Since the rise of Margret Thatcher in the late 70s/early 80s, UK macroeconomic policy can safely be described as Neoclassical. Following the 2008 Financial Crisis, serious questions were asked about the continuing validity of Neoclassical macroeconomic policy. This was met with a resurgence in Keynesian economic thought, dubbed ‘Post-Keynesianism’. I’m going to focus on one simple, but fundamental, difference between the two; the structure of the firm.
To understand the how the firm behaves in these opposing economic ideologies, one must first understand the principle of Methodological Individualism. The philosophical proposition of Methodological Individualism (one which both Post-Keynesian and Neoclassical economics subscribe too) argues that microeconomics dictates macroeconomics, in so much that all aggregate events are rooted in individual behavior.
Neoclassical economics assumes that ‘the firm’ tends to be both small and owner-managed and thus, macroeconomic policy should be tailored to these small firms. Post-Keynesian economics argues ‘the firm’ is large and often in the form of an oligopolist (think of the major UK supermarkets), thus macroeconomic policy should be tailored around large firms.
The neoclassical nature of UK macroeconomic policy over the past 30 years certainly suggests that the economy was/is rooted around the small firm. But, is this assumption suitable for the current UK economy? Based purely on observation I would argue that it isn’t. I’m struggling to think of a UK market that isn’t centered around a core oligopoly of firms (that are neither small nor owner-managed) that dominate the neoclassical firms, to the extent that the major market influence lies with the oligopolists. And in this sense I agree with the Post-Keynesians. The actual answer obviously requires a much more in depth study of the UK economy, but I certainly think Post-Keynesianism (at least in theory) provides a case in favour of reassessing the basic fundamentals of UK macroeconomic policy. This being said, I would not class myself as a Post-Keynesian.
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