Chapter 39: New Classical Economics

Brian Snowdon

New classical economics During the past 70 years, macroeconomic analysis has made enormous progress via the sustained accumulation of knowledge and is now firmly established as an essential component of effective public policymaking in every modern economy. In retrospect, it is uncontroversial that the “Keynesian revolution” transformed the approach of governments to economic management. Although the Keynesian consensus prevailed during the 1950s and 1960s, and was labeled the neoclassical synthesis by Paul Samuelson, the intellectual journey from Keynes's General Theory of Employment, Interest and Money (1936) to the contemporary consensus (the new neoclassical synthesis ) has been marked by periods of considerable controversy (Blanchard, 2000; Woodford, 1999). In particular, during the early 1970s, there emerged a powerful intellectual counterrevolution directed against the central tenets of mainstream Keynesian macroeconomics. The ideas of this emerging school of thought, initially referred to as rational expectations macroeconomics , were soon labeled by Thomas Sargent ...

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