ABSTRACT
Forty-five years after Keynes wrote these words, it is common to find them quoted in discussions of the relationship between economic theory and policy; if anything, the passage has lost its power to provoke us into speculation on the ways in which policy-makers merge academic recommendations with political realities to produce economic policies. What ought to be startling is how different a picture Keynes painted from the one we observe today: more than twenty years passed before a durable consensus emerged on Keynesian policies of demand management, but the notions of ‘supply-side’ economics had barely begun to work their way into academic economic discourse before they were revealed as the pillars of the Reagan administration’s macro policy. The radically different policies adopted by these ‘madmen in authority’ have not been distilled from the writings of some ‘defunct economist’; rather, the Reagan campaign and administration played a decisive role in elevating a set of journalistic analyses and speculative propositions to the status of economic theory-and, indeed, nearly to the status of religion, so fervent are supply-siders in praise of their theories. What is the source of this conviction? How did supply-side economics gain its ascendancy, and why were traditional economic remedies abandoned by the US administration, in rhetoric, if not in practice? Can supply-side economics succeed in conquering the stagflation that has characterized capitalist economies since the 1970s? In what follows, the interaction between politics and economics is explored in order to shed light on the fall from grace of the neoclassical synthesis in economic theory and the demand management policies that grew out of that synthesis.
