Shifting Policy Strategy in Keynesianism

Abstract

This paper analyzes the evolution of Keynesianism making use of concepts offered by Imre Lakatos. The Keynesian "hard core" lies in its views regarding the instability of the market economy, its "protective belt" in the policy strategy for macroeconomic stabilization using fiscal policy and monetary policy. Keynesianism developed as a policy program to counter classical liberalism, which attributes priority to the autonomy of the market economy and tries to limit the role of government. In general, the core of every policy program consists in an unfalsifiable worldview and a value judgment that remain unchanged. On the other hand, a policy strategy with a protective belt inevitably evolves owing to changes in reality and advances in scientific knowledge. This is why the Keynesian policy strategy has shifted from being fiscal-led to one that is monetary-led because of the influence of monetarism; further, the Great Recession has even led to their integration.