Paradigm shifts in economic policy

Economic policy

It helps to explain the dynamics in economic theories and politics with paradigm changes. We shall begin by explaining the development of a 'political-economic model' in terms of the philosophy and context of the two transitions in the 20th-century model. We instead look at the second, the change to "neoliberals." The final segment explores whether economic and political dynamics have been offered an impetus to step away from neoliberals after the financial crisis.

Global economic experience may be separated into various periods in which business and financial theories have prevailed. We would use a political and economic model as a prevailing community of concepts. These paradigms typically involve political/economic aims, theoretical/ empirical context for interpreting economic and social processes, theories that explain and support the priorities and observed structures, and economic and social strategies that attempt to accomplish particular objectives based on evaluations.

Political and economic paradigms will have a significant impact both at the national and foreign levels on university and media discourse and policy-making institutions. The West has undergone two massive breakdowns and transformed from one political and economic system into another during the past hundred years. The first was the laissez-faire ideology for the post-war consensus, which extended from the 1929 Wall Street crash to the adoption of the post-war era, of the most notably Keynes’ economic doctrine. The second was a post-war neoliberalist movement, beginning with monetary and oil shocks in the early 1970s and free-market economic reforms in the 1980s, contributing to the present global age.

The economic and political problems were raised during each transition, the inability to understand and react to orthodox ideas and policies, and to substitute orthodoxy with a new strategy. This cycle of growth, inspired by Kuhn's paradigm shift theory, has been attempted by many literature sources. According to that hypothesis, shifts arise when two criteria are met. Firstly, many "anomalies" refute the current concept or significance, and, secondly, active creation of an alternate explanation that better describes the facts.

Scientific improvements may be viewed as either "progressive" or "degenerating" "development projects." Progressive projects embrace innovative approaches and implement concepts that describe the truth better. In comparison, following the inability to justify the available facts and, therefore, to reject their former position as revolutionary programs, degenerating programs are still of older hypotheses and ideas. Degenerating projects, which benefit from an incumbency superiority sponsored by leading scientists, may have excessive permanence. A paradigm change takes effect only if new systems gain adequate funding to address the risk of a degenerating system, and the old model is substituted.

While offering valuable heuristics, these theories still ought to be implemented closely in the economic and public policy sector, which is nearly unsure and which never irrefutably distorts hypotheses. The political and "private research" mechanism establishes financial strategy by agreeing on different objectives and designs with only limited regard to science's principle or facts. Economic analysis's intrinsic volatility and the strategic essence of policies encourage the preservation of the incumbency benefit in degenerating systems, assisted by vested considerations. Hall concluded that economic policy could bring three "orderliness" of reform in scope: revisions to current guidelines, structural reforms, and shifts in policy priorities. It was the third order of change in Hall's conception, which correlates to the change in politico-economic orthodoxy.

In each of the political-economic paradigm transitions in the 20th century, similar adjustments can be found. The above-described hypotheses explain the transformation of the post-war model to neoliberals in the 1980s as the changing cycle's core features.

The ideology that prevails: Economic and wealth rises and stability have cemented social democrats into a Kuhnian global vision after the Second World War. Keynesian market control contributed to the most significant measure of economic performance being the achievement of top jobs. The Phillips Curve – the simple trade-off between unemployment and inflation – was considerably affected by policymakers in the 1960s as a template for economic management. The Bretton Woods settlement's fixed exchange rate system and financial regulation created predictable international trade development


After the US abolished the gold standardization, the fall of the foreign currency system contributed to a decline in the balance of payments situation in many nations, which contributed to inflation becoming higher. Inflationary pressure was applied to the decision of oil companies to increase oil prices, contributing to recessions. A long-term decrease in the productivity of significant sectors and low industrial ties has shown serious vulnerabilities in productive economic potential, especially in the United Kingdom.

The Phillips Curve was in tension with the trend of stagflation and, at the same period, high inflation and unemployment, the inability of markets, and incomes-oriented policies to contain inflation and devaluation of the currencies to regain competitiveness left little policy options accessible within the Keynesian system. Overall, the degeneration of the existing political and economic system contributed to the Kuhnian phenomena' critical mass. An alternate incremental approach, opposed to Keynesian collectivism, came in. The latest strategy promoters appeared to be a breakaway from uncertainty as leaders and officials were struggling to address the problem.

New economic policy

The reelection in 1979 of Margaret Thatcher and Ronald Reagan in 1980 represented the complete arrival of a modern model following steady increases in policymakers' popularity during the 1970s. With the election of Helmut Kohl and the 'socialist project' of President François Mitterrand, this modern approach even reached less into German and French politics. Current policies have precipitated a structural revolution of the third magnitude and have moved from unemployment to inflation, the key focus of macroeconomic policy. The broader economic ideology was embraced as monetarism was quickly discarded. In addition to substantial taxation and investment changes, business reform, and labor union reforms, the State's economic position was significantly decreased, maintaining certain economic conditions.


Interestingly, the existing economic dynamics are paralleled to those in the two cycles of the 20th century, where significant paradigm changes took place. As Mark Twain ostensibly placed it, history does not replicate itself. However, it rhymes sometimes. No promise can be given that we can see a fundamental change in years to come in economic thinking and politics. However, there is proof of the need for significant changes, and obviously, trends are shifting in this direction in the academic sector, economic structuresEconomic policy, and civil society. The current moment provides both potential and obstacles for anyone who will value improvement.


1063 Words


Oct 07, 2020


3 Pages

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