Resolving the US Financial Crisis : Politics Dominates Economics in the New Political Economy

Most economists expected that the “Great Recession” produced by the financial meltdown of 2008 would usher in a resurgence of traditional Keynesian economics and a decline of what has come to be called “market fundamentalism." By contrast, also due to the inadequate size of the 2009 stimulus package, the resurgence of support for Keynesian expenditure policies has been extremely short lived. However, the negative popular and political reaction should not have come as a surprise for at least three reasons: The design of the Obama stimulus plan and its difference from the expenditure policies of the Roosevelt Administration, the political environment that has eviscerated fiscal policy and placed monetary policy at the center of economic policy and produced “debt driven” growth, and finally the difference between policies appropriate to treating an income deflation and a debt deflation