Thirty years ago, the economics profession was dominated by naive Keynesians. The author of the standard textbook at the time, used by the majority of A-level students and first-year undergraduates, argued that the misery of the 1930s depression would have been much reduced had those in authority known even as much economics as was contained in his book. This so-called economics involved the belief that an increase in saving and taxation or a reduction in government spending necessarily reduced national income. The author stated that there was no space to discuss alternative “extreme” views in his 810 page book. On 23rd March 1981, 364 economists took their cue from the textbooks and wrote to The Times strongly criticising fiscal retrenchment and arguing that: “present policies will deepen the recession.”
Naive Keynesianism should have been buried that year. Within a few weeks, economic data was released that showed that the letter was written in the very month that domestic demand recovered. Most economists have moved on but there are remaining habitats of naive Keynesianism in the Financial Times, the BBC and the upper-reaches of the Labour Party.
Read the full article on ConservativeHome.
The full report No Case for Plan B - Lessons for the Great Recession from the Great Depression can be read here.