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After decades of market liberalism and fiscal fundamentalism, policymakers are returning to Keynes

Fiscal retrenchment, a smaller state and/or market liberalisation. The advice was heralded as the Washington consensus because of the IMF’s location. 

Monetarism decreed that as long as the authorities kept control of the money supply, and thus inflation, everything would be fine.

By the end of the 1980s, monetarism had been ditched, and targeting the exchange rate had become the holy grail. If sterling’s rate was fixed against the Deutschmark, the UK would import stability from Germany. 

The currency was quickly replaced by an inflation target as an infallible lodestar of policy.

Economics, essentially a faith-based discipline, represented itself as a hard science. The real world was reduced by the 1990s to a set of complex mathematical equations that no one, least of all democratically elected politicians, dared challenge.

Time to dust off Keynes’s general theory.

Philip Stephens FT 18 Febr 2021


Five years before the financial meltdown of 2008, Robert Lucas famously declared that “the central problem of depression-prevention has been solved . . . and it has been for many decades”.


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