John Maynard Keynes once observed in a snide swipe at business executives that “Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually slaves of some defunct economist.” But the same could be said about most economists, finance ministers and central bankers today. They, too, are enthralled with an obsolete idea: Keynesianism–the belief that government spending and easy money can lastingly and constructively animate an economy. This dinosaur mentality is costing investors trillions of dollars in lost asset value.
A prime example of this antediluvian attitude comes from Britain’s chancellor of the exchequer, George Osborne, who recently said that the U.K.’s government was at the end of its tether in trying to rev up the Sceptered Isle’s moribund economy and moaned that there was no money to spare for stimulus from more spending or tax cuts. In fact, he floated the idea of finding new ways to pick the pockets of “rich” homeowners.
Keynes himself was rather flexible, never hesitating to change his mind in light of new circumstances. For instance, his thinking on the efficacy of the gold standard changed more than once. But poor George Osborne and his ilk are absolute slaves to the current Keynesian notion of the role government plays in the economy. Contrary to what they believe, government spending and loose money do not lead to a sustainable expansion; they hurt it. London should have learned this from Britain’s pathetic performance during the miserable era prior to the advent of Margaret Thatcher, just over 30 years ago.
Forbes recommends that British leaders “slash” income tax rates and cut their capital gains tax rate in half, taking a supply-side approach to the island nation’s economic woes.