Keynesianism is the heroin of economic policies. Those who are hooked rave about the highs it brings and will do anything for their next fix. It sounds simple enough to hear their explanation: inject some taxpayers money into the economy and watch it soar. The trick apparently is in finding the right “vein” to inject it into. So addicts might call for a massive public sector house-building programme, or a new high-speed rail line, or upgrades to the motorway network, or a new airport. There are a host of possibilities and they all have the same appeal: create work and stimulate the economy. It’s taxpayers money, they acknowledge, but it’s going straight back to the taxpayer and it’s making the money supply go round faster thus stimulating the economy.
Does anyone remember the Soviet Union? How short memories are. The state making investment decisions is never a good idea, and under the present climate of incompetence and lack of control it is potentially a disastrous one. To raise the money they want to spend, Keynesians would have to raise taxes by at least as much and in reality substantially more because collecting taxes is an inefficient process. If they wanted to spend say £10 billion on house building, they’d probably have to raise £20 billion to make up for the tax dodging that would be triggered. That £20 billion would be money taken out of taxpayers’ pockets which would result in less spending on other parts of the economy. The money supply would not in fact go round faster, it would slow down.
The truth is, Keynesians are not injecting money into an economy, they’re diverting it away from things the taxpayer was already spending it on: food, clothing, consumer goods, running a car and all the other everyday expenditures they’re already struggling to meet. And it’s not going straight back into taxpayers’ pockets, they’re tying it up in long-term capital projects. Central planning of an economy is always a bad idea. Always. If they really want to stimulate the economy they should leave as much as possible in the pockets of the taxpayer.
Here are some of their proposals examined:
Build more houses
Why won’t that work? Nobody could afford to buy them despite record low interest rates because banks are not making mortgage loans. If they were lending more money, there would be more houses bought and sold. Thousands of perfectly good houses were demolished under Labour’s disastrous Pathfinder scheme, but there are plenty more that could be renovated and returned to use which would happen if people were able to get mortgages to buy them with in the first place.
Build more railways
Why won’t that work? There is a massive amount of investment going on already, with new stations and upgraded lines which is part of the justification for increased fares. But turning stations into improved shopping centres isn’t really addressing the problem: people don’t make decisions on whether to travel by train on the basis of whether the station has a Costa cafe, they decide on the basis of the train fare. Right now fares are rising above the rate of inflation and the plain fact is, people can’t afford them.
Build a new airport
Why won’t that work? Heathrow airport in particular is seriously damaging Britain’s reputation as a place to travel to and to do business with. So Keynesians want to build a new runway, or better yet, an entirely new airport. The problem is, the nightmare that is travelling through Heathrow isn’t because of delays in the air, it’s the hours on the ground spent checking-in and going through security and especially getting through immigration on the inward journey. Spend the money on more immigration officers instead.
Build more roads
Why won’t that work? Everyone gets stuck in traffic, right? And where does that happen? In city centres, at junctions, places like that where traffic merges. And where do they want to build new roads? Out in the open country where there are no traffic jams. So how does that help? It doesn’t, you’re still going to be stuck in traffic jams, you’ll just get to the next one faster. But so will everyone else which means you’ll all sit in it longer. The other problem with the build-more-roads solution is that people can’t afford to drive, it is increasingly expensive to run a car.
To sum it up.
The bottom line is, you can’t buck the markets. Every individual in the market is making their own buying decisions on the basis of what they know they want, not on the basis of some state-mandated five year plan. All the Keynesians end up doing is interfering in the smooth operation of the market and as can easily be demonstrated the real solution to any problem they highlight is often simpler and cheaper – government should get out of the way.