THE CONSEQUENCES OF MR KEYNES.pdf - Institute of Economic ...

A. FATALISM VERSUS REFORM
This Paper has sought to explain why the acceptance of Keynesian
economics in a democratic society leads to an inflationary
bias, and why the destructive economic consequences that
spring from it can make the erroneous Keynesian analysis of
our economic order take on the appearance of a self-fulfilling
prophecy! We should not be surprised at the contemporary
fiscal and economic record. Once the last vestiges of the
Classical norm of the balanced budget were removed, nothing
was left to constrain the spending proclivities of politicians, and,
indirectly, those of voters themselves.
Two means of improvement might suggest themselves. We
might acknowledge that policies derived from Keynesian
economics cannot be applied within representative democracy.
Some might go on to suggest that basic choices on macroeconomic
pohcy should be taken away from the decisionmaking
power of ordinary politicians and entrusted to a small
group of 'experts', 'economic technocrats', 'planners', who
would, it is assumed, be able to 'fine tune' the national economy
in accordance with the true 'public interest' and wholly free of
politica] interference. This naive approach begs all questions
concerning effective incentives for the 'experts', and ignores the
demonstrated informational difficulties in forecasting and controlling.
Various arguments for incomes policies and national
economic planning, which now seem to be re-emerging, represent
in reality an effort to replace our democratic political
institutions with non-democratic institutions more consonant
with the Keynesian presuppositions.
From a democratic point of view, there are strong objections
to any such removal of decision-making power from our elected
representatives. Recognition of the political biases we have
described, along with a commitment to the basic values of
representative democracy, leads necessarily to a consideration
of the fiscal constitution, which defines the set of constraints
within which elected political representatives operate. In this
perspective, the acceptance of the Keynesian paradigm, misplaced
in its analytical foundations, has led to the destruction
of one important element ofthis constitution that has not been
replaced. The spending and inflating proclivities that have
been unleashed are capable of making the economy appear to
conform to the Keynesian view of the world.
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