4 Keynes and Friedman on the employment policy Structure and conduct
4.1 Introduction Regarding the way we conceive the functioning of decentralised market economies, and especially the way we appraise their capacity to converge by themselves towards full employment at stable prices, regarding also the way we consider the role that should be respectively dedicated to fiscal and monetary policies, 2008 represents a clear turning point. Before the crisis, debates used to focus on how to soften the regular ups and downs of the business cycle. After 2008, the very question turns out to be the mere existence of self-correcting forces in the presence of a large and persistent external shock – as in the early 1930s. As stated by Laidler: A revival of the age-old debate about the inherent stability or otherwise of a decentralized economic system based on private property and voluntary exchange – a market economy as it is usually called – has been one of the very few positive consequences of the economic crisis that began in the summer of 2007. (Laidler 2010b, p. 2) In short, the “modern theoretical consensus – known alternatively as the Neoclassical synthesis or the New Keynesian model of monetary policy” (Goodfriend 2007, p. 48)1 – that prevailed until 2008 seems severely undermined by the latest financial collapse, and discretionary fiscal policy has returned to the centre of debates as was the case in the early 1930s. Keynes and Friedman are at the origin of these contemporary debates regarding the role public authorities should play to sustain stability as well as the debates about the respective merits of fiscal and monetary policy. Although he was far from the first and even less the single economist to advocate public works at the time of the Great Depression, the name of Keynes is usually associated with discretionary fiscal policy and with the disuse of monetary policy because of liquidity traps. So when contemporary economists now refer to Keynes, it is because of his support for fiscal stimulus packages. As for him, Friedman is definitely associated with the dismissal of fiscal policy, the denial of
