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.