From Depoliticisation to Dedemocratisation: Revisiting the Neoliberal Turn in Macroeconomics

The last decades of the twentieth century saw a liberal turn in macroeconomic policy from government discretion towards policy rules and depoliticisation. Intellectually, this turn was inspired by the wave of the New Classical Macroeconomic (NCM) theory that emerged to eclipse Keynesianism in the 1970s. This paper revisits some of the central papers and models of NCM, including Kydland and Prescott’s 1977 ‘Time Inconsistency Model’, Sargent and Wallace’s 1976 ‘Policy-ineffectiveness proposition’ and the micro foundations of the Lucas-critique from 1976. Through an investigation of the political and economic context inspired by Ellen Meiksins Woods’ social history of political thought, this paper investigates the ideological tenets of the neoliberal turn in macroeconomics associated with NCM. In policy and scholarly debates, NCM has primarily been viewed as a critique of government intervention in the economy. This paper challenges this notion and stresses that NCM is not primarily a critique of government action, but rather a critique of the role of democracy and popular participation in governance. This rereading offers new insights into the relationship between neoclassical economics and neoliberal policy in the 1970s transition and casts new light on our general understanding of the relations between liberal political economy and democratic governance.