brazilian economists who are concerned with examining the topic. The descriptive analysis showed that the decision making by the capital productive holders in moments of crisis goes with the Keynesian ideas. In summary, economic recovery must come not only through interest rate control, but also combined conjuctural and structural stimulus.

Unnecessary radicalism: the limits of economic ideas in political thinking

ABSTRACT This article analyses late 1960s’ and early 1970s’ policy debate on issues concerning balance of payments in Sweden. Part of this debate was the question of fiscal austerity as a tool to achieve external balance, and if it could be used without risking economic and social unrest. The aim is twofold: first to empirically shine new light on modern Swedish economic policy in a historic context. Second to theoretically explore new ways of interpreting the relationship between political thinking and economic ideas. Special focus within the second aim are the consequences of political thinking on Keynesian economic ideas as a framework of economic understanding at the time. The study is qualitative in its methods and pays attention to limits within the relationship between economic policymaking and economic expertise. The article highlights conflicting perspectives on Keynesian ideas and the heterogeneity of these perspectives among economic experts. A heterogeneity of this kind is also shown to complicate the assumed close relationship between Social Democracy and Keynesianism in a historic context. In essence, the article shows that studying policy debates in close historic detail makes for new conclusions on the development of modern economic ideas and the part political thinking plays in it.

Economic Cultures and Debates on Taxation in Italy after World War II: 1943–1948

Abstract This contribution analyses the change in the conception of taxation which occurred in Italy during the aftermath of World War II. From being a neutral mechanism to collect state revenue, in this period taxation became seen as a powerful political tool to redistribute income and wealth. The article primarily relies on material collected by the Economic Commission of the Ministry for the Constituent Assembly set up in 1945, a unique source which offers a comprehensive overview of the different conceptions of taxation at the time. Drawing upon their different economic and political ideologies, liberal economists and entrepreneurs, Christian Democrats, and Communists formulated alternative tax programmes. While liberal economists and entrepreneurs advocated the maintenance of the existing tax system on technical grounds, the Christian Democrats imposed a new conception of taxation as a means for income redistribution. Progressive and redistributive taxation was also present in the Communist programme, but their ambiguous tax views suffered from the lack of administrative and economic experience which liberal and Catholic economists had instead gathered before and partially even during the Fascist regime. The debate ended abruptly in 1947 with the exclusion of the left from government and the success of liberal conceptions. Nonetheless, during the 1960s, the Catholic emphasis on progressive and redistributive taxation incorporated the new Keynesian ideas on public finance and achieved a hegemonic position in the public debate, thus overcoming the traditional liberal view.

Expectations and full employment. Hansen, Samuelson and Lange

Les anticipations sont au cœur des premiers modèles de cycles comme de croissance. Dans les années quarante, une troisième ligne de recherche est apparue qui s’interroge sur la capacité des économies à atteindre un équilibre de plein emploi. Cette littérature débute avec la contribution de Hansen [1938] pour atteindre son point culminant avec la publication de l’ouvrage de Lange [1944]. Au fil des débats, la question glisse du problème de l’existence vers celui de la stabilité de l’équilibre de plein emploi, suggérant un rôle croissant des anticipations, allant jusqu’à remettre en cause la stabilité du système économique dans sa globalité. Ce papier retrace ces débats au travers des contributions de Hansen, Samuelson et Lange. L’exploitation des archives nous permet de démontrer que, si l’analyse de l’instabilité est restée très implicite dans les travaux de Samuelson, sa correspondance révèle toutefois qu’il a encouragé Lange à s’intéresser à cette question. Lange présente ses résultats dans son ouvrage de 1944, publié par la Cowles Commission for Research in Economics. Nous montrons que la portée de cette contribution ne peut être comprise indépendamment de ses échanges avec Samuelson ou de la façon dont les idées keynésiennes étaient alors perçues aux États-Unis. Finalement, le papier s’interroge sur le positionnement ambigu de Samuelson tant sur la question de l’instabilité que sur le rôle des anticipations.

Towards a Politics of Restraint.

Public choice theory, an analysis of politics based on economic principles, is often considered to be one of the major innovations in economics and political sciences in the second half of the twentieth century. In its formulation by James Buchanan and Gordon Tullock, public choice is commonly understood as one of the major theoretical building blocks in the development of neoliberal thought. It was also remarkably popular with economists and political scientists within the Dutch Labour Party (Partij van de Arbeid) in the mid-1970s. This latter fact is surprising since public choice was seemingly at odds with the Keynesian ideas around which the Labour Party had built its economic policy. This article investigates why and how public choice became popular in the Labour Party. In understanding the popularity of this theory, I will argue, it is important to see the popularity of neoliberal ideas not only in reaction to the economic tribulation of the period but also as a discussion on social planning and an expression of discontent with the democratization movement. Since the rise of neoliberalism in Dutch policymaking is often understood as coming from liberal and conservative channels, studying public choice within the Labour party will shed new light on the development of neoliberalism in the Netherlands.

Inflation, Monetary Policy and Monetary Aggregates

Taxonomically speaking, the received theories of the macroeconomy may be said to comprise monetarism, structuralism, Marxism, the post-Keynesian view and the New Consensus Macroeconomics (NCM). However, in the last few decades, the mainstream view has been converging on the NCM, representing a grafting of essentially Keynesian ideas on a framework of rational expectations. Associated with this consensus has been a steady de-emphasis on the role of monetary aggregates in the framing of monetary policy. This paper is devoted to an examination of the role of monetary aggregates in each of the macroeconomic theories listed above. In particular, it contests the prevailing mainstream policy viewpoint (heavily influenced by the NCM) that monetary aggregates have no explanatory power for inflation beyond that contained in the output gap. On the contrary, the empirical fact that several monetary shocks originate on the supply side, coupled with the strong possibility of monetary shocks affecting output through relative price changes, make out a strong case for the inclusion of monetary aggregates at least as a Second Pillar of monetary policy (in the manner currently done at the European Central Bank). A monetary policy calibrated without reference to monetary aggregates is like Hamlet without the Prince of Denmark.

Hegemonic leadership is what states make of it: reading Kindleberger in Washington and Berlin

What explains the nature of a dominant state’s systemic crisis response? In the wake of the global financial crisis of 2008, the U.S. acted as the hegemon for the world economy, showing ‘benign’ leadership by serving as consumer, investor, and lender of last resort. During the euro crisis two years later, Germany played a rather different role, practicing a more ‘coercive’ form of rules-based leadership within Europe’s regional context. In this paper, I explain how ideas and crisis narratives, informed by national economic traditions, shaped how the leading states behaved. By rescuing Charles Kindleberger’s original version of hegemonic stability theory from both its realist and liberal institutionalist interpreters, the paper clarifies why elites in the U.S. followed a hardheaded path of soft Keynesian ideas resulting in global public goods provision while their counterparts in Germany, be it more constrained, opted for a more principled road of rule enforcing ordo-liberal ideas avoiding public goods provision. The crucial role of ideas – in addition to structural and institutional factors – in defining the national interest during periods of crisis helps us better understand “why hegemonic leadership is what states make of it.” This led American and German elites to interpret Kindleberger in very different ways.

Minsky’s moment? The rise of depoliticised Keynesianism and ideational change at the Federal Reserve after the financial crisis of 2007/08

How did potentially transformative ideas about the way economies should function become enlisted in policy frameworks that produced few major changes to policy orthodoxy at the Federal Reserve after the financial crisis of 2007/08? IPE scholarship has tended to answer this question by identifying the limited purchase of Keynesian ideas in policy circles. In so doing, however, the existing literature has left unexplained the central role of Keynesianism in the Federal Reserve’s ideational framework. To fill a gap in this literature, this article argues that ideas fill different functions (cognitive and normative) in the policy process and proposes a new explanatory model, ‘depoliticised Keynesianism’, for understanding the role that Keynesian ideas played in ideational change at the Federal Reserve after the financial crisis of 2007/08. Using in-depth interviews with current and former Federal Reserve officials, and a quantitative text analysis of Federal Open Market Committee meeting transcripts between 1981 and 2014, it traces the rise of depoliticised Keynesianism to policymakers’ normative commitment to depoliticisation and a cognitive interpretation of Keynesian ideas.

On the transmission of Keynes’ and Keynesian ideas in Brazil through Eugênio Gudin’s Principles of Monetary Economics

In the mid-twentieth century, Gudin was the main forerunner of the professionalisation of economics in Brazil. His book Princípios de Economia Monetária (Principles of Monetary Economics) was the first textbook in Portuguese published for a Brazilian audience interested in economics. As the book was written during the period of the Keynesian revolution, we show how he kept up with the then-modern debate around Keynes’ ideas and continually incorporated Keynesian concepts into the successive editions of his book. As Gudin was a staunch defender of liberalism and the free market, his presentation of Keynes’ and Keynesian ideas was mainly critical.

All Keynesians now? Public support for countercyclical government borrowing

AbstractIn the wake of the 2008 financial crisis, macroeconomic policy returned to the political agenda, and the influence of Keynesian ideas about fiscal stimulus rose (and then fell) in expert circles. Much less is known, however, about whether and when Keynesian prescriptions for countercyclical spending have any support among the general public. We use a survey experiment, fielded twice, to recover the extent to which UK respondents hold such countercyclical attitudes. Our results indicate that public opinion was countercyclical—Keynesian—in 2016. We then use Eurobarometer data to estimate the same basic parameter for the population for the period 2010–2017. The observational results validate our experimental findings for the later period, but also provide evidence that the UK population held procyclical views at the start of the period. Thus, there appear to be important dynamics in public opinion on a key macroeconomic policy issue.

A New Theory of Demand-Restricted Growth: The Basic Idea

In mainstream theory, growth is explained fully by elements of the supply side. In this article, we depart from neoclassical mechanisms and suggest a hybrid approach that allows for growth restrictions induced by demand-side elements. We obtain such demand-restricted growth by suggesting an unconventional equilibrium concept in a stochastic environment. We define macroeconomic equilibrium as stationary no-expectation-error equilibrium. This equilibrium concept relates to the Nash idea of individual stationary behavior as long as expectations prove to be realized. No rigidities are introduced. Even if potential growth is generated by technical change and capital accumulation, the growth path is restricted by effective earnings and can be stable below the neoclassical path of potential growth. However, the growth process mutates to the neoclassical process if effective earnings and potential earnings equalize. Therefore, our hybrid model could help to bridge a gap between Keynesian and neoclassical ideas of economic growth. JEL Classifications: E12, E13, O40, E60

The hollowing out of monetarism: the rise of rules-based monetary policy-making in the UK and USA and problems with the paradigm change framework

The demise of a post-war Keynesian policy paradigm of discretionary fiscal fine-tuning in pursuit of full employment is widely associated with the rise of a monetarist economic policy paradigm stressing fixed policy rules and money supply targets to secure price stability. Challenging these conventional wisdoms, and questioning the usefulness of the paradigm change framework, this article interrogates how far monetarism did replace Keynesian approaches to macroeconomic policy in the UK and USA after the 1970s. Crucial aspects of monetarism—notably the commitment to abandon stabilisation policy and shift to fixed policy rules—were overridden shortly after brief, abortive attempts to use monetarism as a governing doctrine. A paradigm lens overstates the clarity of monetarist ideas, failing to acknowledge how these were reconciled to (New) Keynesian ideas by the end of the 1980s within a pragmatic composite (the Taylor rule). The wider theoretical contribution of this article is to revisit understandings of paradigmatic change in political science and political economy. We argue that taking a paradigmatic view of economic ideas and their relationship policy orders can overstate change, overlook continuities, and overrate the efficiency of punctuated change. It also under-appreciates scope to combine ideas from different paradigmatic homes.

The Fiscal Revolution in America: A Reinterpretation

Abstract:Between the 1930s and early 1960s, U.S. economic policy underwent an important transformation, described by economist Herbert Stein as “The Fiscal Revolution in America.” During those years, policymakers utilized Keynesian ideas to promote prosperity, and the fiscal revolution reached its peak after John F. Kennedy proposed a growth-boosting tax cut despite the unprecedented peacetime consequence of running a deficit in nonrecession conditions. This article explores how that revolution developed during the postwar period. It challenges the argument that the business community shaped and consolidated the fiscal revolution in the late 1950s and early 1960s. Instead, this article shows that liberal economists played a crucial role in fashioning Keynesianism’s postwar consolidation, so much so that the brand of that doctrine implemented in the early 1960s owed much to their efforts and was significantly different to the one championed by the business community.

Keynesianism in Australia

This paper focuses on how Keynes’s ideas were received in the intellectual community and acted upon by governments in Australia. As Millmow points out, the most influential early advocates of Keynesian ideas were Coombs, Crawford, Giblin, Swan and Wilson, with Downing and Reddaway close behind, all putting emphasis on fiscal policy. As much has already been written about Giblin, more attention will be given to discussion of the others. One of the authors of this paper knew Coombs well and discussion relating to him puts into print some oral history. The paper gives most attention to the first 25 years after the Second World War, including the lessons that can be learnt from that period for policy issues today. The decline in the influence of Keynesianism in the early 1970s is noted – though there has been some increase in interest as a result of the global financial crisis.