Evolution, Not Revolution, in Economics
A growing acceptance of aggressive fiscal policy is supposed to be the first principle of a new, post-revolutionary regime in macroeconomics. But the only genuine conceptual change in the decade since the global financial crisis has come from efforts to explain when and why "unconventional" monetary policy works.
LONDON – While they stare quietly at their models, macroeconomists are hearing the distant rumble of revolt. A year ago, the Nobel laureate economist Joseph Stiglitz announced that capitalism was undergoing “yet another existential crisis,” with “neoliberal ideology” to blame. Now Robert Skidelsky has proclaimed the arrival of a “silent revolution in macroeconomics.” Martin Sandbu of the Financial Times prefers the plural, celebrating the “revolutions under way in macroeconomics.”
A growing acceptance of aggressive fiscal policy is supposed to be the first principle of the new, post-revolutionary regime. Even the International Monetary Fund – once lampooned as “It’s Mostly Fiscal” for wanting to impose austerity everywhere – is now calling for more fiscal stimulus to fight the crisis.
So, if a revolution is under way, what kind is it? Should conventional macroeconomists fear the intellectual guillotine?