Policy Continuity, Policy Change, and the Political Power of Economic Ideas

Because far-reaching changes in macroeconomic policies are generally accompanied by the adoption of a new theoretical framework informing policy-making, economic ideas are frequently assumed to have a causal influence on policy innovation. It is argued here that macropolicy regime changes are mainly driven by developments in labour and financial markets, which serve to confront the existing regime with intolerable deflationary or inflationary dynamics. The adoption of new economic ideas in regime changes hence is primarily driven by the need to provide a justification for exogenously determined change in policies which is compatible with the particular ideological convictions of the main political groupings. Ideas are argued to exert a causal influence over policies though by promoting policy continuity despite changes in the underlying circumstances, which originally justified such policies.