The wrong kind of political economy

Thanks to Google I get to see when someone writes about me, so I read an article by Ryan Bourne in CityAM. It basically says that while Keynesians keep saying that their models have been vindicated by the economic effects of austerity (but economists always disagree with each other blah blah), they have lost the political debate. In the case of the UK, even Labour is no longer Keynesian. While Labour are planning hardly any additional austerity, but the Conservatives are planning a lot, according to Mr. Bourne Labour are not justifying this less contractionary stance in Keynesian terms.

For the sake of argument, let us assume that Mr. Bourne is correct about Labour. We also need to ignore the SNP of course. Suppose Mr. Bourne is right that Keynesians have lost the political argument. This line is not new, with more authoritative newspapers having said similar things in the past. What should seem very strange is that Mr. Bourne and others do not appear to view this as a cause for concern.

It is a concern because Keynesian economics is taught to pretty well every student who ever studies economics anywhere in the world, and usually not as just one competing theory among many but as how the world works. Nor is it the case that academic macroeconomists are hopeless divided over the issue: a large majority on both sides of the Atlantic agree that fiscal austerity/stimulus reduces/enhances growth when monetary policy cannot offset its impact. Most major central banks use Keynesian theory as a basis for their monetary policy decisions. The reason for all this is that the evidence overwhelmingly backs Keynesian ideas, including that fiscal contraction tends to reduce output.

Given all this, if all three major UK political parties are ignoring Keynesian economics that would be a real worry. Now this might not worry Mr. Bourne if he was just one of these politicos for whom politics creates its own truth and that is all that matters. However he is in fact head of public policy at an outfit called the Institute of Economic Affairs. Perhaps, given the level of debate about fiscal policy in the media nowadays, that would be economic affairs of the more homely kind.

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Ditulis oleh AndreSurbakti pada tanggal Selasa, 28 April 2015