For many years Keynesian fiscal policy became very popular and was used by governments to fight slowdowns and recessions. In the 1980s and in the next three decades, this policy lost much appeal among economists in academia, though less among governments. The financial crisis of 2007–2008 and the following Great Recession brought a sudden revival of interest in and use of fiscal policies. This paper outlines the main criticisms that were directed at the Keynesian fiscal policy from the beginning. Some of these criticisms are less-known than others.
That fiscal policy may have limits has been known and has been discussed since 1936, when Keynes published The General Theory in the middle of the Great depression. The criticism of countercyclical fiscal policy should have changed over the years, because of economic, social and structural changes that have taken place in the economies of the countries. This paper focuses on changes in the socio-economic ecology of countries and argues that those changes are likely to have reduced the effectiveness of traditional countercyclical fiscal policy.
Why did China grow so fast in the past four decades? What were the main factors? Important ones were: attitude of government; opening to the world; role of culture; exploitation of technological gap; role of foreign trained students; and role of government in the creation of modern infrastructure. These factors are likely to play a much smaller role in the future while several negative factors –populism, trade wars, environmental obstacles, aging of the population, authoritarianism and others are likely to lead to significantly lower growth rates.