When major economies adopted Keynesian policies to deal with the COVID pandemic, the move was hailed as a ­reorientation of economic policymaking around a new policy paradigm. However, James Wood, Valentina Ausserladscheider, and Matthew Sparkes argue that rather than marking a permanent shift away from neoliberalism, Keynesian-style policies may have been a temporary form of economic crisis management, and neoliberal economic ideas have become re-established post-COVID

Ausserladscheider, Valentina

Sparkes, Matthew

Wood, James

English

LSE Research Online

‘COVID-Keynesianism’	was	a	short-term	crisismanagement	tactic.	Neoliberal	policymaking	is	backWhen	major	economies	adopted	Keynesian	policies	to	deal	with	theCOVID	pandemic,	the	move	was	hailed	as	a	​reorientation	ofeconomic	policymaking	around	a	new	policy	paradigm.	However,James	Wood,	Valentina	Ausserladscheider,	and	MatthewSparkes	argue	that	rather	than	marking	a	permanent	shift	away	fromneoliberalism,	Keynesian-style	policies	may	have	been	a	temporaryform	of	economic	crisis	management,	and	neoliberal	economic	ideas	have	become	re-established	post-COVID.The	severity	of	the	economic	consequences	from	the	COVID-19	pandemic	saw	many	countries	adopt	Keynesian-style	policies;	governments	prioritised	employment	and	sought	to	maintain	a	baseline	of	economic	performance,supported	by	the	state	provision	of	loans	to	private	firms,	corporate	equity	ownership	and	high	levels	of	welfarespending	(Béland	et	al.,	2021).This	observed	shift	towards	‘COVID-Keynesianism’	has	been	hailed	as	a	​reorientation	of	economic	policymakingaround	a	new	policy	paradigm.	Such	accounts	described	a	distinct	break	from	neoliberal	policymaking	(e.g.	Saad-Filho,	2020),	which	emphasises	maintaining	low	and	stable	inflation,	a	low	tax	environment,	fiscal	conservativism,welfare	state	retrenchment,	and	the	importance	of	the	state	as	a	facilitator	of	private	markets,	rather	than	asubstitute	for	them	(Hay,	2004).We	argue	these	accounts	overstate	the	extent	these	Keynesian-style	state	interventions	during	the	pandemicconstitute	a	long-term	policy	change.	Rather	than	marking	a	permanent	shift	away	from	neoliberalism,	Keynesian-style	policies	may	be	temporarily	‘borrowed’	by	policymakers	as	a	form	of	economic	crisis	management,	beforereturning	to	‘normal’	neoliberal	policymaking	once	the	crisis	subsides	(Hay,	2012).The	2008	Global	Financial	Crisis	provides	a	clear	example	of	this,	as	several	countries	temporarily	adoptedKeynesian-style	economic	ideas	by	increasing	welfare	provision	and	nationalising	financial	institutions	beforeintroducing	neoliberal	fiscal	austerity	measures	once	their	domestic	economies	stabilised	(Duménil	and	Lévy,2011).	However,	there	has	been	little	examination	of	how	neoliberal	economic	ideas	become	re-established	afterthe	economic	crisis	of	the	pandemic	has	been	managed.Institutional	changes	of	economic	policymaking	do	not	occur	solely	at	the	direction	of	politicians.	Rather,	they	arereliant	on	‘a	sufficient	intersubjective	consensus	about	the	legitimacy	of	change	among	the	broader	population’(Widmaier	et	al.,	2007,	749).	As	such,	political	actors	may	look	to	generate	political	support	by	influencing	voterpreferences	about	how	the	economy	should	operate.Political	actors	may	also	attempt	to	persuade	the	public	of	the	necessity	of	instigating	an	institutional	change	ofeconomic	policymaking	by	discursively	constructing	a	crisis	of	the	economic	policy	set	currently	in	place	(Hay,2004).	Here,	a	crisis	is	deemed	a	moment	of	necessary	intervention,	where	political	actors	associate	currenteconomic	policies	with	various	social,	economic	and	political	problems	that	need	to	be	addressed	(Hay,	2016).	Thissubsequently	provides	a	justification	for	a	new	policy	set	to	be	introduced	that	directly	solves	the	problemsassociated	with	the	current	economic	paradigm	(Hay,	2016).Yet,	the	specific	narratives	deployed	by	policymakers	to	motivate	a	return	to	‘normal’	neoliberalism	after	thepandemic	are	an	under-explored	research	area.	Therefore,	we	examine	whether,	and	to	what	extent,	policymakersin	different	countries	attempt	to	legitimise	the	re-establishment	of	‘normal’	neoliberal	policymaking	after	the	COVID-19	pandemic?	We	examine	the	question	of	how	pro-neoliberal	narratives	emerge	in	Britain,	Germany	and	the	US	inthe	context	of	the	pandemic.	The	three	cases	were	selected	as	each	country	has	adopted	key	tenets	of	neoliberalpolicymaking	in	the	decades	preceding	the	pandemic	(Konings,	2010;	Hay,	2004;	Germann,	2014).British Politics and Policy at LSE: ‘COVID-Keynesianism’ was a short-term crisis management tactic. Neoliberal policymaking is back Page 1 of 3		Date originally posted: 2022-09-28Permalink: https://blogs.lse.ac.uk/politicsandpolicy/covid-keynesianism-was-a-short-term-crisis-management-tactic-neoliberal-policymaking-is-back/Blog homepage: https://blogs.lse.ac.uk/politicsandpolicy/The	results	of	our	analysis	demonstrate	how	political	actors	across	these	cases	construct	narratives	of	a	‘twin	crisis’around	the	fiscal	sustainability	of	COVID-Keynesianism	and	the	threat	of	rising	inflation	during	the	pandemic.	Britishpolitical	actors	across	the	spectrum	construct	a	crisis	of	fiscal	sustainability	and	advocate	a	return	to	prudentgovernment	spending,	demonstrating	how	deeply	the	neoliberal	emphasis	on	fiscal	conservativism	is	embedded	inBritain.	Alternatively,	British	economic	policymakers	attribute	rising	inflation	to	the	Bank	of	England’s	expandingremit	and	call	for	a	return	to	a	narrow	focus	on	neoliberal	inflation	targeting,	restoring	its	credibility.In	Germany,	political	actors	argue	that	fiscal	prudence	prior	to	the	pandemic	enabled	increased	spending	toaddress	the	economic	issues	posed	by	COVID-19.	Subsequently,	they	advocate	a	return	to	fiscal	conservatism	todevelop	the	fiscal	capacity	to	deal	with	unexpected	economic	instability	in	the	future.	As	Germany	has	handed	itsmonetary	policy	autonomy	to	the	ECB,	German	political	actors	hold	the	ECB’s	monetary	expansion	programmeresponsible	for	rising	inflation	and	demand	the	ECB	re-focus	on	their	inflation-targeting	mandate.Finally,	in	the	US	case,	Republican	politicians	emphasise	how	Biden’s	fiscal	spending	is	unsustainable	andconstruct	a	specific	political	crisis	by	associating	it	with	socialism,	which	is	less	politically	acceptable	in	the	US	thanin	other	Western	democracies.	Republican	political	actors	also	bind	the	twin	crises	of	COVID-Keynesianism	byholding	Biden’s	fiscal	spending	responsible	for	rising	inflation,	with	fiscal	conservatism	proposed	as	the	mainsolution	to	these	twin	crises.	Thus,	making	it	distinct	from	proposed	solutions	within	Britain	and	Germany	for	centralbanks	to	re-focus	on	the	technocratic	management	of	inflation.Overall,	these	findings	demonstrate	two	key	contributions	made	by	our	analysis.	First,	we	illustrate	how	politicalactors	idiosyncratically	attempt	to	influence	short-run	changes	in	​economic	policymaking	in	different	countries	inways	that	relate	to	the	specific	political	context	of	a	country.	Second,	we	demonstrate	how	the	overarchingcontinuation	of	a	dominant	economic	policy	paradigm	needs	continuous	legitimation	to	curtail	challenges	fromalternative	economic	ideas.	This	suggests	policy	paradigms	do	not	exist	in	periods	of	equilibrium	but	necessitatecontinuous	reinstatement	by	political	actors	and	legitimisation	to	the	public	to	remain	in	place.Note:	the	above	draws	on	the	authors’	published	work	in	Cambridge	Journal	of	Regions,	Economy	and	Society,rsac030._____________________James	Wood	is	a	Teaching	Associate	in	Political	Economy	in	the	Department	of	Politics	andInternational	Studies	at	Cambridge	University.				Valentina	Ausserladscheider	is	a	Postdoctoral	Researcher	in	Economic	Sociology	at	theUniversity	of	Vienna.			British Politics and Policy at LSE: ‘COVID-Keynesianism’ was a short-term crisis management tactic. Neoliberal policymaking is back Page 2 of 3		Date originally posted: 2022-09-28Permalink: https://blogs.lse.ac.uk/politicsandpolicy/covid-keynesianism-was-a-short-term-crisis-management-tactic-neoliberal-policymaking-is-back/Blog homepage: https://blogs.lse.ac.uk/politicsandpolicy/Matthew	Sparkes	is	Teaching	Associate	in	the	Department	ofSociology	at	Cambridge	University.			Photo	by	Anastasiia	Chepinska	on	UnsplashBritish Politics and Policy at LSE: ‘COVID-Keynesianism’ was a short-term crisis management tactic. Neoliberal policymaking is back Page 3 of 3		Date originally posted: 2022-09-28Permalink: https://blogs.lse.ac.uk/politicsandpolicy/covid-keynesianism-was-a-short-term-crisis-management-tactic-neoliberal-policymaking-is-back/Blog homepage: https://blogs.lse.ac.uk/politicsandpolicy/

COVID-Keynesianism was a short-term crisis management tactic. Neoliberal policymaking is back

http://eprints.lse.ac.uk/117073/1/politicsandpolicy_covid_keynesianism_was_a_short_term_crisis.pdf

COVID-Keynesianism was a short-term crisis management tactic. Neoliberal policymaking is back

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