The short-lived revival of Keynes; welcome back, Hayek!

November 24, 2022

The short-lived revival of Keynes; welcome back, Hayek!

Sebastiaan Crul
November 24, 2022

The short-lived revival of Keynes; welcome back, Hayek!

Has neoliberalism really left? Or was “COVID-Keynesianism” nothing more than a short-term crisis management tactic?
Sebastiaan Crul
November 24, 2022
The short-lived revival of Keynes; welcome back, Hayek!
Sebastiaan Crul
Maya Turolla
November 24, 2022
Design by N ON NE ON. © Shutterstock

When the pandemic was at its peak and lockdowns were putting a chill on economies worldwide, governments responded with financial generosity. Many economic commentators welcomed this return to Keynesianism. Contrary to the austerity seen in the wake of the Global Financial Crisis (2007-2009), the response of governments to COVID was one of enormous fiscal stimulus packages to keep the economy going. Suddenly, rising levels of government debt were no longer a problem, which probably put a small smile on the face of Modern Monetary Theory (MMT) advocates. The days of neoliberal fiscal conservatism were finally behind us. Or so we thought.

Has neoliberalism really left? Or was “COVID-Keynesianism”, as these researchers suggest, nothing more than a short-term crisis management tactic? The UK has provided us with an interesting first case to evaluate this argument. On the one hand, the market unanimously rejected Liz Truss’ plan of tax cuts, which embodies the classic neoliberal principle of trickle-down economics. However, this was not done in favor of Keynesianism and a progressive fiscal policy. On the contrary, British political actors immediately constructed a new narrative that advocated a return to prudent government spending and inflation targeting as primary and sole goals of fiscal and monetary policy. To a certain extent, it seems inflation and gloomy economic outlooks have put Keynes back in his cage and restored a strong tendency towards fiscal conservatism. Nevertheless, it would be too cynical to speak of a full-blown neoliberal recovery, which may never have been realized in Europe anyway. Although fiscal conservatism is making a comeback, there is currently an unprecedented focus on mission-oriented policies, substantial recovery funds, and high levels of welfare spending, which will remain for at least a while. Thus, the way forward may lie in a new hybrid of neoliberal and Keynesian elements, in which the opposition will always emphasize the weakness of the prevailing fiscal model.  

Burning Questions:
  • Will the resurgence of fiscal conservatism hinder the realization of sustainability goals?
  • How strongly will the monetary policy of the ECB influence the fiscal policy of member states?
  • Is this paradigm uncertainty an opportunity for alternative schools such as MMT to seize the moment and gain further ground?

About the author(s)
Economist and philosopher Sebastiaan Crul writes articles on a wide range of topics, including rule of law in digital societies, the virtualization of the lifeworld and internet culture. He is currently working on his doctoral degree on the influence of digitalization on mental health and virtue ethics, having previously published dissertations on the philosophy of play and systemic risks in the finance industry.
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