For much of the post-war period, the ideas of British economist
John Maynard Keynes held sway in Western Finance Ministries and
Central Banks. Keynes believed that government should manage the
economy using fiscal policy – public borrowing, spending and
taxation.
High inflation and weak growth in the 1970s undermined faith in
fiscal policy. The Reagan/Thatcher revolution of the 1980s
emphasised small government and put monetary policy at the heart of
economic management. Since then monetary policy has largely ruled
the policy roost.
Keynesianism saw a brief revival in 2009, in the midst of the
global financial crisis. Shocked by the severity of the downturn,
many governments reached for Keynesian programmes of public
spending. The boost to growth in 2009 amounted to an average of 2%
of GDP for the world's twenty largest economies. In the US a
newly elected President Obama enacted the American Recovery and
Reinvestment Act in which pumped the equivalent of 6% of US
