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.

Philip Booth 154x154
Philip Booth is Academic and Research Director at the Institute of Economic Affairs and Professor of Finance, Public Policy and Ethics at St. Mary's University, Twickenham. From 2002-2015 he was Professor of Insurance and Risk Management at Cass Business School. Previously, Philip Booth worked for the Bank of England as an advisor on financial stability issues and he was also Associate Dean of Cass Business School and held various other academic positions at City University. He has written widely, including a number of books, on investment, finance, social insurance and pensions as well as on the relationship between Catholic social teaching and economics. He is Deputy Editor of Economic Affairs and on the editorial boards of various other academic journals. Philip is a Fellow of the Royal Statistical Society, a Fellow of the Institute of Actuaries and an honorary member of the Society of Actuaries of Poland. He has previously worked in the investment department of Axa Equity and Law and was been involved in a number of projects to help develop actuarial professions and actuarial, finance and investment professional teaching programmes in Central and Eastern Europe. Philip has a BA in Economics from the University of Durham and a PhD from City University.

1 thought on “No Case for Plan B”

  1. Posted 06/12/2011 at 16:34 | Permalink

    Someone really ought to inform Prof. Matthews that Valerie Ramey is a woman.

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