The October 2008 bank recapitalisation package did not protect the economy against a deep recession. On the contrary, it accelerated the onset of recessionary forces and intensified them. By February this year Britain's policy-makers were desperate. In October they had put together a package that they regarded as clever in conception, and appropriate and proportionate in its implementation. Indeed, their efforts had been praised by trend-setters of international opinion, including the Financial Times which judged that the UK's measures created "a global template". Many leading economists recommended programmes similar to the UK's for their own countries. But demand, output and employment were deteriorating more rapidly after bank recapitalisation than before. Although interest rates had been slashed almost to zero, banks were still cutting back on credit lines and stock markets continued to decline. This year would be the worst year for the UK economy since the early 1980s. 

As usual in cyclical downturns, some economists urged fiscal reflation — higher government spending unmatched by extra taxes or outright tax cuts — in order "to boost demand". This is an ancient tribal custom of Keynesian economists who believe that the mere invocation of their hero's name can overwhelm experience and logic. Careful tests of the effectiveness of fiscal policy are needed, comparing changes in the cyclically-adjusted budget deficit with concurrent or subsequent changes in total demand. The results of such tests are disappointing and show, quite simply, that fiscal policy does not work. Japan exemplifies the argument. Since the early 1990s, it has been the target of constant criticism from foreign economists who assert that the answer to its chronic demand weakness is fiscal expansion. In fact, over the last 20 years, Japan has had prolonged phases in which the budget deficit has increased and demand grown at a beneath-trend rate or fallen, and prolonged phrases in which the budget deficit has decreased and demand has grown at an above-trend rate. Although Darling mentioned Keynes at the time of the 2008 Pre-Budget Report, the idea of a discretionary fiscal boost had been forgotten when the Budget itself was announced in March 2009. 

At this point a major policy rethink seems to have started at the Bank of England. (If public statements are to be taken at face value, nothing comparable occurred at the Treasury.) In his 1988 paper, the "lending-determines-spending" doctrine had been proposed by Bernanke as an alternative to "standard models of aggregate demand" (as he termed them), which paid more attention to money than to loans. In fact, Bernanke saw the "money-only framework" as "traditional" and regarded his own work as an innovation. He even coined the word "creditist" to describe a central bank with a special alertness to credit developments. Implicitly he was contrasting "creditism" with "monetarism", where monetarism is understood as the claim that the quantity of money — nowadays dominated by bank deposits — is crucial in the determination of national income. Bernanke declared that in some circumstances "a credit-based policy" would be "superior" to "a money-based policy". 

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