All Dreams End: The Collapse of Keynesian Economics

July 10, 2023

by Charles Hugh Smith Of Two Minds

Now that debt is rising faster than “growth,” and “growth” is dependent on speculative credit-asset bubbles, the collapse of the Keynesian dream looms large.

Unbeknownst to economists, the Keynesian bedrock of modern economics–using financial repression and government spending funded by debt to manage the business cycle of growth and recession–is an artifact of a century of expansive cheap energy and virtuous demographics.

Presented as quasi-scientific “laws of economics,” Keynesian policies of suppressing interest rates and funding stimulus with debt were only possible in an era in which energy per capita (per person) always became more abundant and affordable in terms of the purchasing power of wages, i.e. how many hours of labor does it take to buy the energy to fuel a vehicle, prepare a meal, etc.