Epilogue: The Road of Macroeconomics Away from Keynesian Economics

The Great Depression molded macroeconomic theory and policy for a long time, the impact of this shattering experience was far-reaching and, in many ways, it can still be felt today. The economics of Keynes, as well as the variety of Keynesian tendencies, was instrumental to the birth of macroeconomics and for the paradigmatic change in the analysis of whole economies after 1936. A major influence in the decline of Keynesian ideas in later years ought to be attributed to broader social, philosophical and methodological debates. Critics of Keynes’s ideas were not silent after 1936, but only when Monetarism appeared on the scene in full force did a significant opposition to Keynes and Keynesianism make itself heard. According to Milton Friedman’s famous 1968 manifesto, economic performance was determined by fundamental economic forces that no government action could improve. Hence, ‘hands off the economy’ was the best recipe for government policy. The latter conclusion had been promoted by Hayek before Friedman, and the two cooperated often. The rise of NCM to a hegemonic position of influence, was clearly reinforced by their proposals for grounding macroeconomics on microfoundations. Hence, the decline of Keynesianism was, to a significant extent, the result of a triumphing methodological transformation in the mode of thinking about the whole economy which paved the path to the radical alteration in macroeconomics. The self-perception of NCM was that they managed to transform macroeconomics from being based on value judgments and a-priori views, motivated by policy preferences and ideological biases, to a sub-field of economics that was genuinely scientific. The New Keynesians (NK), who used the same methodology as the rest of NCM but inserted specific conditions that made the use of policy welfare increasing, turned out to be the most influential tendency within NCM in the 2000s. Although, like the other NCM tendencies, they did not predict the 2008 crisis and were very ill-prepared for what followed. The dramatic changes in macroeconomics since the Great Depression show how the sub-field reached its dismal state by 2008, when a possible second Great Depression hung in the air.