The Problems with Keynesian Policies.

It has become fashionable for Keynesian economists, such as Tim Hazledine of Auckland University, to criticise proposals for compulsory saving schemes on the grounds that credit driven economic growth makes saving unnecessary. However, Keynesian economics is a hedonistic economic system which is highly unsuitable for an age of decadence and deindustrialisation. What is needed today is a return to the cuture of thrift and investment which charaterised Western economies from the late 1930s to the mid 1960s

The Keynesian, full employment programmes of the 1950s and 1960s were successful at the time because of-
1. the pent up demand for goods and services that existed following the Second World War.
2. the high savings culture which existed at the time
3. the industrialised nature of Western economies at that time and the huge potential for productivity increases in farming, manufacturing, fishing and mining.
4. tight regulation of the finance and property markets following Bretton Woods.

It is clearly apparent, today that economic conditions are very different. Contemporary Western Economies have been profounded restructured so as to promote consumption and penalise savings and production. People are now consuming more than they produce, not producing more than they consume, as they did when Keynesian policies were first introduced. Keynesian policies came unstuck in the 1970s because of high oil prices and industrial decline due to increasing Asian competition. If Keynesian policies were followed today there would be massive inflation with little job growth and even lower rates of savings.

Most of the West's industrial production has now been moved offshore to Asia, so there is now, in many respects, no real economy left to stimulate. Although this is good for inflation, because many Asian goods are being produced very cheaply, is cuts off the option of stimulating the economy with low interest rates. Low interest rates (even if they can be achieved) will simply encourage more consumer spending on overseas goods and property speculation, resulting in unsustainable trade imbalances and boom/bust cycles.

Although a lot of labour intensive manufacturing has been moved offshore the West still has some productive industries worth holding onto than can compete in a global economy. Industries which the West should be promoting include:

1. Farming- the more Asia industrialises, the more expensive food will become. Hence land and water rich Western countries should be looking to get more money from farming and not surrendering good land to urban sprawl.

2. Wood, Metal, Paper Processing and advanced production of chemicals and plastics- these industries depend on efficient use of energy not cheap labour and China, India and Vietnam are increasingly energy poor.

3. Alternative energy- the less oil and gas a country imports the easier it is to compensate for indutrial decline (Britain has already demonstrated this in the 1980s and 1990s). Local bio-fuel production can also help ease trade imbalances in land/water rich coutries like New Zealand and Argentina.

4. Arms manufacturing- the West should not outsource arms manufacturing- this is a mistake from an economic and security perspective.

5. Energy conservation technology- a huge growth area with many opportunities for creating customised products and services. Energy conservative will increasingly become a significant factor in economic competitiveness.

6. Pharmaceuticals and medical equipment- again, the West should protect these industries from third world competition for economic and security reasons.

These industries don't rely on Keynesian measures to stimulate consumption but instead rely on venture capital and govenment assistance, especially in the area of research and development. Subsequently, Western governments need to stimulate savings and develop an entreprenerial culture in the public service. To achieve this they need to combine traditional neo-classical economics, along with the developmental and institutional economics of the likes of Schumpeter and Veblen, plus new thinking from environmental economics.

The Neo-Keynesian idea of government sponsored consumption is a policy for a by-gone era. The problems of de-industrialisation, overpopulation and cultural decadence, require a return to traditional Western values of thrift and investment in the future.