Political Economics

In three recent articles I commented on the effects in Australia of idiotic political decisions in the current economic crisis, other countries' policies on Australia, and individual responsibilities or lack thereof.

In this article I make some comments on Keynes influence on political decisions, again with particular reference to Australia.

There is no doubt that John Maynard Keynes was a brilliant economist, very influential in the 1930s and subsequently. The latter is probably because he propounded that free markets were imperfect and that it was the job of governments to intervene.

What an irresistable invitation to any politician, although to his credit he also called politicians a bunch of liars!

Unfortunately, politicians and bureaucrats since then have lived up to his description by consistently misinterpreting and manipulating his theories to suit their own ends, to the disadvantage of the free market and consequently taxpayers generally.

What Keynes actually suggested was that, in the event of a downturn in an economy, governments should spend and therefore go into short term debt in order to stimulate it.

The important qualification was that the debt was to be short-term and the spending to be on investment into sections of the economy that created long term jobs and tax revenue from the income thus created, both company and individual.

This increased tax revenue was then to be used to pay off the short term debt as soon as possible.

During the current crisis, most if not all, governments have concentrated on throwing taxpayers' money into areas that stimulate consumption instead of investment.

This has added to the long term debt that they had built up over years in non-productive social experiments, bloated bureaucracy to administer these, and encouraging consumption over saving and investment.

Australia was one exception in that two years ago it had no debt, despite an enormous bureaucracy spread over three layers of government. Unfortunately Rudd has fixed that and plunged the country into debtor nation status since he gained power and is now seeking other sources to plunder to pay for his misguided policies.

It has been argued that Keynes theories may no longer apply in the modern world with its much more complex economy and financial system. However, the basic balance between supply and demand has not changed.

What has changed is the increased concentration on social programs and promotion of consumption, at least in the western world, at the expense of investment in productive enterprises and personal saving.

This has created an imbalance in economies that will take years to work through, mainly because Keynes theories have been consistently bastardised and manipulated by those in power to suit their own short term ends.