2008–2009 Keynesian resurgence

Great Recession-era revival of interest in aggregate demand-side economics thumb|right|John Maynard KeynesThe 2008 financial crisis was followed by a global resurgence of interest in Keynesian economics among prominent economists and policy makers. This included discussions and implementation of economic policies in accordance with the recommendations made by John Maynard Keynes in response to the Great Depression of the 1930s, particularly fiscal stimulus and expansionary monetary policy. https://www.ft.com/content/8a3d8122-d5da-11dd-a9cc-000077b07658 The undeniable shift to Keynes The Financial Times Chris Giles Ralph Atkins Krishna Guha 2009-01-23 subscriptionhttps://www.wsj.com/articles/SB123137373330762769 The New Old Big Thing in Economics: J.M. Keynes The Wall Street Journal Sudeep Reddy 2009-03-12 https://web.archive.org/web/20090503153623/http://online.wsj.com/article/SB123137373330762769.html 2009-05-03 live 2009-01-08 http://www.livemint.com/2008/02/21000738/A-global-Keynesian-revival.html A global Keynesian revival livemint.com in partnership with The Wall Street Journal Sumita Kale 2009-01-23https://www.pbs.org/newshour/updates/business/jan-june09/keynes_02-23.html Keynes' Economic Theories Re-emerge in Government Intervention Policies Online NewsHour PBS Quinn Bowman 2009-09-19 2014-01-22 https://web.archive.org/web/20140122035620/http://www.pbs.org/newshour/updates/business/jan-june09/keynes_02-23.html dead From the end of the Great Depression until the early 1970s, Keynesian economics provided the main inspiration for economic policy makers in Western industrialized countries. The influence of Keynes's theories waned in the 1970s due to stagflation and critiques from Friedrich Hayek, Milton Friedman, Robert Lucas Jr., and other economists who had less faith in the ability of government intervention to regulate the economy, or were otherwise opposed to Keynesian policies. From the early 1980s to 2008, the consensus among economists was that fiscal stimulus would be ineffective even in a recession, and such policies were only occasionally employed by the governments of developed countries. In 2008, prominent economic journalists and economists began arguing in favour of Keynesian stimulus. From October onward, policy makers began announcing major stimulus packages to prevent a global depression. By early 2009, there was widespread acceptance among the world's economic policy makers about the need for fiscal stimulus. Yet by late 2009, the consensus among economists began to break down. In 2010, with a depression averted but unemployment in many countries still high, policy makers generally decided against further fiscal stimulus, with several voicing concerns over public debt. Unconventional monetary policy continued to be used in attempts to increase economic activity. By 2016, increasing concerns had arisen that monetary policy was reaching the limit of its effectiveness, and several countries began to return to fiscal stimulus. Background Competing views on macroeconomic policy Macroeconomic policy focuses on high level government decisions which affect overall national economies rather than lower level decisions concerning markets for particular goods and services. Keynes was the first economist to popularize macroeconomics and also the notion that governments can and should intervene in the economy to alleviate the suffering caused by unemployment. Before the Keynesian Revolution that followed Keynes's 1936 publication of his General Theory, the prevailing orthodoxy was that the economy would naturally establish full employment. So successful was the revolution that the period spanning the aftermath of World War II to about 1973 has been referred to as the Age of Keynes. Stagnating economic performance in the early 1970s successfully shattered the previous consensus for Keynesian economics and provided support for a counter revolution. Milton Friedman's monetarism school was prominent in displacing Keynes' ideas both in academia and from the practical world of economic policy making. A key common feature of the anti-Keynesian schools of thought is that they argued for policy ineffectiveness or policy irrelevance. Although the theoretical justifications vary, the various schools all hold that government intervention will be much less effective than Keynes had believed, with some advocates even claiming that in the long run interventionist policy will always be counterproductive.Bateman 2010 p.1 – 30 Keynesian economics followed on from the Keynesian Revolution. In contrast to the recent resurgence of Keynesian policy making, the revolution initially comprised a shift change in theory.Fletcher 1989 Introduction There had been several experiments in policy making that can be seen as precursors for Keynes' ideas, notably President Franklin D. Roosevelt's famous New Deal. These experiments had been influenced more by morals, geopolitics and political ideology than by new developments in economics, even though Keynes had found some support in the United States for his ideas about counter-cyclical public works policy as early as 1931.Skidelsky 2003 chpt. 29 According to Gordon Fletcher, Keynes' General Theory provided a conceptual justification for New Deal-type policies which was lacking in the established economics of the day. This was immensely significant, as in the absence of a proper theoretical underpinning there was a danger that ad hoc policies of moderate intervention would be overtaken by extremist solutions, as had already happened in much of Europe. However, Keynes did not agree with all aspects of the New Deal; he considered that the almost immediate revival of business activity after the program's launch could only be accounted for by dangerous-to-rely-on psychological factors, such as the boost to confidence effected by Roosevelt's inspiring oratory. Keynesian ascendancy 1941–1979 Keynesian Revolution thumb|150px|Prime Minister Clement Attlee (left) with King George VI. Attlee based the British post-World War II economic policy on Keynes' ideas. While working on his General Theory, Keynes wrote to George Bernard Shaw, "I believe myself to be writing a book on economic theory which will largely revolutionize, not I suppose at once but in the course of the next ten years – the way the world thinks about economic problems. ... I don't merely hope what I say, in my own mind I'm quite sure."Davidson 2009 p. 12- 13 Keynes's ideas quickly became established as the new foundations for mainstream economics, and also as a leading inspiration for industrial nations economic policy makers from about 1941 to the midseventies, especially in the English speaking countries. The 1950s and 1960s period, when Keynes's influence was at its peak, to many appeared in retrospect to have been a golden age.Fletcher 1989 xx At that time, in contrast to the decades before WWII, the industrialized world and much of the developing world enjoyed high growth, low unemployment and an exceptionally low frequency of economic crises. In late 1965 Time magazine ran a cover article with the title inspired by Milton Friedman's statement, later associated with Richard Nixon, "We are all Keynesians now"; the article described the exceptionally favourable economic conditions then prevailing, and reported that "Washington's economic managers scaled these heights by their adherence to Keynes's central theme: the modern capitalist economy does not automatically work at top efficiency but can be raised to that level by the intervention and influence of the government." The article also states that Keynes was one of the three most important economists ever, and that his General Theory was more influential than the magna opera of his rivals, namely Adam Smith's The Wealth of Nations and Karl Marx's Das Kapital. We are all Keynesians now 2008-11-13 http://www.time.com/time/magazine/article/0,9171,842353-5,00.htm https://web.archive.org/web/20090325215049/http://www.time.com/time/magazine/article/0,9171,842353-5,00.htm dead March 25, 2009 Time magazine 1965-12-31 Displacement by monetarism and new classical economics 1979–1999 Post-war displacement of Keynesianism thumb|Friedrich Hayek, Keynes' leading contemporary critic. Milton Friedman began to take over this role by the late 1950s. A swelling tide of criticism of Keynesian economics, most notably from Milton Friedman, a leading figure of monetarism, and the Austrian School's Friedrich Hayek, was unleashed by the stagflation of the 1970s. A series of events that contributed to this economic situation included Richard Nixon's imposition of wage and price controls on 15 August 1971 and unilateral cancellation of the Bretton Woods system in 1972, his ceasing the direct convertibility of the United States dollar to gold, as well as the 1973 oil crisis and the recession that followed.Peter Dorey. Policy making in Britain. SAGE. 2005. 978-0-7619-4904-6 p. 16Kenneth R. Hoover. Economics as ideology: Keynes, Laski, Hayek, and the creation of contemporary politics. Rowman & Littlefield. 2003. p. 2-3 In 1976, Robert Lucas of the Chicago school of economics introduced the Lucas critique, which called into question the logic behind Keynesian macroeconomic policy making. http://www.californiachronicle.com/articles/view/92595 The Global Economic Crisis and the Resurgence of Keynesian Economics California Chronicle Wolassa L. Kumo February 2009 2009-09-18 https://web.archive.org/web/20091125145056/http://www.californiachronicle.com/articles/view/92595 2009-11-25 deadLucas Robert Brunner K. Karl Brunner (economist) Meltzer A. 1976 Econometric Policy Evaluation: A Critique The Phillips Curve and Labor Markets Carnegie-Rochester Conference Series on Public Policy 1 19–46 New York American Elsevier 0-444-11007-0 The new classical economics became the dominant school in macroeconomics. By the mid-1970s, policy makers were beginning to lose their confidence in the effectiveness of government intervention in the economy. In 1976 British Prime Minister James Callaghan said that the option of "spending our way out of recession" no longer exists.Skidelsky 2009 p. 107 In 1979, the election of Margaret Thatcher as Prime Minister brought monetarism to British economic policy. In the United States, the Federal Reserve under Paul Volcker adopted similar policies of monetary tightening to control inflation.Fletcher 1989 xxi In the world of practical policy-making as opposed to economics as an academic discipline, the monetarist experiments in both the United States and Britain in the early 1980s were the pinnacle of anti-Keynesian and the rise of perfect competition influence. The strong form of monetarism being tested at this time asserted that fiscal policy is of no effect, and that monetary policy should only try to target the money supply to control inflation, without attempting to target real interest rates. This was in contrast to the Keynesian view that monetary policy should target interest rates, which it held could influence unemployment. Monetarism succeeded in bringing down inflationThe high interest rates under Volker have even been credited with causing The Great Moderation but at the cost of unemployment rates in excess of 10%, causing the deepest recession seen in the developed countries since the end of the Great Depression and severe debt crises in the developing world. Contrary to monetarist predictions, the relationship between the money supply and the price level proved unreliable in the short- to medium-term. Another monetarist prediction not borne out in practice was that the velocity of money did not remain constant, and in fact dropped sharply. The Bank of England abandoned its sterling M3 money targeting in October 1985; the United States Federal Reserve began increasing the money supply above monetarist-advised thresholds with no effect on inflation, and discarded monetarism by 1984. The End of the Age of Milton Friedman 2008-11-13 http://www.huffingtonpost.com/jeff-madrick/the-end-of-the-age-of-mil_b_94228.html Time magazine Jeff Madrick 2008-04-08 https://web.archive.org/web/20081028172824/http://www.huffingtonpost.com/jeff-madrick/the-end-of-the-age-of-mil_b_94228.html 28 October 2008 liveThough the fed did not officially acknowledge they were unable to adhere to money supply targets until 1987 Bateman(2010) p.19 Keynesian counter currents 1999–2007 By 1999, the 1997 Asian financial crisis and the harsh response by the International Monetary Fund (IMF) had at least partially discredited free market policies in the eyes of developing world policy makers. The developing world as a whole stopped running current account deficits in 1999, largely as a result of government interventions to devalue the countries' currencies, which would help build foreign reserves to protect against future crises and help them enjoy export led growth rather than relying on market forces.Wolf 2009 p.31 For the advanced economies, while there was much talk of reforming the international financial system after the Asian crises, it was not until the market failure of the late 1990s and early 2000s dot-com bubble that there was a significant shift away from free market policies.Though the shift was largely unnoticed both by the popular press and academic economists, see Bateman(2010), esp p. 4 In the United States, there was a return by the government of George W. Bush to a moderate form of Keynesian policy, with interest rates lowered to ease unemployment and head off recession, along with a form of fiscal intervention with emergency tax cuts to boost spending.Bateman 2010 p. 9, 23 -26 In Britain, Chancellor of the Exchequer Gordon Brown had gone on record, saying "the real challenge was to interpret Keynes's insights for the modern world."Clarke 2009 p18 Yet American and British policy makers continued to ignore many elements of Keynesian thinking such as the recommendation to avoid large trade imbalances and to reduce government deficits in boom years. There was no general global return to Keynesian economics in the first 8 years of the 2000s. European policy became slightly more interventionist after the start of the 21st century, but the shift in a Keynesian direction was smaller than was the case for the United States and Britain; however, continental Europeans had not generally embraced free market thinking as wholeheartedly as had the English-speaking world in the 1980s and 1990s.Bateman 2010 p. 4, 51–72 Japan had been using moderate Keynesian policies in the nineties, and switched to neoliberalism with the government of Junichirō Koizumi in 2001–2006.Bateman 2010 p. 4 For the first half of the 2000s, free-market influences remained strong in powerful normative institutions like the World Bank, the IMF, and in prominent opinion-forming media, such as the Financial Times and The Economist. Hunter-Wade Robert John Ravenhill Global Political Economy 2005 11 293 Oxford University Press 0-19-926584-4 The Washington Consensus view that current account imbalances do not matter continued even in the face of a ballooning United States deficit, with mainstream academic opinion only turning to the view that the imbalances are unsustainable by 2007.Wolf 2009 p.114 – 116 Another notable anti-Keynesian view that remained dominant in United States and Britain policy making circles was the idea that markets work best if they are unregulated.Bateman 2010 p. 26 In the world of popular opinion, there had been an upsurge in vocal but minority opposition to the raw free market, with anti-globalization protests becoming increasingly notable after 1998. By 2007, there had been bestsellers promoting Keynesian or at least pro-mixed economy policies; among them were Naomi Klein's The Shock Doctrine and Song Hongbing's Currency Wars. In the academic world, the partial shift towards Keynesian policy had gone largely unnoticed. On Keynesian resurgence In the wake of the 2008 financial crisis and the search for a way out of the crisis, a worldwide move toward Keynesian deficit financing and general resurgence of Keynesian policies resulted in a new economic consensus, which involved reassessment or even reversal of normative judgments on a number of topics. The Keynesian view receiving most attention has been fiscal stimulus, applied by numerous states as a response to the Great Recession. The IMF managing director Dominique Strauss-Kahn advocated for global fiscal stimulus already in January 2008. Gordon Brown built support for fiscal stimulus among global leaders at September's UN General Assembly, after which he secured George Bush's agreement for the first G20 leaders summit. Gordon Brown 2010 Beyond the Crash Simon & Schuster 978-0-85720-285-7 41–46 Gordon Brown Beyond the Crash In late 2008 and 2009 fiscal stimulus packages were widely launched across the world, with packages in G20 countries averaging at about 2% of GDP, with a ratio of public spending to tax cuts of about 2:1. The stimulus in Europe was notably smaller than in large G20 countries elsewhere.Mason 2010 184-87 Other areas where opinion has shifted back towards a Keynesian perspective include:http://www.studentpulse.com/articles/667/are-we-all-keynesians-now-political-ideology-and-state-deficit-spending-in-the-great-recession Are We All Keynesians Now? Political Ideology and State Deficit Spending in the Great Recession Brian D. Blankenship StudentPulse.com 2012 22 August 2012 Global trade imbalances. Keynes placed great importance on avoiding large trade deficits or surpluses; following the Keynesian displacement, an influential view in the West was that governments need not be concerned about them. From late 2008, imbalances are once again widely seen as an area for government concern.Davidson 2009 p. 121-143 Bateman 2010 Chp 14, Current Global Imbalances: Might Keynes be of help by Anna M. Carabelli and Mario A. Cedrini, p.257 – 274 In October 2010, the United States suggested a possible plan to address global imbalances, with targets to limit current account surpluses similar to those proposed by Keynes at Bretton Woods.https://www.ft.com/content/a181f73a-e6b5-11df-99b3-00144feab49a Current account targets are a way back to the future The Financial Times Martin Wolf 2010-11-02 2010-11-08 https://web.archive.org/web/20101105215758/http://www.ft.com/cms/s/0/a181f73a-e6b5-11df-99b3-00144feab49a.html 5 November 2010 live Martin Wolf subscription Capital controls. Keynes strongly favoured the use of controls to restrain international capital movement, especially short term speculative flows; in the 1970s and 1980s, opinion among Western economists and institutions swung firmly against them. During 2009 and 2010 capital controls once again came to be seen as an acceptable part of a government's macroeconomic policy toolkit, though institutions like the IMF still caution against overuse. http://www.project-syndicate.org/commentary/rodrik41/English The End of an Era in Finance Project Syndicate Dani Rodrik 2010-03-11 2010-05-24 Dani Rodrik Davidson 2009 p. 141-142 In contrast to stimulus policies, the return to favour of capital controls still had the momentum as of late 2012. https://www.theguardian.com/commentisfree/cifamerica/2011/nov/29/imf-must-heed-g20-decisions?fb=optOut The IMF must heed G20 decisions The Guardian Kevin Gallagher 2010-11-29 2011-12-15 London http://www.bankofengland.co.uk/publications/fsr/fs_paper13.pdf Reform of the International Monetary and Financial System Bank of England Oliver Bush Katie Farrant Michelle Wright 2011-12-09 2011-12-15 https://web.archive.org/web/20111218105433/http://www.bankofengland.co.uk/publications/fsr/fs_paper13.pdf 2011-12-18 deadhttp://www.imf.org/external/np/pp/eng/2012/111412.pdf The liberalization and management of capital flows: an institutional view International Monetary Fund 2012-12-03 2012-12-04 Skepticism concerning the role of mathematics in academic economics and in economic decision making. Despite his degree in mathematics, Keynes remained skeptical about the usefulness of mathematical models for solving economic problems. Mathematics became increasingly central to economics even during Keynes' career, and even more so in the decades following his death. While the Keynesian resurgence has seen no general reversal of opinion on the utility of complex math, there have been numerous calls for a broadening of economics to make further use of disciplines other than mathematics. In the practical spheres of banking and finance, there have been warnings against overreliance on mathematical models, which have been held up as one of the contributing causes of the 2008–2009 crises.Davidson 2009 p. 29 – 45 http://www.pantaneto.co.uk/issue35/ravetz.htm Faith and Reason in the Mathematics of the Credit Crunch pantaneto.co.uk The Oxford Magazine Jerome Ravetz 2008 2010-07-22 https://web.archive.org/web/20110718120922/http://www.pantaneto.co.uk/issue35/ravetz.htm 2011-07-18 dead Jerome Ravetz Among policy makers thumb|upright|During his term as the 13th prime minister of India, economist Manmohan Singh spoke strongly in favour of Keynesian fiscal stimulus at the 2008 G-20 Washington summit.Ram N Keynesian warning is one of seven 'big messages': Manmohan https://www.thehindu.com/todays-paper/Keynesian-warning-is-one-of-seven-lsquobig-messagesrsquo-Manmohan/article15343949.ece 8 October 2015 The Hindu 17 November 2008 1 January 2016 https://web.archive.org/web/20160101230121/http://www.thehindu.com/todays-paper/keynesian-warning-is-one-of-seven-big-messages-manmohan/article1378087.ece live In March 2008, leading free-market journalist Martin Wolf, chief economics commentator at the Financial Times, announced the death of the dream of global free-market capitalism, and quoted Josef Ackermann, chief executive of Deutsche Bank, as saying "I no longer believe in the market's self-healing power." The rescue of Bear Stearns marks liberalization's limit 2008-11-13 https://www.ft.com/content/8ced5202-fa94-11dc-aa46-000077b07658 Financial Times subscription Shortly afterward, economist Robert J. Shiller began advocating robust government intervention to tackle the financial crisis, citing Keynes. Robert Shiller: The sub prime solution 2008-11-13 http://video.google.com/videoplay?docid=-3917039793515859476&hl=en Google Video The Subprime Solution: How Today's Global Financial Crisis Happened, and What to Do about It 2008-11-13 http://press.princeton.edu/releases/m8714.html Princeton University Press https://web.archive.org/web/20081013045308/http://press.princeton.edu/releases/m8714.html 2008-10-13 dead Macro economist James K. Galbraith used the 25th Annual Milton Friedman Distinguished Lecture to launch a sweeping attack against the consensus for monetarist economics and argued that Keynesian economics were far more relevant for tackling the emerging crises. http://utip.gov.utexas.edu/papers/CollapseofMonetarismdelivered.pdf The Collapse of Monetarism and the Irrelevance of the New Monetary Consensus. The University of Texas James K. Galbraith 2009-02-28 2009-03-04 https://web.archive.org/web/20090304235939/http://utip.gov.utexas.edu/papers/CollapseofMonetarismdelivered.pdf dead Much discussion among policy makers reflected Keynes's advocacy of international coordination of fiscal or monetary stimulus, and of international economic institutions such as the IMF and World Bank, which he had helped to create at Bretton Woods in 1944, and which many argued should be reformed at a "new Bretton Woods";Donald Markwell, John Maynard Keynes and International Relations: Economic Paths to War and Peace, Oxford University Press, 2006. this was evident at the G20 and APEC meetings in Washington, D.C., and Lima, Peru in November 2008, and in coordinated reductions of interest rates by many countries in November and December 2008. IMF and United Nations economists and political leaders such as British Prime Minister Gordon Brown advocated a coordinated international approach to fiscal stimulus. http://www.timesonline.co.uk/tol/news/uk/article5572215.ece London The Times Philippe Naughton UK recession unlike any other says Gordon Brown 2009-01-23 6 July 2010 September 2024 medicmedic World Bank's President Robert Zoellick advocated that all developed countries pledge 0.7 percent of their stimulus package to a vulnerability fund for assisting developing countries. https://www.nytimes.com/2009/01/23/opinion/23zoellick.html?ref=opinion The New York Times Robert B. Zoellick A Stimulus Package for the World 2009-01-23 6 July 2010 Donald Markwell and others argued that the absence of an effective international approach in the spirit of Keynes would risk a return of economic causes of international conflict, which Keynes had identified back in the 1930s. http://www.trinity.unimelb.edu.au/publications/trinity_papers/paper33 Keynes and International Economic and Political Relations Trinity College (University of Melbourne) Donald Markwell 2009 2009-04-26 Donald Markwell 2011-03-06 https://web.archive.org/web/20110306081030/http://www.trinity.unimelb.edu.au/publications/trinity_papers/paper33/ dead The first nation to announce a substantial fiscal stimulus was Great Britain, with Chancellor Alistair Darling referring to Keynes as he unveiled plans for fiscal stimuli to head off the worst effects of recession. Darling invokes Keynes as he eases spending rules to fight recession 2008-11-13 https://www.theguardian.com/politics/2008/oct/20/economy-recession-treasury-energy-housing The Guardian London Allegra Stratton 2008-10-20 https://web.archive.org/web/20081023063713/http://www.guardian.co.uk/politics/2008/oct/20/economy-recession-treasury-energy-housing 23 October 2008 live These measures were later described by Ed Balls as the first time a postwar British government had been able to meet a recession with a "classic Keynesian response".http://www.labourlist.org/the-growth-deniers---ed-balls-full-speech Ed Balls' Aug 2010 Bloomberg speech Labour Party (UK) Ed Balls 2010-08-27 2010-09-12 https://web.archive.org/web/20100831180516/http://www.labourlist.org/the-growth-deniers---ed-balls-full-speech 31 August 2010 live Ed Balls In his autobiography published in 2011, Darling recounts how his response to the crisis was "influenced hugely by Keynes's thinking, indeed, as were most other governments".Darling 2011 p.177 Darling's stimulus announcement was swiftly followed by a similar declaration from China, and over the next few weeks and months from European countries, the U.S. and other countries across the world.https://www.forbes.com/business/2008/11/09/china-stimulus-economy-biz-cx_pm_1109notes.html China Announces Massive Stimulus Package Forbes.com Paul Maidment 2008-11-11 dead https://web.archive.org/web/20081112053515/http://www.forbes.com/business/2008/11/09/china-stimulus-economy-biz-cx_pm_1109notes.html November 12, 2008 In a speech on 8 January 2009, President-elect Barack Obama unveiled a plan for extensive domestic spending to combat recession, further reflecting Keynesian thinking. The plan was signed by him on 17 February 2009. There had been extensive debate in United States Congress concerning the necessity, adequacy, and likely effects of the package, which was cut from $819 to $787 billion during its passage through the Senate.http://news.bbc.co.uk/1/hi/business/7895078.stm Obama signs $787bn stimulus plan 2009-02-23 BBC 2009-02-17 https://web.archive.org/web/20090221052243/http://news.bbc.co.uk/1/hi/business/7895078.stm February 21, 2009 live https://www.nbcnews.com/id/wbna28891939 https://web.archive.org/web/20090129220005/http://www.msnbc.msn.com/id/28891939 live 2009-01-29 House passes Obama economic stimulus plan msnbc 2008-01-20 thumb|left|President Barack Obama confers with Prime Minister Gordon Brown following the United Nations Security Council meeting in New York in 2009. On 21 January 21, 2010, the Volcker Rule was endorsed by President Obama. It was a proposal by United States economist Paul Volcker to restrict banks from making speculative investments that do not benefit their customers.https://www.washingtonpost.com/wp-dyn/content/article/2010/01/21/AR2010012104935.html Obama's 'Volcker Rule' shifts power away from Geithner David Cho Binyamin Appelbaum January 22, 2010 The Washington Post 13 February 2010 Volcker had argued that such speculative activity played a key role in the recent worldwide financial crisis. Plans for a new $180 billion stimulus plan were announced by Obama in September 2010.https://www.ft.com/content/7ef7e004-bb3a-11df-b3f4-00144feab49a Obama unveils new stimulus plans The Financial Times Anna Fifield 2010-09-08 2010-09-12 https://web.archive.org/web/20100911194911/http://www.ft.com/cms/s/0/7ef7e004-bb3a-11df-b3f4-00144feab49a.html 11 September 2010 live subscription A renewed interest in Keynesian ideas was not limited to Western countries and stimulus plans were a common response to the crisis from nations across the globe. Stimulus packages in Asia were on a par with those in Europe and America. https://www.ft.com/content/7ec7882c-94f3-11df-af3b-00144feab49a Asia's Keynesians take pride in prudence Financial Times 2010-07-21 David Pilling 2010-07-22 https://web.archive.org/web/20100722133601/http://www.ft.com/cms/s/0/7ec7882c-94f3-11df-af3b-00144feab49a.html July 22, 2010 live subscription In a speech delivered in March 2009 entitled Reform the International Monetary System, Zhou Xiaochuan, the governor of the People's Bank of China, revived Keynes's idea of a centrally managed global reserve currency. Dr Zhou argued that it was unfortunate that Keynes's bancor proposal was not accepted at Bretton Woods in the 1940s. He argued that national currencies were unsuitable for use as global reserve currencies as a result of the Triffin dilemma and the difficulty faced by reserve currency issuers in trying to simultaneously achieve their domestic monetary policy goals and meet other countries' demand for reserve currency. Zhou proposed a gradual move towards adopting IMF special drawing rights (SDRs) as a centrally managed global reserve currency.The People's Bank of China—Speeches http://www.pbc.gov.cn/english/detail.asp?col=6500&id=178 https://web.archive.org/web/20090327070907/http://www.pbc.gov.cn/english/detail.asp?col=6500&ID=178 2009-03-27 dead 2009-03-25 Anderlini Jamil https://www.ft.com/content/7851925a-17a2-11de-8c9d-0000779fd2ac China calls for new reserve currency FT.com 2009-03-24 2013-06-04 subscription Zhou's view was echoed in June 2009 by the IMF, https://www.bloomberg.com/apps/news?pid=20601087&sid=aUYeJEwZaQrw IMF Says New Reserve Currency to Replace Dollar Is Possible Bloomberg Alexander Nicholson 2009-06-06 2009-09-18 and in September was described by the Financial Times as the boldest statement of the year to come from China. https://www.ft.com/content/671a76ec-a950-11de-9b7f-00144feabdc0 The dragon stirs The Financial Times Geoff Dyer 2009-08-24 2009-09-18 subscription In a widely read article on dollar hegemony published in Asia Times Online on 11 April 2002, Henry C.K. Liu asserted that "The Keynesian starting point is that full employment is the basis of good economics. It is through full employment at fair wages that all other economic inefficiencies can best be handled, through an accommodating monetary policy." http://www.atimes.com/global-econ/DD11Dj01.html https://web.archive.org/web/20020609150044/http://atimes.com/global-econ/DD11Dj01.html unfit 2002-06-09 US dollar hegemony has got to go Asia Times Online Henry C.K. Liu 2002-04-11 2009-09-18 Liu also advocated denominating Chinese exports in Chinese currency (RMB), as a step to free China from the constraints of excessive reliance on the dollar. http://www.atimes.com/atimes/China_Business/KG02Cb01.html Dollar's future in US hands Asia Times Henry C K Liu 2009-07-02 2010-01-21 http://arquivo.pt/wayback/20091015152758/http://atimes.com/atimes/China_Business/KG02Cb01.html 15 October 2009 unfit http://henryckliu.com/page165.html Shifting China's Export towards the Domestic Market :Breaking Free from Dollar Hegemony henryckliu.com Henry C K Liu 2008-07-29 2010-01-21 Efficacy According to Anatole Kaletsky, Keynesian stimuli were rapidly followed by "revivals of growth in one country after another, roughly in proportion to the size of the various stimulus plans".Kaletsky 2011 235 China was one of the first nations to launch a substantial fiscal stimulus package, estimated at $586 billion spread over two years, https://www.nytimes.com/2008/11/10/world/asia/10china.html?_r=1 China Unveils Sweeping Plan for Economy The New York Times David barboza 2008-11-09 2009-03-14 https://web.archive.org/web/20130520075701/http://www.nytimes.com/2008/11/10/world/asia/10china.html?_r=1 May 20, 2013 live and in February 2009 the Financial Times reported that both government officials and private investors were seeing signs of recovery, such as rises in commodity prices, a 13% rise in the Chinese stock market over a period of 10 days, and a big increase in lending, reflecting the government's success in using state-owned banks to inject liquidity into the real economy. https://www.ft.com/content/a0797dc8-f7dc-11dd-a284-000077b07658 China strains to see light at end of the tunnel The Financial Times Geoff Dyer 2009-02-12 subscription Reviewing events from 2010, economics commentator John Authers found that the stimulus and associated expansionary monetary policy had a dramatic effect in reviving the Chinese economy. The Shanghai index had been falling sharply since the September 2008 bankruptcy of Lehman Brothers, but the decline was halted when news of the planned stimulus leaked in late October. The day after the stimulus was officially announced, the Shanghai index immediately rose by 7.3%, followed by sustained growth.Authers 2010 p. 159-166 Speaking at the 2010 Summer Davos, Premier Wen Jiabao also credited the stimulus for good performance of the Chinese economy over the past two years. https://www.ft.com/content/a1df57c0-c5b5-11df-ab48-00144feab49a Wen is right to worry about China's growth The Financial Times Martin Wolf 2010-09-21 2010-09-23 https://web.archive.org/web/20100924182729/http://www.ft.com/cms/s/0/a1df57c0-c5b5-11df-ab48-00144feab49a.html September 24, 2010 live Martin Wolf subscription As late as April 2009, central bankers and finance ministers remained cautious about the overall global economy; by May, the Financial Times was reporting that according to a package of leading indicators there were signs that recovery was imminent in Europe too, after a trough in March. The United States was one of the last major economies to implement a major stimulus plan, and the slowdown there looked set to continue for at least a few more months.https://www.ft.com/content/03d19fd6-3e2d-11de-9a6c-00144feabdc0 Downturn bottomed out, Trichet signals The Financial Times Chris Giles Daniel Pimlott Ralph Atkins May 11, 2009 2009-05-19 subscription There was also a rise in business and consumer confidence across most of Europe, and especially in the emerging economies such as Brazil, Russia and India.https://www.ft.com/content/633c34c4-3da4-11de-a85e-00144feabdc0 Services sector starts to feel more confident The Financial Times Chris Giles May 10, 2009 2009-05-19 https://web.archive.org/web/20110208031413/http://www.ft.com/cms/s/0/633c34c4-3da4-11de-a85e-00144feabdc0.html February 8, 2011 live subscription In June, the Organisation for Economic Co-operation and Development (OECD) reported improvements in global economic outlook, with an overall growth forecast for 2010. The OECD gave the credit to stimulus plans, which they warned should not be rolled back too swiftly. https://www.ft.com/content/115a3408-602c-11de-a09b-00144feabdc0 OECD foresees end to global slide The Financial Times Norma Cohen 2009-06-24 2009-06-26 https://web.archive.org/web/20090626224909/http://www.ft.com/cms/s/0/115a3408-602c-11de-a09b-00144feabdc0.html June 26, 2009 live subscription The IMF also reported a better than expected global economic outlook in July, though warning that the recovery is likely to be slow. They credited the "unprecedented" global policy response and echoed the OECD in urging leaders to avoid complacency and not to unwind recession fighting fiscal and monetary policies too soon.https://www.ft.com/content/4e8677f0-6bc2-11de-9320-00144feabdc0 IMF says world is pulling out of recession The Financial Times Krishna Guha Sarah O'Connor Michael Mackenzie 2009-07-08 2009-07-09 https://web.archive.org/web/20090814012809/http://www.ft.com/cms/s/0/4e8677f0-6bc2-11de-9320-00144feabdc0.html August 14, 2009 live subscriptionhttp://www.imf.org/external/pubs/ft/survey/so/2009/RES070809A.htm Recession Loosens Grip But Weak Recovery Ahead International Monetary Fund 2009-07-08 2009-07-09 https://web.archive.org/web/20090711115334/http://www.imf.org/external/pubs/ft/survey/so/2009/RES070809A.htm 2009-07-11 live In a widely syndicated article published in August 2009, Paul Krugman announced that the world had been saved from the threat of a second great depression, thanks to "Big Government". https://www.nytimes.com/2009/08/10/opinion/10krugman.html Averting the Worst The New York Times Paul krugman 2009-08-09 2009-09-18 The United States economy emerged from recession in the third quarter of 2009, which the Financial Times credited to the stimulus measures. https://www.ft.com/content/16073bb0-c47f-11de-912e-00144feab49a US economy grows by 3.5% Financial Times 2009-10-29 2009-10-30 https://web.archive.org/web/20091031101331/http://www.ft.com/cms/s/0/16073bb0-c47f-11de-912e-00144feab49a.html October 31, 2009 live subscription In November, the managing director of the IMF Dominique Strauss-Kahn repeated the warning against terminating the stimulus measures too soon. The Financial Times reported that significant differences had emerged even within Europe, with senior members of the European Central Bank expressing concern about the risk of delaying the exit for too long. https://www.ft.com/content/d6be81e8-d81a-11de-8b04-00144feabdc0 Divisions emerge on stimulus strategy Financial Times 2009-11-24 Brian Groom Ralph Atkins Tom Braithwaite 2009-11-25 subscription On 8 December 2009, President Obama unveiled what the Financial Times described as a "second stimulus plan" for additional job creation https://www.ft.com/content/afef8ad4-e42d-11de-bed0-00144feab49a Obama redirects funds to help jobless The Financial Times Edward Luce 2009-12-08 2009-12-11 subscription using approximately $200 billion of unused funds that had been pre-approved for the Troubled Asset Relief Program. In the same speech he expressed the view that the initial stimulus had already saved or created 1.6 million jobs. https://www.ft.com/content/0875d7a4-e414-11de-bed0-00144feab49a Speech: Obama on jobs and growth The Financial Times Barack Obama 2009-12-08 2009-12-11 https://web.archive.org/web/20091214183733/http://www.ft.com/cms/s/0/0875d7a4-e414-11de-bed0-00144feab49a.html December 14, 2009 live Barack Obama subscription In an article looking back at 2009, economist Arvind Subramanian wrote in the Financial Times that economics had helped to redeem itself by providing advice for the policy responses that successfully prevented a global slide into depression, with the fiscal policy stimulus measures taking their "cue from Keynes". https://www.ft.com/content/0875d7a4-e414-11de-bed0-00144feab49a How economics managed to make amends The Financial Times Arvind Subramanian 2009-12-27 2010-01-03 https://web.archive.org/web/20091214183733/http://www.ft.com/cms/s/0/0875d7a4-e414-11de-bed0-00144feab49a.html December 14, 2009 live subscription In July 2010, economics journalist Robin Harding wrote for the Financial Times that most American economists are in agreement regarding the large influence of the United States stimulus on the economy, although he mentioned high-profile dissenters such as Robert Barro and John B. Taylor. https://www.ft.com/content/b026f36a-98ce-11df-9418-00144feab49a Economists dispute effect of US stimulus The Financial Times Robin Harding 2009-07-26 2010-07-27 https://web.archive.org/web/20100727112818/http://www.ft.com/cms/s/0/b026f36a-98ce-11df-9418-00144feab49a.html 27 July 2010 live subscription Barro's arguments against the effectiveness of the stimulus have been addressed by Keynesian economics professor J. Bradford DeLong. http://www.project-syndicate.org/commentary/delong99/English Is Fiscal Stimulus Pointless? Project Syndicate Brad Delong 2010-02-26 2010-07-27 J. Bradford DeLong A July 2010 paper by Moody's Investors Service's chief economist Mark Zandl and former Federal Reserve Vice Chairman Alan Blinder predicted that the United States recession would have been far worse without the government intervention. They calculate that in the absence of both a monetary and fiscal response, unemployment would have peaked at about 16.5% instead of about 10%, the peak to trough GDP decline would have been about 12% instead of 4%. Despite the lack of deficit spending, without the intervention the 2010 and 2011 United States federal budget deficit was forecast to be almost two times larger, due to the predicted collapse of tax receipts. http://www.economy.com/mark-zandi/documents/End-of-Great-Recession.pdf How the Great Recession Was Brought to an End Moody's Alan Blinder Mark Zandl 4 July 2010 2010-09-01 https://web.archive.org/web/20100828082926/http://www.economy.com/mark-zandi/documents/End-of-Great-Recession.pdf 28 August 2010 live Alan Blinder In August 2010, a report from the non-partisan Congressional Budget Office found the United States stimulus to have boosted growth by as much as 4.5%. House of Representatives Minority Leader John Boehner expressed skepticism about the report's accuracy. https://www.ft.com/content/e99a3cfc-afcf-11df-b45b-00144feabdc0 US stimulus boosted growth by up to 4.5% The Financial Times James Politi Robin Harding 2010-08-24 2010-08-26 https://web.archive.org/web/20100826035547/http://www.ft.com/cms/s/0/e99a3cfc-afcf-11df-b45b-00144feabdc0.html 26 August 2010 live subscription In March 2011, citing studies on the effectiveness of fiscal stimulus from several dozen economists and international bodies, David Romer told the IMF that "we should view the question of whether fiscal stimulus is effective as settled." http://www.imf.org/external/np/seminars/eng/2011/res/pdf/DR3presentation.pdf What Have We Learned about Fiscal Policy from the Crisis? International Monetary Fund David Romer 2011-03-03 2012-05-18 David Romer Calls for further extensions In 2009, there were several books published by economists advocating a further shift towards Keynesian thinking. The authors advocated further reform in academic economics,Skidelsky 2009 passim, esp 188–190Davidson 2009 p. 29–45, 179 Akerlof 2009 passim, esp p. 1–7 policy making,Skidelsky 2009 passim, esp 168 – 187Akerlof 2009 passim, esp p. vii – xiv Davidson 2009 passim, esp p 14–20, 134–151, 179 and even the public's general ethics.Skidelsky 2009 passim, esp p. 133–154 Theoretical arguments regarding the relative merits of free market versus mixed economy policies do not always yield a clear conclusion. In his 2009 book Keynes: The Return of the Master, economic historian Lord Skidelsky has a chapter comparing the performance of the world economy between the "golden age" period of 1951–1973, when Keynesian policies were dominant, with the Washington Consensus period of 1981–2008, when free market policies were adopted by leading governments. Samuel Brittan of the Financial Times called this part of the book the key chapter for the practically inclined reader. https://www.ft.com/content/6a053a56-8de2-11de-93df-00144feabdc0 The key to Keynes The Financial Times Samuel Brittan 2009-08-22 2009-09-18 https://web.archive.org/web/20091015072059/http://www.ft.com/cms/s/2/6a053a56-8de2-11de-93df-00144feabdc0.html 15 October 2009 live Samuel Brittan subscription Using data from the IMF, Skidelsky finds superior economic performance on a whole range of metrics, except for inflation where he says there was no significant difference.Skidelsky 2009 p 116–126 Metric Golden age period Washington Consensus periodAverage global growth 4.8% 3.2%Average global inflation3.9% 3.2%Average unemployment (US) 4.8% 6.1%Average unemployment (France)1.2%9.5%Average unemployment (Germany) 3.1% 7.5%Average unemployment (Great Britain) 1.6% 7.4% Skidelsky suggests the high global growth during the golden age was especially impressive given that during that period Japan was the only major Asian economy enjoying high growth; the exceptional growth of China and other Asian emerging economies, raising the global average, happened later.Skidelsky 2009 p. 116–126 He also comments that the golden age, compared with other periods, was substantially more stable. Martin Wolf found that in 1945–1971 (27 years) the world saw only 38 financial crises, whereas in 1973–1997 (24 years) there were 139.Wolf 2009 p. 31 Skidelsky also reports that inequality was generally decreasing during the golden age, whereas since the Washington Consensus was formed it has been increasing. He notes that South America has been an exception to the general rise in inequality; since the late 1990s, inequality has been falling there, which James K. Galbraith explains as likely due to the region's early "retreat from neoliberal orthodoxy".Skidelsky 2009 p. 123 In his 2009 book The Keynes Solution, post-Keynesian economist Paul Davidson makes another historical case for the effectiveness of Keynesian policy, referring to the experience of the United States during the Great Depression. He notes how economic growth and employment levels increased for four successive years as the New Deal policies were pursued by President Roosevelt. When government spending was cut back in 1937 due to concerns about the budget deficit, all the gains were lost in one year, and growth only resumed after spending increased again from 1938, as a response to growing acceptance of deficit spending in a recession and later due to World War II. For Davidson, this experience validates the view that Keynesian policy has the power to deliver full employment and prosperity for a government's entire labor force.Davidson 2009 p. 18-19 Davidson also wrote that both price stability and employment in the Keynesian age were superior even to the classical gold standard era that was terminated by World War I. http://www.paecon.net/CRASH-1.pdf Reforming the world's international money Paul Davidson Real-World Economics Review 2010-03-01 On 8 November 2008, Paul Davidson and Henry C.K. Liu co-authored an open letter to world leaders attending the November 15 White House summit on financial markets and world economy, urging reconsideration of Keynes' analytical system that contributed to the golden age of the first quarter century after World War II. The letter, signed by many supporting economists, advocates a new international financial architecture based on an updated 21st century version of the Keynes Plan originally proposed at Bretton Woods in 1944. The letter ends by describing this new international financial architecture as aiming to create (1) a new global monetary regime that operates without currency hegemony, (2) global trade relationships that support rather than retard domestic development and (3) a global economic environment that promotes incentives for each nation to promote full employment and raise wages for its labor force. http://atimes.com/atimes/Global_Economy/JK08Dj06.html https://web.archive.org/web/20081219132304/http://www.atimes.com/atimes/Global_Economy/JK08Dj06.html unfit 2008-12-19 open letter: the way forward Asia Times Online Paul Davidson Henry Liu 2008-11-08 2009-09-18 In academia A marked shift towards Keynesian thinking took place among prominent economists. Some, such as Paul Krugman, James Galbraith and Brad Delong, were already Keynesians but in 2008 began to get considerably more attention for their advocacy of Keynesian policy. Others, such as Richard Posner and Martin Feldstein, had previously been associated with anti-Keynesian thinking, yet by 2009 publicly converted to Keynesian economics, which made considerable impact on other economists. http://www.tnr.com/article/how-i-became-keynesian How I Became a Keynesian The New Republic Richard Posner 2009-09-23 2012-05-18 Richard Posner Posner's 2009 book, A Failure of Capitalism, was a critique of laissez-faire capitalism and its ideologues."Seven questions for Richard Posner," Interview with Richard Posner, The Economist, 6 June 2009, found at The Economist website. Accessed September 30, 2013. This shift towards Keynesian thinking was widely shared by many politically active economists across the world. In the years leading up to the resurgence, Germany had been home to some of the most outspoken critics of Keynesianism, yet according to economist Sebastian Dullien writing in December 2008, "important voices in the German economic profession are now calling for a large stimulus package, passed as quickly as possible". http://www.euro-area.org/blog/?p=157 German economists have to take some blame for Merkel's slow reaction Eurozone Watch Sebastian Dullien 2008-12-03 2012-05-18 https://web.archive.org/web/20110920195438/http://www.euro-area.org/blog/?p=157 2011-09-20 dead The New York Times reported that in the March 2008 annual meeting of the American Economic Association, economists had remained hostile or at least sceptical about the government’s role in enhancing the market sector or mitigating recession with fiscal stimulus. But already during the January 2009 meeting virtually everyone voiced their support for such measures. https://www.nytimes.com/2009/01/07/business/economy/07spend.html?_r=2&ref=economy Economists Warm to Government Spending but Debate Its Form The New York Times Louis Uchitelle Louis Uchitelle 2009-03-11 2009-01-07 There were a few high-profile known dissenter economists, such as Robert Barro and Eugene Fama, but in 2008 and early 2009 their objections had little influence on the mainstream debate. A dissenter from Germany had been Stefan Homburg, who in January 2009 complained "I simply cannot understand how so many economics professors have done a complete U-turn. Have they all gone mad?" http://www.spiegel.de/spiegel/print/d-63806924.html Have all gone mad? de Der Spiegel Alexander Von Neubacher Michael Sauga 2009-01-26 2012-05-18 Among the less publicly prominent economists, who tend to debate only with their fellows and write mainly in technical journals, a substantial shift in opinion was less obvious. Speaking in March 2009, Galbraith stated that he had not detected any changes among academic economists, nor a re-examination of orthodox opinion in the journals. https://www.nytimes.com/2009/03/05/books/05deba.html?ref=books Ivory Tower Unswayed by Crashing Economy The New York Times Patricia cohen 2009-03-14 2009-03-05 https://web.archive.org/web/20131018060708/http://www.nytimes.com/2009/03/05/books/05deba.html?ref=books October 18, 2013 live Until 2008, the consensus among most mainstream economists was that fiscal stimulus did not work. New Keynesians and New Classical economists had previously agreed monetary policy was sufficient for most downturns and the two schools of thought debated only technicalities. The extent of the recession made the New Keynesians re-evaluate the potential of large stimulus, and their debates with New Classical economists, who often opposed stimulus entirely, became substantive. Some economists (primarily post-Keynesians) accused the New Keynesian system of being so integrated with pro-free market neo-classical influences that the label 'Keynesian' in this case could be considered a misnomer. Rotheim Roy New Keynesian Economics/post Keynesian Alternatives 1998 passim, esp forward viii Routledge The 2008 financial crisis has led economists to pay greater attention to Keynes's original theories. In February 2009, Robert Shiller and George Akerlof argued in their book Animal Spirits that the current United States stimulus package was too small, because it did not take into account loss of confidence or do enough to restore the availability of credit. In a September 2009 article for The New York Times, on the lessons economists should learn from the crisis, Krugman urged economists to move away from neoclassical models and employ Keynesian analysis, writing: https://www.nytimes.com/2009/09/06/magazine/06Economic-t.html?_r=3&pagewanted=all How Did Economists Get It So Wrong? The New York Times Paul krugman 2009-09-02 2009-09-11 So here's what I think economists have to do. First, they have to face up to the inconvenient reality that financial markets fall far short of perfection, that they are subject to extraordinary delusions and the madness of crowds. Second, they have to admit ... that Keynesian economics remains the best framework we have for making sense of recessions and depressions. Third, they'll have to do their best to incorporate the realities of finance into macroeconomics. By mid-2010, interest in Keynes' ideas was still growing within academia, even though the apparent consensus among prominent economists had fractured and the revival in Keynesian policy making had to some degree stalled. https://www.ft.com/content/c0074548-9b47-11df-baaf-00144feab49a Three years on, the markets are masters again The Financial Times Philip Stephens 2010-07-29 2010-07-30 https://web.archive.org/web/20100730202524/http://www.ft.com/cms/s/0/c0074548-9b47-11df-baaf-00144feab49a.html 30 July 2010 live subscriptionBateman 2010 passim, esp. p.225 In October 2011, journalist John Cassidy noted the large number of new books that had recently come out about Keynes, including from leading universities such as Cambridge and MIT, with more books due to come out towards the end of that year.http://www.newyorker.com/reporting/2011/10/10/111010fa_fact_cassidy The Demand Doctor The New Yorker John Cassidy 2011-10-10 2011-10-10 John Cassidy (journalist) Criticism Keynesian ideas also attracted considerable criticism in this time period. While from late 2008 to early 2010 there was broad consensus among international leaders concerning the need for coordinated stimulus, the German administration initially stood out in their reluctance to fully embrace Keynesian policy. In December 2008, Finance Minister Peer Steinbrück of Germany criticised Gordon Brown's advocacy of Keynesian stimulus, saying "The switch from decades of supply-side politics all the way to a crass Keynesianism is breathtaking." https://www.ft.com/content/22e7ed04-c6f9-11dd-97a5-000077b07658 Berlin hits out at 'crass' UK strategy The Financial Times George Parker Bertrand Benoit 2008-10-23 2012-05-18 By the end of January 2009, Germany had announced a second stimulus plan which, relative to GDP, was larger than Britain's.https://www.ft.com/content/42660b7a-e111-11dd-b0e8-000077b07658 Germany starts to look stimulating Financial times 2009-01-22 subscription George Osborne, at the time shadow British chancellor, opposed a return to Keynesian policy from as early as October 2008, saying "even a modest dose of Keynesian spending" could act as a "cruise missile aimed at the heart of recovery." http://www.economy.com/mark-zandi/documents/End-of-Great-Recession.pdf George Osborne: Recovery through fiscal responsibility Conservative Party (UK) George Osborne 2008-10-31 2011-10-10 George Osborne Critics argued that Keynesian policy would be counter-productive for the reasons of being inflationary, creating more income disparity, and causing consumers to rein in their spending even more as they anticipated future tax increases.http://www.adamsmith.org/think-piece/economy/how-to-promote-the-free-market-in-2009/ How to promote the free market in 2009 The Adam Smith Institute Tom Clougherty 2010-10-14 June 2023 InternetArchiveBot yes http://www.campaignforliberty.com/article.php?view=15 Tooth Fairy Economics Campaign for Liberty Tom Woods 2009-03-11 https://web.archive.org/web/20090418085049/http://www.campaignforliberty.com/article.php?view=15 2009-04-18 live In 2009, more than 300 professional economists, led by three Nobel laureates in economics, James M. Buchanan, Edward C. Prescott, and Vernon L. Smith, signed a statement against more government spending, arguing that "Lower tax rates and a reduction in the burden of government are the best ways of using fiscal policy to boost growth."Petition http://www.cato.org/special/stimulus09/alternate_version.html https://web.archive.org/web/20091011133046/http://www.cato.org/special/stimulus09/alternate_version.html 2009-10-11 dead 2009-09-22 Robert Barro, an economics professor at Harvard University (author of the 1974 Ricardian equivalence hypothesis postulating that government stimuli are inefficient in a perfect market), argued that the United States stimulus spending might be unwise because of one of the factors the American Recovery and Reinvestment Act of 2009 depended on for its effectiveness, the "multiplier effect"; the fiscal multiplier, required to be over the value of one for the effect to take place, was in practice close to zero, not 1.5, as he said the Obama team were assuming, which means the extra employment generated by the stimulus would be cancelled out by less output and investment in the private sector.https://www.wsj.com/articles/SB123258618204604599 Spending Is No Free Lunch The Wall Street Journal Robert J. Barro 2009-01-22 2009-09-22 https://web.archive.org/web/20090917113436/http://online.wsj.com/article/SB123258618204604599.html 2009-09-17 live Robert J. Barro Barro, Robert J. (2009) "Demand Side Voodoo Economics," The Economists' Voice: Vol. 6 : Iss. 2, Article 5. Accessed 2009-09-22. Archived 2009-09-26. A group of German economists had also argued that the size of the multiplier effect was overestimated,http://www.volkerwieland.com/docs/CCTW%20Mar%202.pdf New Keynesian versus Old Keynesian Government Spending Multipliers Goethe University Frankfurt John F. Cogan Tobias Cwik John B. Taylor Volker Wieland February 2009 2009-09-18 https://web.archive.org/web/20090407083851/http://www.volkerwieland.com/docs/CCTW%20Mar%202.pdf 2009-04-07 dead while the Memorandum Group of German Economics Professors claimed the opposite and demanded a larger stimulus.Wirtschaftspolitik, Arbeitsgruppe Alternative. Memorandum 2010: Sozial-ökologische Regulierung statt Sparpolitik und Steuergeschenken. 1. Aufl. Papyrossa Verlagsgesellschaft, 2010. Economist Edward Prescott (author of the real business-cycle model that post-Keynesians hold failed to forecast the crisis)Skidelsky, Robert. Keynes: The Return of the Master. 1. Aufl. PublicAffairs, 2009. http://www.theweek.com/article/index/93473/The_selfdefeating_stimulus The self-defeating stimulus The Week Will Wilkinson 2009-02-20 2009-10-05 2014-03-31 https://web.archive.org/web/20140331235608/http://theweek.com/article/index/93473/The_selfdefeating_stimulus dead and economist Eugene Fama argued that stimulus plans are unlikely to have a net positive effect on employment, and may even harm it. Economist Jeffrey Sachs doubted a positive effect because the stimulus and associated policies "may work in the short term but they threaten to produce still greater crises within a few years". http://www.scientificamerican.com/article.cfm?id=the-need-for-stable-policies The Economic Need for Stable Policies, Not a Stimulus Scientific American Jeffery Sachs March 2009 2009-09-18 Jeffery Sachs In a June 2010 article, referring to the cooling of enthusiasm for further stimulus found among policy makers at the 2010 G-20 Toronto summit, Sachs declared that Keynesian economics is facing its "last hurrah". https://www.ft.com/content/24a4c72c-7295-11df-9f82-00144feabdc0 It is time to plan for the world after Keynes Financial Times 2010-06-09 Jeffrey Sachs 2010-07-22 https://web.archive.org/web/20100629050508/http://www.ft.com/cms/s/0/24a4c72c-7295-11df-9f82-00144feabdc0.html 29 June 2010 live Jeffrey Sachs subscription There have also been arguments that the Great Recession of the early 21st century was caused not by excessively free markets but by the remnants of Keynesian policy.http://www.hawaiireporter.com/story.aspx?e6d31da4-0cd9-4587-a557-f4d3eb52292d The Free-Market Hasn't Failed Us, Keynesian Economics Has Hawaii Reporter Chad Crosier 2009-06-24 https://archive.today/20090724144856/http://www.hawaiireporter.com/story.aspx?e6d31da4-0cd9-4587-a557-f4d3eb52292d 2009-07-24 live Luigi Zingales of the University of Chicago argued that "Keynesianism is just a convenient ideology to hide corruption and political patronage". http://www.economist.com/debate/days/view/283 Economist Debates – Keynesian principles The Economist 2009-02-20 2010-08-25 In February 2009, Alan Reynolds, senior fellow at the Cato Institute, acknowledged the Keynesian resurgence but stated that evidence from various studies suggest Keynesian remedies will be ineffective and Keynesian advocates appear to be driven by blind faith.http://www.cato.org/pub_display.php?pub_id=9915 Faith-Based Economics Cato Institute and National Review 2009-10-04 Alan Reynolds https://web.archive.org/web/20091011132923/http://www.cato.org/pub_display.php?pub_id=9915 2009-10-11 live In 2009, historian Thomas Woods, an adherent to the Austrian school of economics, published the book Meltdown, which places blame for the crisis on government intervention and points to the Federal Reserve as the primary culprit behind the financial calamity.Woods 2009 passim Professor John Bellamy Foster, a sociologist, questioned whether the resurgence had been truly Keynesian in character. He suggested those few economists he regards as genuinely progressive, such as James Galbraith, were now far from the centre of government. He also asserted that it is Karl Marx, not Keynes, that society should look to for a full solution to economic problems. http://www.countercurrents.org/ashley200309.htm Keynes, Capitalism, And The Crisis Counter Currents John Bellamy Foster 2009-03-20 2009-09-23 John Bellamy Foster Aftermath: 2010 and later According to Henry Farrell and John Quiggin, the previous apparent consensus for Keynesian policy among prominent economists by late 2009 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 attracting wider attention, in part to the intervention of elite economists who had previously kept out of the debate, specifically from the ECB but also others, including Jeffery Sachs. The lack of consensus among expert opinion made policy makers vulnerable to calls for abandonment of Keynesian policy in favour of fiscal consolidation. Johannes Lindvall The Real but Limited Influence of Expert Ideas World Politics 61 4 703–730 2009 http://journals.cambridge.org/action/displayAbstract 10.1017/S0043887109990104 154775777 subscription In April 2010, a communiqué from the Washington meeting of finance ministers called for continuation of the stimulus policies until the recovery is firmly entrenched with strong private sector activity, though it accepted that some countries had already begun to exit from the 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 debt crisis and the displacement in Britain of the Labour government with a coalition dominated by the Conservatives after the May 2010 elections. While some high level officials, particularly from the United States and India, 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. 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. https://www.ft.com/content/e9cb181a-71ca-11df-8eec-00144feabdc0 Group scraps stimulus plans The Financial Times Chris Giles Christian Oliver 2010-06-07 2010-07-30 subscription European political leaders embarked on substantial austerity drives. In July 2010, leading European economic policy maker Jean-Claude Trichet, president of the ECB, stated that it was time for all industrial nations to stop stimulating and start tightening.https://www.ft.com/content/1b3ae97e-95c6-11df-b5ad-00144feab49a Stimulate no more – it is now time for all to tighten The Financial Times Jean-Claude Trichet 2010-07-22 2010-07-30 https://web.archive.org/web/20100725170608/http://www.ft.com/cms/s/0/1b3ae97e-95c6-11df-b5ad-00144feab49a.html July 25, 2010 live subscription Jean-Claude Trichet Keynesian economists and Keynes biographer Lord Skidelsky contested the move to implement cuts given the still fragile economy. https://www.ft.com/content/307056f8-99ae-11df-a852-00144feab49a Future generations will curse us for cutting in a slump The Financial Times Robert Skidelsky Michael Kennedy 2010-07-27 2010-07-30 https://web.archive.org/web/20100730113457/http://www.ft.com/cms/s/0/307056f8-99ae-11df-a852-00144feab49a.html 30 July 2010 live https://www.ft.com/content/9e39c8d2-9642-11df-96a2-00144feab49a Trichet rejects the counsels of history The Financial Times Brad DeLong 2010-07-23 2010-07-30 https://web.archive.org/web/20100725114746/http://www.ft.com/cms/s/0/9e39c8d2-9642-11df-96a2-00144feab49a.html July 25, 2010 live Brad DeLong subscription In a July 2010 article, Financial Times columnist Philip Stephens argued that recent events show the markets to 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. http://theweek.com/bullpen/column/204665/keynes--co-have-lost-the-stimulus-argument Keynes & Co. have lost the stimulus argument The Week Brad DeLong 2010-07-06 2012-05-18 Brad DeLong 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 and later spreading to Europe. He also stated it is likely that ideological wars between rival economic world views have returned for good. http://www.politicalinsightmagazine.com/?p=593 The Backlash against the State Political Insight magazine Patrick Dunleavy 2011-04-04 2011-12-30 Patrick Dunleavy 2012-05-02 https://web.archive.org/web/20120502204459/http://www.politicalinsightmagazine.com/?p=593 dead In September, Steven Rattner opined that the 2012 United States presidential election was shaping up to be a contest between the economic policies of Keynes and Friedrich Hayek, or "a clash of ideologies the likes of which America has not seen in decades." Republican candidates openly praised Hayek and Ludwig von Mises. According to Rattner, while the Democrats economic strategy remained largely based on Keynes, the economist's name was now rarely mentioned; Keynes had become an almost politically toxic word due to the extensive criticism of the 2009 Keynesian stimulus. Rattner refers to the work of Alan Blinder and Mark Zandi, which determined that the 2009 United States stimulus saved about 8.5 million jobs, and with Obama's third stimulus, a $450 billion Jobs plan was projected to create 1.9 million jobs in 2012. https://www.ft.com/content/0cebaa1a-dd47-11e0-b4f2-00144feabdc0 The 2012 rivals can be named: Hayek v Keynes The Financial Times Steven Rattner 2012-09-12 2012-09-13 Steven Rattner subscription https://www.ft.com/content/4355f236-dccf-11e0-8654-00144feabdc0 Obama sends jobs plan to Congress The Financial Times Stephanie Kirchgaessner 2012-09-12 2012-09-13 subscription 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 did not at that time have the capability to launch a substantial stimulus program. German Chancellor Angela Merkel rejected the idea of further stimulus. https://www.wsj.com/article/BT-CO-20110928-704066.html EU Barroso Calls For Use Of Fiscal Policy To Boost Growth The Wall Street Journal Alessandro Torello 2011-09-28 2011-10-10June 2023 InternetArchiveBot yes By November 2011, efforts to pass Obama's American Jobs Act had been rejected by the United States Congress. https://www.ft.com/content/62e77a48-146a-11e1-8367-00144feabdc0 Gridlock fears as US deficit talks fail The Financial Times Richard McGregor James Politi Anna Fifield Michael MacKenzie 2012-11-22 2012-11-22 subscription In Britain, David Cameron made a speech in which he recognized a deteriorating economic outlook but said those arguing for traditional fiscal stimulus were "dangerously wrong". https://www.ft.com/content/1e5e001a-1463-11e1-8367-00144feabdc0 Tackling UK deficit behind schedule The Financial Times George Parker Chris Giles 2012-11-21 2012-11-22 subscription Simon Cox, Asia economics editor for The Economist, predicted that while China might face future economic challenges, the incoming leaders expected to take over the top positions in late 2012 ( Xi Jinping and Li Keqiang ) were far less likely than their predecessor to respond with Keynesian policies.https://www.economist.com/news/2011/11/17/keynes-v-hayek-in-china Keynes v Hayek in China The Economist Simon Cox 2011-11-17 2012-01-11 Also in November, The Courageous State book 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.Murphy 2011 passim Influential figures that had come out against Keynesian policy, even from left of center politics, include the UK Labour Party's Maurice Glasman, whose favorite economist is Hayek,Davis 2011 xi, 55, 200 http://www.newstatesman.com/blogs/the-staggers/2012/01/labour-balls-miliband-glasman Ed Miliband cannot be radical and cautious at the same time New Statesman Rowenna Davis 2012-01-08 2012-01-11 Rowenna Davis and the diplomat Carne Ross, who asserted that no form of centralized authority can meet the problems of the modern world, arguing for an anti-statist form of participatory democracy instead.Ross 2011 passim, esp. chpt 3 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. https://www.ft.com/content/36297676-413f-11e1-8c33-00144feab49a Leaders who generate diminishing returns Financial Times Philip Stephens 2012-01-18 2012-01-19 subscription 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. https://krugman.blogs.nytimes.com/2012/03/23/the-macro-wars-are-not-over/ The Macro Wars Are Not Over The New York Times Paul Krugman 2012-03-23 2012-05-18 Paul Krugman In May, Krugman published the 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. https://www.ft.com/content/285bfaec-9a8a-11e1-83bf-00144feabdc0 Austerity bites The Financial Times Robin Harding 2012-05-12 2012-07-11 subscription In June, Krugman and Richard Layard launched A manifesto for economic sense, where they call for greater use of stimulatory fiscal policy to reduce unemployment and boost growth. http://www.manifestoforeconomicsense.org/ A Manifesto for Economic Sense Paul Krugman Richard Layard Richard Layard 2012-06-27 2012-07-11 2012-07-12 https://web.archive.org/web/20120712083509/http://www.manifestoforeconomicsense.org/ dead By mid-2012, with the ongoing Euro crisis and persistent high unemployment in the US, there had been renewed consideration of stimulus policies by European and American policy makers but 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. https://www.ft.com/content/c6bf0b72-a1b8-11e1-a22e-00144feabdc0 G8 splits over stimulus versus austerity The Financial Times Richard McGregor Kiran Stacey 2012-05-19 2012-05-21 subscription In January 2013, Japan's recently elected conservative government announced a ten trillion yen Keynesian stimulus package, which was to include public works and create an expected 600,000 new jobs. https://www.ft.com/content/a165b562-5b92-11e2-9d4c-00144feab49a Japan unveils Y10.3tn stimulus package The Financial Times Michiyo Nakamoto 2013-01-11 2013-01-11 subscriptionhttps://www.forbes.com/sites/stephenharner/2012/12/16/after-a-landslide-election-victory-japans-conservatives-to-pursue-keynesian-stimulus-to-boost-the-economy-and-strengthening-of-the-u-s-japan-alliance-vis-a-vis-china/ After a Landslide Election Victory, Japan's Conservatives to Pursue Keynesian Stimulus to Boost the Economy Forbes Stephen Harner 2012-12-16 2013-01-11 At the same time, the Financial Times published Wolfgang Münchau's article "US joins misguided pursuit of austerity", as the United States was abandoning the relatively stimulatory policy it had adopted prior to 2013, repeating, in the author's view, Europe's mistake. https://www.ft.com/content/65bc5798-55be-11e2-9aa1-00144feab49a US joins misguided pursuit of austerity The Financial Times Wolfgang Münchau 2013-01-06 2013-01-11 subscription In July 2013, Philip Mirowski wrote that not only had the Keynesian resurgence subsided but the rival economic orientation of neoliberalism had emerged from the financial crisis stronger than ever. Philip Mirowski Never Let a Serious Crisis Go to Waste: How Neoliberalism Survived the Financial Meltdown 2014 passim, see esp. pp. 1–26, 178, 229, 277–285, 325, 326 Verso 978-1781680797 Philip Mirowski In May 2016, three IMF economists published new research findings and criticized some of the fundamental assumptions of the neoliberal doctrine. They warned that austerity policies could do more harm than good because of their social costs, such as increased inequality, which "in turn hurts the level and sustainability of growth". Speaking of capital account liberalization, that is unrestricted movement of capital across international borders ("openness") and fiscal consolidation, meaning policies to reduce fiscal deficits and debt levels ("austerity"), they wrote: "Since both openness and austerity are associated with increasing income inequality, this distributional effect sets up an adverse feedback loop. The increase in inequality engendered by financial openness and austerity might itself undercut growth, the very thing that the neoliberal agenda is intent on boosting. There is now strong evidence that inequality can significantly lower both the level and the durability of growth".http://www.imf.org/external/pubs/ft/fandd/2016/06/ostry.htm International Monetary Fund, Finance & Development June 2016 2016-06-01 Jonathan D. Ostry Prakash Loungani Davide Furceri Neoliberalism: Oversold? Additionally, they recommended actively combating inequality by redistributing wealth via taxes and government spending, noting "the evidence of the economic damage from inequality suggests that policymakers should be more open to redistribution than they are" and "the fear that such policies will themselves necessarily hurt growth is unfounded". By October 2016, there had been recent increases in fiscal stimulus for many countries, along with calls for this return to fiscal stimulus and demand management policies to increase further, or at least for further research into clarifying the scope for such policies to be effective. Among these who made such calls were the IMF, Janet Yellen, and senior White House economist Jason Furman. While some economists and government policy makers remain sceptical, Martin Sandbu for the Financial Times said a return to Keynes original positive views about demand management is underway. Sandbu calls this "paleo-Keynesianism" to differentiate from "new Keynesianism" thinking which had relatively little to say in favour of state intervention in the economy. https://www.ft.com/content/c68ce798-99cd-11e6-b8c6-568a43813464 The return of Keynesianism Financial Times Martin Sandbu 24 October 2016 26 October 2016 subscription http://www.hsbc.com/news-and-insight/insight-archive/2016/return-to-fiscal-stimulus Return to fiscal stimulus HSBC Janet Henry Janet Henry (economist) 17 June 2016 26 October 2016 https://web.archive.org/web/20161026233849/http://www.hsbc.com/news-and-insight/insight-archive/2016/return-to-fiscal-stimulus 26 October 2016 dead See also Asian countries call for global currency Economics History of macroeconomic thought Volcker Rule Citations 30em References Fletcher, Gordon 1989 The Keynesian Revolution and Its Critics: Issues of Theory and Policy for the Monetary Production Economy Palgrave MacMillan CITEREFFletcher1989 Robert Skidelsky 2003 John Maynard Keynes: 1883–1946: Economist, Philosopher, Statesman Macmillan 0-330-48867-8 CITEREFSkidelsky2003 Robert Skidelsky George Akerlof Robert Shiller 2009 Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism Princeton University Press 978-0-691-14233-3 CITEREFAkerlof2009 George Akerlof Robert Shiller Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism Clarke, Peter 2009 Keynes https://archive.org/details/keynesrisefallre0000clar registration Bloomsbury 978-1-4088-0385-1 CITEREFClarke2009 The Keynes Solution: The Path to Global Economic Prosperity Davidson Paul Paul Davidson (economist) 2009 Palgrave Macmillan 978-0-230-61920-3 The Keynes Solution: The Path to Global Economic Prosperity Robert Skidelsky 2009 Keynes: The Return of the Master Allen Lane 978-1-84614-258-1 CITEREFSkidelsky2009 Robert Skidelsky Keynes: The Return of the Master Martin Wolf 2009 Fixing Global Finance Yale University Press 978-0-300-14277-8 CITEREFWolf2009 Martin Wolf Thomas Woods 2009 Meltdown: A Free-Market Look at Why the Stock Market Collapsed, the Economy Tanked, and Government Bailouts Will Make Things Worse Regnery Publishing 978-1-59698-587-2 https://archive.org/details/meltdownfreemark00wood CITEREFWoods2009 Thomas Woods John Authers 2010 The Fearful Rise of Markets: Short View of Global Bubbles and Synchronised Meltdowns Prentice Hall 978-0-273-73168-9 CITEREFAuthers2010 Bateman, Bradley Toshiaki, Hirai Marcuzzo, Maria Cristina 2010 The Return to Keynes Harvard University Press 978-0-674-03538-6 CITEREFBateman2010 Paul Mason 2010 Meltdown: The End of the Age of Greed Verso 978-1-84467-653-8 CITEREFMason2010 https://archive.org/details/isbn_9781844673964 Paul Mason (journalist) 2nd Alistair Darling 2011 Back from the Brink: 1,000 Days at Number 11 Atlantic Books 978-0-85789-279-9 CITEREFDarling2011 Alistair Darling Rowenna Davis 2011 Tangled Up in Blue Ruskin 978-1-78072-068-5 CITEREFDavis2011 Rowenna Davis Tangled Up in Blue (2011 book) Richard Murphy 2011 The Courageous State: Rethinking Economics, Society and the Role of Government Searching Finance 978-1-907720-28-4 CITEREFMurphy2011 Richard Murphy (accountant) Carne Ross 2011 The Leaderless Revolution Simon & Schuster Ltd 978-1-84737-534-6 CITEREFRoss2011 Carne Ross Anatole Kaletsky 2011 Capitalism 4.0 Harper Collins 978-0-00-722969-7 CITEREFKaletsky2011 registration https://archive.org/details/whatslefthowlibe0000cohe Anatole Kaletsky Further reading Lorenzo Pecchi Gustavo Piga 2010 Revisiting Keynes MIT Press 978-0-262-51511-5 External links A global survey of stimulus plans https://web.archive.org/web/20090617205258/http://www.voxeu.org/index.php?q=node%2F3156 2009-06-17 John Maynard Keynes: Don't Call it a Comeback by Salon Magazine Keynes and International Economic and Political Relations https://web.archive.org/web/20110306081030/http://www.trinity.unimelb.edu.au/publications/trinity_papers/paper33/ 2011-03-06 by Donald Markwell Category:Keynesian economics Category:2000s in economic history Keynesian