Some Humility is in order for years of austerity
Philip Stephens could have gone further in his description of the shifts in economic orthodoxy over the past few decades (“Why economists keep being wrong on policy”, Opinion, February 19).
What John Kenneth Galbraith termed “conventional wisdom” can be a powerful force. Flawed thinking can often prevail until there is a clear alternative worldview on offer.
Many of the inequalities and imbalances highlighted by the pandemic were caused or exacerbated by the austerity which characterised fiscal policy after 2009. Yet those years of austerity after the global financial crisis had demonstrated the failure of prevailing economic thinking.
We now hear past advocates of harsh fiscal policies intoning that the spending taps should be kept on and without any fiscal rules being applied. Some humility might be in order.
Economics at present seems to be more focused on describing what is happening than providing a framework for policymakers. As in a world war, necessity rules the day for finance ministers at the moment, with theory playing catch-up. We certainly do need to “dust off Keynes’s General Theory” again as Stephens suggests, not in order to repeat the policy debates of the past but to provide a foundation for understanding the economic world today.
This letter was first published by the Financial Times on 23 February 2021.