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

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Economics, Politics and Democracy in the Age of Credit-Rating Capitalism

Unlike in earlier major economic crises, the current turmoil in the global economy has seen the consolidation of orthodoxy as the dominant paradigm. This essay traces the political economy of change in the current situation and discusses how credit-rating agencies have assumed a pivotal role in delinking politics from the conduct of economic policy, thereby undermining the legitimate role of the state in the economic domain.

The author would like to thank Amit Bhaduri, Torsten Niechoj, Frank Conaty and Thomas Boylan for their valuable comments without implicating them in any of the remaining errors in the essay.

Every crisis in society is also an opportunity for change. This is no less true for economic crises. Major economic crises in the past have overthrown the incumbent orthodoxy in economic thinking and replaced them with an alternative. The Great Depression in the 1930s stands out as the most striking example both as the severest in living memory and for the sharpest change in economic theorising and style of management that it induced. Neoclassical thinking based on the belief that the market mechanism of demand and supply has the inherent capacity to recover automatically from a crisis was replaced by a new vision.

The chief architect of the new paradigm, John Maynard Keynes urged his fellow economists to break away from the “habitual modes of thought” for solving one of the worst economic crisis capitalism ever faced. The change in economic thinking had a profound impact on many spheres ranging from teaching economics1 to economic policymaking; indeed, it is aptly called the Keynesian Revolution. The revolution brought about a change in the political nature of the state. While both fiscal and monetary policies were informed by scientific research based on Keynesian economic theory, the politics of feasibility and implementation of those policies was very much at the centre of policy debates at that time.

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