Rediscovering Keynes

Abstract

The era of liberalization, reforms, and globalization that began in the 1980s marked a paradigm shift in the global economic system from the Bretton Woods that survived from 1945 until 1971. The new phase of economic policy was also accompanied by another economic and political philosophical change. It was the ideological thinking about the role of the state. While the postdepression economic policy was dominated by Keynesianism and rising power of the state, the era of globalization gave thrust on minimizing the size and role of the state. This new ideology of privatization and downsizing the government took the form of Thatcherism in the UK and Reaganomics in the USA. Unfortunately, all the rhetoric about reducing the government size and involvement in the economy did not cut much ice with the reality. Despite his goal of achieving the budget surplus by cutting the government size, President Reagan’s term ended with the record budget deficit in the USA. The juggernaut of the state continued to rule the economy and drive its growth irrespective of the ideological differences of political parties. The rhetoric on lower government failed to change the reality.