Keynes is not the answer

The Daily Telegraph

Suddenly, old arguments that seemed to have been settled 30 years ago are being held again. The financial crisis has prompted an expansion of state power that, even a few months ago, would have seemed unthinkable. The nationalisation of large parts of the banks — something that was regarded as almost lunatic when [Labour leader] Michael Foot proposed it in the 1983 Labour manifesto — is now broadly supported by all three parties. Keynesianism — or at least the idea that governments should respond to downturns by spending more money — is back in fashion, too.

John Maynard Keynes appeared discreditedafter the 1970s, his policies associated with stagnation and debt. Now, suddenly, he is being rehabilitated. “Much of what Keynes wrote still makes sense,” the Chancellor of the Exchequer told The Sunday Telegraph. …

What is the solution? If there is money to be had, it should be returned to the people in the form of tax cuts. Governments are no better at stimulating demand than they were at installing telephones or building cars — or, as we shall soon see — running banks. The best way to injectliquidity into the system is to stop confiscating so high a proportion of people’s earnings. Tax cuts would be morally right, politically popular and, more to the point, economically orthodox.