Skip to main content

Cookies and Privacy

We use cookies to improve your experience on our website. To find out more, read our updated Cookie policy, Privacy policy and Terms & Conditions

45dabb02f863877419636a00_pa2599c.jpg Paul Lachine

Consolidators versus Stimulators

The classical view of the economy, which Keynes set out to demolish, is not only alive, but in recent years has been dominant, feeding the belief that competitive markets can regulate themselves, will always provide as much employment as is wanted, and are immune to large-scale collapse. Now the believers are clamoring for fiscal consolidation worldwide.

LONDON – All intellectual systems rely on assumptions that do not need to be spelled out because all members of that particular intellectual community accept them. These “deep” axioms are implicit in economics as well, but, if left unscrutinized, they can steer policymakers into a blind alley. That is what is happening in today’s effort, in country after country, to slash spending and bring down budget deficits.

The chief task that John Maynard Keynes set himself in writing his General Theory of Employment, Interest, and Money was to uncover the deep axioms underlying the economic orthodoxy of his day, which assumed away the possibility of persistent mass unemployment. The question he asked of his opponents was: “What must they believe in order to claim that persistent mass unemployment is impossible, so that government ‘stimulus’ to raise the employment level could do no good?” In answering this question, Keynes reconstructed the orthodox theory – and then proceeded to demolish it.

Today, despite the Keynesian revolution, the same question demands an answer. What do people who demand rapid “fiscal consolidation” amid heavy unemployment need to believe about the economy to make their policy coherent?

We hope you're enjoying Project Syndicate.

To continue reading, subscribe now.

Subscribe

Get unlimited access to PS premium content, including in-depth commentaries, book reviews, exclusive interviews, On Point, the Big Picture, the PS Archive, and our annual year-ahead magazine.

https://prosyn.org/NX1ZNcT;
  1. op_dervis1_Mikhail SvetlovGetty Images_PutinXiJinpingshakehands Mikhail Svetlov/Getty Images

    Cronies Everywhere

    Kemal Derviş

    Three recent books demonstrate that there are as many differences between crony-capitalist systems as there are similarities. And while deep-seated corruption is usually associated with autocracies like modern-day Russia, democracies have no reason to assume that they are immune.

    7