ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Global Crisis and the New Consensus Macroeconomics

End of Paradigmatic Determinism?

Prior to the global crisis, the state of macroeconomic theory was relatively settled, with mainstream economists subscribing to a hybrid classical-cum-Keynesian theory - the so-called New Consensus Macroeconomics. The crisis was widely perceived as an outcome of some of the faulty policies implied by the NCM. This prompted a serious re-examination and criticism of the theoretical foundations of the NCM from four distinct schools of thought, viz, the post-eynesian, Austrian, Structuralist and Marxist. The dominant critique seems to be the post-Keynesian and most of the revisions in post-crisis macroeconomic policy have also been along these lines. This paper delves into the theoretical structure as well as the policy implications of the post-Keynesian critique of the NCM. Certain implications are drawn for macroeconomic policy and cautionary caveats are entered for the process of financialisation currently under way in several emerging market economies.

Some of the ideas of this paper were presented at the seminar on “Money, Finance and Macroeconomics of the Real Economy”, organised by the Institute of Development Studies, Kolkata. I thank the participants of the seminar, especially Amiya Bagchi, Pronab Sen, Indrani Chakraborti and Partha Ray for valuable comments. Needless to say, errors and shortcomings are my own responsibility.

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