Conclusion: Building on Keynes’s Middle Way to Renew the Liberal Tradition and Multilateral System in the 21st Century

This chapter argues that rebalancing liberal economics through the new macroeconomic approach to welfare and institutional economics described in the book would reinforce Keynes’s “Middle Way” reforms of the 1930s, which were aimed at better reconciling capitalism with social justice by maintaining full employment in decent work through robust domestic demand and investor confidence. It would add a systematic institutional dimension to Keynes’s fiscal and monetary strategies, expanding the toolbox available to policymakers to run their economies relatively hot on a sustainable basis through ongoing improvement in the fundamental conditions underpinning of supply and demand rather than the mainly transitory macroeconomic or deregulatory stimulus measures traditionally favoured by the social democratic centre-left and conservative centre-right. Moreover, the Paris climate agreement requires a new Middle Way in economics to be forged over the next generation, this time between environmentally destructive growth and socially destructive stagnation or degrowth. By internalizing the relevant institutional drivers of a just climate transition in macroeconomic theory and policy, the concepts and tools of human-centred economics create the possibility of a such a “neoclassical-Keynesian-ecological synthesis” focused as much on the social and environmental quality of growth as its quantity. Policymakers must abandon the reflex of standard liberal economics to assume, whether explicitly or implicitly, that broad and sustainable progress in household living standards trickles down inevitably from higher national income. A certain intentionality is required to optimize both—a sustained process of institutional deepening and investment to foster movement closer to the frontier of good policy and institutional practice in the aggregate distribution function’s five domains. The chapter concludes by explaining how operationalizing this forgotten aspect of liberal political economy’s founding principles holds the key not only to satisfying societal demands for greater inclusion, sustainability and resilience but also to reversing liberalism’s declining political prospects within countries and the international system.