Mistrusting the Free-Market Economy: Keynes’s Revolution in Economic Thinking

Abstract

Over twenty-five years have been wasted praising the efficiency of free markets and running econometric tests to prove that economic policies are either ineffectual or even irrelevant, reflecting an academic scene still dominated by the macroeconomics of anti- or pre-Keynesian inspiration that took hold between the 1970s and 1980s. Increasingly sophisticated models were developed to support the argument that government intervention to stabilize the economy was not only unnecessary but actually harmful. The idea of the centrality of changes in aggregate current income (both with positive and negative signs) and its distribution in fuelling or dampening economic growth were forgotten. It is time that we brought Keynes’s ideas back.