Tuesday, August 28, 2012

On the invalidity of Keynes today

Keynes may have had a few valuable ideas concerning the state acting as a stabilising factor in the economy between cycles of booms and recessions. However, what has happened since his theories were launched is that a rather profound dimension has emerged – a dimension that has managed to be ignored as the West still had quite a lot of competitive industry and still was seen as the king of the hill, and thus could build up debts in order to keep living on high standards of living.

That is no longer possible. As our productive part of the economy is diminishing when industry is moving to other parts of the planet, state revenue decreases. Rather than making the necessary structural reforms to make our part of the world less expensive (ie. living on less), in order to attract the production and refining back to the West, many argue the opposite policy – propping up the economy with more public funds (ie. living on what we do not have), in accordance with Keynesian theory. Furthermore, when the same people talk of an economy in balance they often refer to debt versus GDP. Here no distinguishment is made between publicly funded salaries, of which taxation means a few extra laps in the state budget – and non publicly funded salaries, of which taxation means real contribution to the revenue of the state. In conclusion a question lingers: Is it Keynes or having been spoilt that has made us blind to the very foundation of economy – income and expense?

For us who see parts of the publicly funded welfare state as good inventions, such naivety is sad. It hinders realistic politics and administration for preserving its important core, and it leaves an ever increasing bill for the future. “In the Long Run We Are All Dead” is not a very moral standpoint resting on the contract between generations, is it?