Turning more Keynesian in USA fiscal policy

  Are We Turning More Keynesian in US Fiscal Policy Making? How and Why? The Keynesian economic theory, developed by renowned economist John Maynard Keynes, has been a subject of debate and influence in fiscal policy making for decades. While the dominance of neoliberal policies characterized the late 20th century, recent events have raised questions about whether the United States is shifting towards a more Keynesian approach to fiscal policy. This paper will explore the trends and factors that suggest a growing inclination towards Keynesianism in US fiscal policy making. The Great Recession and the Resurgence of Keynesianism The global financial crisis of 2008, known as the Great Recession, had a profound impact on economies worldwide, including the United States. The severity of the crisis led policymakers to reevaluate the effectiveness of neoliberal policies, such as austerity measures and deregulation, which were prevalent at the time. The failure of these policies to mitigate the crisis and restore economic stability prompted a renewed interest in Keynesian economics. Expansionary Fiscal Policy: In response to the recession, the US government implemented massive fiscal stimulus packages, including the American Recovery and Reinvestment Act of 2009. These measures aimed to boost aggregate demand and promote economic recovery through increased government spending and tax cuts. This expansionary fiscal policy aligns with Keynesian principles, which advocate for government intervention during economic downturns to stimulate demand and restore growth. Focus on Unemployment: Keynesian economics emphasizes the role of aggregate demand in determining employment levels. In the aftermath of the Great Recession, policymakers shifted their attention to combating unemployment and prioritizing job creation. This shift in focus reflects a Keynesian approach, as policymakers recognized the need for government intervention to stimulate demand and reduce unemployment rates. The COVID-19 Pandemic and the Emergence of Modern Keynesianism The COVID-19 pandemic, and the subsequent economic fallout, has further propelled the resurgence of Keynesian ideas in US fiscal policy making. The unprecedented nature of the crisis and its impact on both public health and the economy necessitated a swift and substantial response from the government. Massive Stimulus Measures: In the wake of the pandemic, the US government implemented historic fiscal stimulus measures to support individuals, businesses, and the overall economy. The CARES Act, for example, provided direct stimulus checks, expanded unemployment benefits, and allocated funds for small business loans. These measures align with Keynesian principles, as they aim to boost aggregate demand and prevent a prolonged economic downturn. Increased Role of Government: The pandemic highlighted the importance of government intervention in times of crisis. From the development and distribution of vaccines to the provision of healthcare resources, the government played a central role in responding to the pandemic. This increased role of government intervention mirrors Keynesian principles, which advocate for active government involvement to stabilize and stimulate the economy. Reasons behind the Shift towards Keynesianism Several factors contribute to the growing inclination towards Keynesianism in US fiscal policy making: Empirical Evidence: The failure of neoliberal policies to effectively address economic crises has led policymakers to consider alternative approaches. The evidence from the Great Recession and the COVID-19 pandemic suggests that Keynesian measures, such as fiscal stimulus and government intervention, can be effective in stabilizing the economy during times of crisis. Public Opinion: The widespread public support for government intervention during economic downturns has influenced policymakers’ decisions. The realization that austerity measures can exacerbate inequality and hinder economic recovery has led to a shift in public opinion towards Keynesian policies. Changing Economic Landscape: The increasing complexity and interconnectedness of the global economy, coupled with the challenges posed by climate change and income inequality, have highlighted the limitations of purely market-driven approaches. Policymakers are recognizing the need for government intervention to address these complex issues effectively. In conclusion, there is a discernible shift towards Keynesianism in US fiscal policy making. The Great Recession and the COVID-19 pandemic have played a significant role in challenging the dominance of neoliberal policies and rekindling interest in Keynesian economics. The empirical evidence, public opinion, and the changing economic landscape all contribute to this shift. As policymakers grapple with the challenges of economic recovery, income inequality, and climate change, the adoption of Keynesian principles offers a potential path forward towards a more equitable and resilient economy.

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