Global Crisis and the New Consensus Macroeconomics

Prior to the global crisis, the state of macroeconomic theory was relatively settled, with mainstream economists subscribing to a hybrid classical-cum-Keynesian theory - the so-called New Consensus Macroeconomics. The crisis was widely perceived as an outcome of some of the faulty policies implied by the NCM. This prompted a serious re-examination and criticism of the theoretical foundations of the NCM from four distinct schools of thought, viz, the post-eynesian, Austrian, Structuralist and Marxist. The dominant critique seems to be the post-Keynesian and most of the revisions in post-crisis macroeconomic policy have also been along these lines. This paper delves into the theoretical structure as well as the policy implications of the post-Keynesian critique of the NCM. Certain implications are drawn for macroeconomic policy and cautionary caveats are entered for the process of financialisation currently under way in several emerging market economies.