Tribune. The Covid health crisis seems to have converted even the most reluctant European countries to Keynesianism, with the possible exception of the Netherlands. Thus Germany posted for the first time in 2020 a deficit of 3.2% of its gross domestic product (GDP).
In total, the public deficit of the European Union as a whole amounted to 5.6% of European GDP, a far cry from the 3% rule. France, whose public deficit reached a little over 11% of GDP in 2020, voted an economic recovery program estimated at 100 billion euros over two years.
On what assumptions are all these public stimulus policies ultimately based? Quite simply on what Keynes calls “The propensity to consume”, to which he devoted the whole of book 3 of his General theory of employment, interest and money, [Payot, 2017, 1re éd. 1936].
Keynes takes care to distinguish what he calls objective factors, which correspond to the relationships between macroeconomic aggregates (income, consumption, employment), from subjective factors, on which he specifies that they hardly raise any problems and to which he it would therefore not be appropriate for him to linger.
The influence of the situation to consume
A major exception is however mentioned by Keynes himself at the risk of a curious detour in his analysis of the objective factors which determine this propensity to consume. It’s about “Of the profound influence exerted, in certain exceptional cases, on the propensity to consume, the development of an extreme uncertainty as to the future and what it hides”.
It is precisely in this type of situation that we find ourselves today. In such circumstances, the classic links between income and consumption defined by macroeconomics turn out to be ineffective. Calculated from past statistical observations, these links refer to a fictitious agent qualified as a “representative agent”, in order to derive a microeconomic interpretation of the behavior of individual agents.
Such an approach is no longer possible, however, when the occurrence of a completely unpredictable event upsets the decision-making of the agents. However, it is on the basis of this type of macroeconomic reasoning that the “stimulus plan” is supposed to quickly revive the economy, by stimulating consumption, and in particular that of individuals.
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