Telephone: +44 (0)24 761 50048
Email: R dot Farmer dot 1 at warwick dot ac dot uk
Advice and feedback hours: By appointment (via email).
- The Macroeconomics of Self-fulfilling Prophecies
I study the connection between market psychology and macroeconomics. The English economist John Maynard Keynes referred to the idea, that market psychology matters, as 'animal spirits'. That idea was forgotten soon after Keynes wrote his master work, The General Theory of Employment Interest and Money: In the wake of the Great Recession of 2006 -- 2009 it is coming back into focus.
But although Keynes made important and lasting contributions to the policy debate, we have learnt from experience that not all of Keynes' theories were correct. Keynes claimed to have provided a 'general theory' in which full employment is one of many possible outcomes of a market economy. But he did not articulate his theory in a way that was compatible with microeconomic theories of behaviour. My work provides the missing link from the macroeconomics of animal spirits to the microeconomics of markets.
I have argued in a series of books and research papers that Keynes' insistence on fiscal deficits, as a way of maintaining full employment, was a mistake. A better way to operate fiscal policy would be through direct intervention in the asset markets by a committee, similar to the Monetary Policy Committee in the UK. A good candidate for a body to operate such a policy would be the newly created Financial Policy Committee.
The FPC should stand ready to buy and sell a Stock-Market fund at a price that depends on the unemployment rate. If unemployment is too high, they should increase the growth rate of the price of the Fund; if it is too low, they should lower its growth rate. These ideas are explained in depth in my new book, Prosperity for All, published by Oxford University Press in October of 2016.