1. ECONOMIC DOCTRINES AND ECONOMIC POLICY Crises and Controversy Sixten Korkman Spring 2015 1

2. ECONOMIC DOCTRINES AND ECONOMIC POLICY Crises and Controversy  Why do we think about economic policy the way we do?  Why do we disagree on policy recommendations?  Are policy views based on economics as a science or …?  Focus on policy views and their foundations as well as practical experiences of economic policies in actual crisis situations 2

3. Questions 1.Why do we hold the views on economic policies that we hold? 2. Are policy questions consensual or controversial, why? 3. Are economic policies important for what happens in the economy? 4. What are the main forces shaping actual policy outcomes? 5. Decision makers are always fighting the ’last war’? 6. What are the reactions if results of policies differ from expectations? 7. Can economic policy be seen as a learning process (with progress)? 3

4. Keynes on the role of economic ideas John Maynard Keynes: Ideas shape the course of history “The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back. I am sure that the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas. Not, indeed, immediately, but after a certain interval; for in the field of economic and political philosophy there are not many who are influenced by new theories after they are twenty- five or thirty years of age, so that the ideas which civil servants and politicians and even agitators apply to current events are not likely to be the newest. But, soon or late, it is ideas, not vested interests, which are dangerous for good or evil.” (J.M.Keynes: General Theory, Ch. 24 "Concluding Notes" p. 383-384) 4

5. Karl Marx on the role of ideas Karl Marx: material relations of production determine ideas “In the social production of their life, men enter into definite relations that are indispensable and independent of their will; these relations of production correspond to a definite stage of development of their material forces of production. The sum total of these relations of production constitutes the economic structure of society — the real foundation, on which rises a legal and political superstructure and to which correspond definite forms of social consciousness. The mode of production of material life determines the social, political and intellectual life process in general. It is not the consciousness of men that determines their being, but, on the contrary, their social being that determines their consciousness.” [“Es ist nicht das Bewußtsein der Menschen, das ihr Sein, sondern umgekehrt ihr gesellschaftliches Sein, das ihr Bewusstsein bestimmt.”] Preface to “a contribution to the Critique of Political Economy (1859). 5

6. ECONOMIC DOCTRINES AND ECONOMIC POLICY Crises and Controversy 1. INTRODUCTION 2. SOME CONCEPTUAL CLARIFICATION 3. POLITICAL FOUNDATION OF THE MARKET ECONOMY 4. THE ETHICAL BASIS OF ECONOMIC POLICY 5. PRE-CLASSICAL ECONOMICS 6. CLASSICAL ECONOMICS 7. NEOCLASSICAL ECONOMICS 8. THE CLASSICAL/NEOCLASSICAL DOCTRINE 6

7. (highly tentative) 9. MARX AND THE GREAT SYSTEMS DEBATE (?) 10. THE GREAT DEPRESSION AND THE GOLD STANDARD 11. THE KEYNESIAN REVOLUTION 12. POSTWAR ECONOMIC DOCTRINES IN FINLAND 13. THE DEPRESSION IN FINLAND IN THE 1990s 14. THE NORDIC MODEL AND THE WELFARE STATE 15. THE WASHINGTON CONSENSUS AND THE MAASTRICHT DOCTRINE 16. THE GLOBAL FINANCIAL CRISIS AND THE EURO AREA DEBT CRISIS 17. CURRENT THINKING ON MACROECONOMIC POLICIES 7