Introduction

However deep the economic recession may have been in the 1930s, those were extraordinarily productive years for economists. In 1933 Frisch founded the Econometric Society and, along with it, many of the formal methods we now use to analyse the working of our economies and the impact of economic policies. Then in 1936 Keynes published his general theory, and Tinbergen published the world's first econometric model. Both events were ultimately dedicated to providing the theoretical justification (in the first case) and the practical means (in the second) for adopting and evaluating active interventionist policies for achieving society's economic targets.

Since then, neoclassical economics, particularly that with a “freshwater” American flavour, has mounted a major counterchallenge in favour of noninterventionism, arguing that if markets work efficiently then they will adjust automatically. Therefore, if policy is needed, it is for reasons of redistribution; or because markets fail; or because there are specific restrictions or externalities in people's behaviour that prevent prices adjusting by enough; or because there are inherent lags in information collection and decision making. In such cases there will be a case for policy, but only for purposes of increasing supply-side responsiveness, of correcting market failures, of increasing market efficiency in terms of speeding up responses and improving price signals, or of removing externalities and noncooperative inefficiencies in national policy-making.