Editing Keynesian economics (section)

== Postwar Keynesianism ==
{{Main|Neo-Keynesian economics|New Keynesian economics|Post-Keynesian economics}}
<!-- Post-Keynesians are mentioned here because they trace their legacy to Keynes: these are debates within Keynesianism, not from external schools -->
{{See|Post-war consensus|Embedded liberalism|Bretton Woods system}}
Keynes's ideas became widely accepted after [[World War II]], and until the early 1970s, Keynesian economics provided the main inspiration for economic policy makers in Western industrialized countries.<ref name="K rev. and critics">{{cite book | last = Fletcher | first = Gordon | title = The Keynesian Revolution and Its Critics: Issues of Theory and Policy for the Monetary Production Economy | year = 1989 | pages = xix–xxi, 88, 189–91, 234–38, 256–61 |publisher= Palgrave MacMillan | isbn = 978-0-312-45260-5 }}</ref> Governments prepared high quality economic statistics on an ongoing basis and tried to base their policies on the Keynesian theory that had become the norm. In the early era of [[social liberalism]] and [[social democracy]], most western capitalist countries enjoyed low, stable unemployment and modest inflation, an era called the [[Golden Age of Capitalism]].

In terms of policy, the twin tools of post-war Keynesian economics were fiscal policy and monetary policy. While these are credited to Keynes, others, such as economic historian [[David Colander]], argue that they are, rather, due to the interpretation of Keynes by [[Abba P. Lerner|Abba Lerner]] in his theory of [[functional finance]], and should instead be called "Lernerian" rather than "Keynesian".<ref>"What eventually became known as textbook Keynesian policies were in many ways Lerner's interpretations of Keynes's policies, especially those expounded in ''The Economics of Control'' (1944) and later in ''The Economics of Employment'' (1951). ... Textbook expositions of Keynesian policy naturally gravitated to the black and white 'Lernerian' policy of [[Functional Finance]] rather than the grayer Keynesian policies. Thus, the vision that monetary and fiscal policy should be used as a balance wheel, which forms a key element in the textbook policy revolution, deserves to be called Lernerian rather than Keynesian." {{Harv|Colander|1984|p=1573}}</ref>

Through the 1950s, moderate degrees of government demand leading industrial development, and use of fiscal and monetary counter-cyclical policies continued, and reached a peak in the "go go" 1960s, where it seemed to many Keynesians that prosperity was now permanent. In 1971, Republican US President [[Richard Nixon]] even proclaimed "[[We are all Keynesians now|I am now a Keynesian in economics]]."<ref name=Keyn2>{{Cite news |last=Lewis |first=Paul |date=15 August 1976 |title=Nixon's Economic Policies Return to Haunt the G.O.P. |newspaper=[[The New York Times]] |url=https://select.nytimes.com/gst/abstract.html?res=FB0717FE345E1A738DDDAC0994D0405B868BF1D3 |access-date=7 February 2017 |archive-date=12 May 2013 |archive-url=https://web.archive.org/web/20130512021521/http://select.nytimes.com/gst/abstract.html?res=FB0717FE345E1A738DDDAC0994D0405B868BF1D3 |url-status=live }}</ref>

Beginning in the late 1960s, a [[new classical macroeconomics]] movement arose, critical of Keynesian assumptions (see [[Sticky Prices|sticky prices]]), and seemed, especially in the 1970s, to explain certain phenomena better. It was characterized by explicit and rigorous adherence to [[microfoundations]], as well as use of increasingly sophisticated mathematical modelling.

With the [[1973 oil crisis|oil shock of 1973]], and the economic problems of the 1970s, Keynesian economics began to fall out of favour. During this time, many economies experienced high and rising unemployment, coupled with high and rising inflation, contradicting the [[Phillips curve]]'s prediction. This [[stagflation]] meant that the simultaneous application of expansionary (anti-recession) and contractionary (anti-inflation) policies appeared necessary. This dilemma led to the end of the Keynesian near-consensus of the 1960s, and the rise throughout the 1970s of ideas based upon more classical analysis, including [[monetarism]], [[supply-side economics]],<ref name=Keyn2 /> and [[new classical economics]].

However, by the late 1980s, certain failures of the new classical models, both theoretical (see [[Real business cycle theory]]) and empirical (see [[Early 1980s recession in the United States|the "Volcker recession"]])<ref>{{cite web|last1=Krugman|first1=Paul|title=Trash Talk and the Macroeconomic Divide|url=https://krugman.blogs.nytimes.com/2015/08/10/trash-talk-and-the-macroeconomic-divide/|access-date=10 September 2015|date=10 August 2015|archive-date=5 September 2015|archive-url=https://web.archive.org/web/20150905185024/http://krugman.blogs.nytimes.com/2015/08/10/trash-talk-and-the-macroeconomic-divide/|url-status=live}}</ref> hastened the emergence of [[New Keynesian economics]], a school that sought to unite the most realistic aspects of Keynesian and neo-classical assumptions and place them on more rigorous theoretical foundation than ever before.

One line of thinking, utilized also as a critique of the notably high unemployment and potentially disappointing GNP growth rates associated with the new classical models by the mid-1980s, was to emphasize low unemployment and maximal economic growth at the cost of somewhat higher inflation (its consequences kept in check by indexing and other methods, and its overall rate kept lower and steadier by such potential policies as Martin Weitzman's [[Martin Weitzman#Research|share economy]]).<ref>{{cite book |title= Hard Heads, Soft Hearts: Tough Minded Economics for a Just Society |last= Blinder |first= Alan S. |author-link= Alan Blinder |year= 1987 |publisher= Perseus Books |location= New York |isbn= 978-0-201-14519-9 |pages= [https://archive.org/details/hardheadssofthea00blin/page/65 65–66] |url= https://archive.org/details/hardheadssofthea00blin/page/65 }}</ref>

===Schools===
Multiple [[schools of economic thought]] that trace their legacy to Keynes currently exist, the notable ones being [[neo-Keynesian economics]], [[New Keynesian economics]], [[post-Keynesian economics]], and the [[new neoclassical synthesis]]. Keynes's biographer [[Robert Skidelsky]] writes that the post-Keynesian school has remained closest to the spirit of Keynes's work in following his monetary theory and rejecting the [[neutrality of money]].<ref>{{Harvnb|Skidelsky|2010}}</ref><ref>Financial markets, money and the real world, by Paul Davidson, [https://books.google.com/books?id=88XA6OHxVAcC&pg=PA88&q=post-keynesian pp. 88–89] {{Webarchive|url=https://web.archive.org/web/20151121215306/https://books.google.com/books?id=88XA6OHxVAcC&pg=PA88&q=post-keynesian |date=21 November 2015 }}</ref> Today these ideas, regardless of provenance, are referred to in academia under the rubric of "Keynesian economics", due to Keynes's role in consolidating, elaborating, and popularizing them.

In the postwar era, Keynesian analysis was combined with neoclassical economics to produce what is generally termed the "[[neoclassical synthesis]]", yielding [[neo-Keynesian economics]], which dominated [[mainstream economics|mainstream macroeconomic thought]]. Though it was widely held that there was no strong automatic tendency to full employment, many believed that if government policy were used to ensure it, the economy would behave as neoclassical theory predicted. This post-war domination by neo-Keynesian economics was broken during the [[stagflation]] of the 1970s.<ref>Chapter 1. Snowdon, Brian and Vane, Howard R., (2005). ''Modern Macroeconomics: Its Origin, Development and Current State''. Edward Elgar Publishing, {{ISBN|1-84542-208-2}}</ref> There was a lack of consensus among macroeconomists in the 1980s, and during this period [[New Keynesian economics]] was developed, ultimately becoming- along with [[new classical macroeconomics]]- a part of the current consensus, known as the [[new neoclassical synthesis]].<ref>{{Citation |last=Woodford |first=Michael |year=2009 |title=Convergence in Macroeconomics: Elements of the New Synthesis |url=http://www.columbia.edu/~mw2230/Convergence_AEJ.pdf |journal=American Economic Journal: Macroeconomics |volume=1 |issue=1 |pages=267–79 |doi=10.1257/mac.1.1.267 |access-date=5 September 2020 |archive-date=18 February 2021 |archive-url=https://web.archive.org/web/20210218041330/http://www.columbia.edu/~mw2230/Convergence_AEJ.pdf |url-status=live }}</ref>

Post-Keynesian economists, on the other hand, reject the neoclassical synthesis and, in general, neoclassical economics applied to the macroeconomy. Post-Keynesian economics is a [[heterodox economics|heterodox school]] that holds that both neo-Keynesian economics and New Keynesian economics are incorrect, and a misinterpretation of Keynes's ideas. The post-Keynesian school encompasses a variety of perspectives, but has been far less influential than the other more mainstream Keynesian schools.<ref>{{Citation|last=Lavoie|first=Marc|date=2006|pages=1–24|publisher=Palgrave Macmillan UK|language=en|doi=10.1057/9780230626300_1|isbn=9781349283378|title=Introduction to Post-Keynesian Economics|chapter=Post-Keynesian Heterodoxy}}</ref>

Interpretations of Keynes have emphasized his stress on the international coordination of Keynesian policies, the need for international economic institutions, and the ways in which economic forces could lead to war or could promote peace.<ref>{{Cite book |last=Markwell |first=Donald |title=John Maynard Keynes and International Relations: Economic Paths to War and Peace |year=2006 |publisher=Oxford University Press |location=New York |isbn=978-0-19-829236-4 }}</ref>

===Keynesianism and liberalism===
In a 2014 paper, economist [[Alan Blinder]] argues that, "for not very good reasons", public opinion in the United States has associated Keynesianism with liberalism, and he states that such is incorrect. For example, both Presidents [[Presidency of Ronald Reagan|Ronald Reagan (1981–89)]] and [[Presidency of George W. Bush|George W. Bush (2001–09)]] supported policies that were, in fact, Keynesian, even though both men were conservative leaders. And tax cuts can provide highly helpful fiscal stimulus during a recession, just as much as infrastructure spending can. Blinder concludes: "If you are not teaching your students that 'Keynesianism' is neither conservative nor liberal, you should be."<ref name="What Did We Learn from the Financial Crisis [2008], the Great Recession, and the Pathetic Recovery?, Nov. 2014">[https://www.princeton.edu/ceps/workingpapers/243blinder.pdf "What Did We Learn from the Financial Crisis <2008>, the Great Recession, and the Pathetic Recovery?,"] {{Webarchive|url=https://web.archive.org/web/20170830004657/http://www.princeton.edu/ceps/workingpapers/243blinder.pdf |date=30 August 2017 }} Alan Blinder (Princeton University), Nov. 2014.</ref>