How did we misinterpret Mr. Keynes?

Keynes was a forgotten name during the 1970’s, 1980’s or in 1990’s. Privatization and deregulations was the wind. In UK, Thatcher started privatization and privatization was rampant in transport, telecom, National Health Service. Perhaps I am bit skeptical of the Iron lady (recently I have watched the ‘The Six Thatchers’ episode of Sherlock), as government’s total spending in real sense did increase during her days.

India started to throw away License Raj and Nehru’s rural economy led development strategies were thrown away. USA limited the applicability of Glass-Steagall act and financial intermediation business were liberalized. There were different arguments given in favor of a less-happening government like increasing public’s stake in the public property, reducing nasty concentration by the oligarchs and mostly better management. My objective is not to make a stand for deregulation or nationalization. Perspective is how we have misinterpreted Keynes.

Keynes was equivocal against the limitations of monetary policy. At the time of extreme depression mere interest rate reduction will not increase employment as investors really do not care about the cheap factor of production anymore at that point of time. Keynes suddenly came back into limelight since 2008; his policy of government’s higher stake in the economy suddenly became quite accepted willingly or unwillingly.

People who often disbelieve in Keynes have their own point and I would not disagree if they say government’s investment or higher stakes often bring inefficiency. Yes, government’s expenditures almost always fail to produce the desired level of impact or at times these are misguided. But did Keynes ever propose for a perpetual budget deficit? NO. That is where generations after generations have misinterpreted him. Government budget deficit is a very good solution to boast up the aggregate demand during recession; but Keynes believed that government’s deficits would be offset by surpluses in the coming days. So, according to Keynes deficit budget is a short-term antidote.