New Delhi, Oct. 14 -- For much of the post-World War II period, Keynesian demand management guided macroeconomic policy. Governments raised spending or cut taxes during recessions and restrained demand when inflation threatened. It assumed stable relationships among income, consumption, unemployment and prices.

That confidence faltered with the oil shocks of the 1970s that drove up costs as growth slowed and joblessness rose. Further demand stimulus risked worsening inflation.

Milton Friedman and Edmund Phelps had already questioned the presumed trade-off between inflation and unemployment. Robert Lucas raised a more basic objection. When governments change policy, households and firms revise their expectations and behaviour. Past relat...