These specific policy prescriptions reflected a view that the economy was fundamentally unstable and therefore subject to repeated downturns that could only be avoided or mitigated by active fiscal policies that involved manipulating taxes and spending to manage aggregate demand. The experience of the 1930s also appeared to persuade economists and policy officials that individuals were not very responsive to tax and transfer policies that altered incentives. In contrast, todays leading economists have views that are virtually the opposite of those of their intellectual predecessors. The national economy appears to be relatively stable. Activist fiscal policies are not necessary and are likely to destabilize the private sector.
Individuals are much more sensitive to incentives than previously believed.
These new views have led to a reversal of the previous policy prescriptions. Budget deficits and inflation are now seen as bad. Easy monetary policy is counterproductive. Exchange rates should float. And taxes and transfers should be designed with a view to incentive effects.