The short term memory loss of the Keynesians

To kick on with this electoral theme, a first quick point on economics. In light of Corbyn’s now overtly socialist manifesto, and the accusations that “the Conservatives remain stubbornly allergic to – or ignorant of – Keynesian macroeconomics“, it is perhaps opportune for people to remember what the basis of Keynesianism – often in recent years confused with socialism – actually involves:

  1. Repayment of debt – after borrowing in the low interest rate part of the cycle, it is imperative to rebalance this by repaying this when interest rates rise in the upcycle;
  2. Crowding in, not crowding out – the purpose of government spending is only to pay for things that would not otherwise be paid for by the market; not to provide the same things at a subsidised rate;
  3. Tax cuts – Keynes made it very clear that the best and most efficient way to stimulate demand was not through public spending, but by returning money to consumers.

I wonder if elements of this can now be reclaimed by a responsible government, Tory or otherwise …

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