View Full Version : Keynes and the Great Recession

David G
03-11-2012, 02:57 PM
Are the previously widely and commonly accepted tenets of Keynes still relevant during this uncommon downturn? Why do they come into favor and fall out of favor?


In this article, we have made two major claims. First - that we can understand the
creation of consensus (or dissensus) within an expert community as a process of contagion
across that community. Second - that the appearance of consensus or dissensus within this
community will determine whether ideas are, or not, politically influential.

The evidence seems to bear these arguments out. In 2008-2009, it was important that
a relatively small number of `star' economists, mostly based in the US, made vigorous
arguments for Keynesianism. It was also important that some key gures who previously
had not been favorably disposed to Keynesianism changed their minds. This helped propagate
the idea of Keynesian stimulus to economists who otherwise would likely have been
inoculated against it. Some of these economists - such as members of the Council of Economic
Experts - played a key role in changing the eld of debate within Germany and
other European countries.

Even if the actual consensus among economists was rather less
solid than it appeared to outside observers, the appearance of an emerging consensus was
what mattered. In 2010 in contrast, it mattered that there was a greater degree of disunity
among economists in the US and within the IMF than there had been in the previous
period. It also mattered that a new group of elite economists - those associated with the
European Central Bank - had entered the fray. The debate was not nearly as one sided as
it had been in the first instance. The contagion of the previous period in part reversed its course.

Dave Wright
03-11-2012, 03:14 PM
Unfortunately, I'd bet on this:

It is just as
possible that we are entering into a new global financial system which will be less drivenby consensus than by continuing and ultimately irresolvable tensions between different andantithetical ways of ordering the economy, and consequent confusion and trench warfare.Such a world would pose extraordinary challenges to scholars of international politicaleconomy, who naturally prefer simplicity and elegance to bewildering complexity. Butthat is no reason to think that it could not come into being.

David G
03-11-2012, 04:12 PM
Dave - entirely too plausible, and not a heartening prospect. The only good side is that that sort of disequilibrium is not self-sustaining or stable. Long run - it's liable to flop one way or the other.