2008–2009 Keynesian Resurgence - Aftermath: 2010 and Later

Aftermath: 2010 and Later

According to Henry Farrell and John Quiggin, by late 2009 the previous apparent consensus for Keynesian policy among prominent economists began to dissolve into "dissensus". There was no reversal to the previous free market consensus, but the apparent unity of the previous year had gone. In part this was due to objections from anti Keynesians like Robert Barro achieving wider attention, in part due to the intervention of elite economists who had previously kept out of the debate (specifically elite economists from the ECB, but also even some economists considered progressive such as Jeffery Sachs). The lack of consensus among expert opinion made policy makers vulnerable to voices calling for them to abandon Keynesian policy in favour of fiscal consolidation.

In April 2010 a communiqué from the Washington meeting of finance ministers called for continued support until the recovery is firmly entrenched with strong private sector activity, though it accepted that some countries had already began to exit from stimulus policies. By mid-2010 the earlier global consensus for ongoing Keynesian stimulus had fractured, mirroring the dissensus that had emerged among prominent economists.

Especially in Europe, there was an increase in rhetoric calling for immediate fiscal tightening, following events such as the Greek sovereign debt crisis and the displacement of the UK Labour government with a coalition dominated by Conservatives after the May elections. While some high level officials, particularly from the US and India, have continued advocating sustained stimulus until the global recovery is better established, a communiqué from the G20 issued after their June 2010 meeting of finance ministers in Busan welcomed the trend towards fiscal consolidation rather than further deficit financed stimulus. Though the G20 did reiterate that forceful government intervention had been the correct response in 2008 and 2009. Then IMF managing director Dominique Strauss-Kahn, who had been a leading advocate for stimulus spending from as early as January 2008, said he was comfortable with the reversal.

European political leaders in particular have embarked on substantial austerity drives. In July 2010, leading European economic policy maker Jean-Claude Trichet, then president of the ECB stated that it was time for all industrial nations to stop stimulating and start tightening. Keynesian economists and Keynes biographer Lord Skidelsky have argued the move to implement cuts while the economy is still fragile is a mistake. In a July 2010 article, Financial Times columnist Philip Stephens has argued that recent events show that the markets have re-established themselves as leading influences on western economic policy, while Brad DeLong wrote that he considered himself and fellow Keynesians to have lost the argument for fiscal stimulus.

In April 2011, Professor Patrick Dunleavy wrote that the resurgence has caused a "backlash against the State", starting in America with movements like the Tea Party, later spreading to Europe. He also stated it is likely that ideological wars between rival economic world views have returned for good. In September, Steven Rattner opined that the 2012 US presidential election is shaping up to be a contest between the economic policies of Keynes and Hayek - "a clash of ideologies the likes of which America has not seen in decades." Republican candidates have been openly praising von Hayek and Mises. Rattner says that while the Democrats economic strategy remains largely based on Keynes, the economists name is now rarely mentioned; "Keynes" has become an almost politically toxic word due to the extensive criticism of the 2009 Keynesian stimulus. Rattner refers to the work of Blinder and Zandi which found the 2009 US stimulus saved about 8.5 million jobs, with Obama's third stimulus, a $450 billion Jobs plan projected to create 1.9 million jobs in 2012. Also in September, President of the European Commission José Manuel Barroso called for additional fiscal policy to boost economic growth, while recognizing many European countries do not currently have the capability to launch a substantial stimulus program. German Chancellor Angela Merkel rejected the idea of further stimulus.

By November 2011, efforts to pass Obama's American Jobs Act, either in whole or in part, had so far been rejected by the US congress with the prospects of it passing in the near future looking poor. In Britain, Cameron made a November speech accepting a darkening economic outlook while saying those arguing for traditional fiscal stimulus are "dangerously wrong". Simon Cox, Asia economics editor for the Economist, predicted that while China may face future economic challenges, the incoming leaders expected to take over the top positions in late 2012 ( Xi Jinping and Li Keqiang ) are far less likely than their predecessor to respond with Keynesian policies.

Also in November, the book The Courageous State was released by the anti tax evasion campaigner Richard Murphy, calling for a revival of the Keynesian resurgence, which he argues is the best economic policy for the interests of ordinary people. Murphy sees the resurgence as having faded out by late 2009. Other influential figures have come out against Keynesian policy even from left of center politics - these include the UK Labour party's Lord Glasman, whose favorite economist is von Hayek and the diplomat Carne Ross who has argued that no form of centralized authority can meet the problems of the modern world, arguing for an anti-statist form of Participatory democracy instead.

In January 2012 Philip Stephens repeated his earlier view that the markets once again have decisive influence on economic policy making, also noting a decline in the public's trust in government in both Europe and the US, along with greater concern over public debt. In March however, while accepting that the resurgence had stalled, Paul Krugman expressed optimism about the long term prospects of achieving a lasting shift towards Keynesianism in both mainstream economics and policy making. In May, Krugman published a book, End this Depression Now! where he repeated his calls for greater use of fiscal stimulus, though according to the Financial Times his proposals were both "modest" and "cautious", reflecting the resistance to such measures since the end of resurgence.

In June Krugman and Richard Layard launched A manifesto for economic sense, where again they call for greater use of stimulatory fiscal policy to reduce unemployment and boost growth. By mid-2012, with the on-going Euro crisis and persistent high unemployment in the US, there had been renewed consideration of stimulus policies by European and American policy makers, though there has been no return to the pro stimulus consensus that existed in 2009. After the 2012 G8 summit, leaders issued a statement recognising the range of opinions concerning the best measures to strengthen their economies.

In January 2013, Japan's recently elected conservative government announced a ten trillion Yen Keynesian stimulus package, which is to include public works and to create an expected 600,000 new jobs. On the other hand, Wolfgang Münchau wrote for the Financial Times that the United States is looking like it will join Europe in practicising fiscal austerity, rather than the relatively stimulatory policy stance it had held prior to 2013.

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