Guest Post: John Adams A Flourishing West requires Virtuous Growth

For western civilisation to flourish, the West must return to what economists call the ‘virtuous cycle’.

Speaking in Poland last week, President Trump challenged western nations on whether they have the will to survive, the confidence to defend their values and ultimately the ability to preserve western civilisation.

To meet Trump’s challenge, western nations not only need to implement effective immigration and border control policies as well as reaffirm their commitment to the western canon, but they also need to revive their economies.

Across the western world, current levels of citizen disenchantment with the political establishment is not only being driven by high rates of immigration, collapsing social cohesion and domestic terrorism but also from substandard economic circumstances.

Anaemic rates of economic growth, high levels of government and household debt, widespread cost of living pressures, pronounced levels of unemployment and underemployment and wealth inequality are common economic phenomena across most western economies.

These trends must be addressed in order to provide western nations with the means to fund a strong common defence, world-leading education, scientific and technological innovation and high intellectual and cultural pursuits, allowing the west to maintain its current geopolitical leadership position.

To do so, western economic policy makers must reembrace the ‘virtuous cycle’ as a model for economic growth, which was at the heart of the rise of western economies over recent centuries.

The virtuous cycle stipulates that economic prosperity is derived from high rates of saving, which in turn funds high rates of capital investment, leading to higher rates of economic production through greater productivity, thus creating higher economic income.

The virtuous cycle is premised on a prudent monetary policy and a small role for government that facilitates interest and taxation rates which incentivises high rates of savings and investment.

This economic model was at the heart of the economic rise of western nations at the launch of the industrial revolution in the late 18th century through to the early 20th century in countries such as the United Kingdom, the United States and Germany. In recent decades, this model was the catalyst for the dramatic economic rise of Singapore.

Western nations, unfortunately, walked away from this economic model en masse after WW2 and embraced Keynesian economics, which its core tenets have largely dominated macroeconomic thought and public policy determination over the past 70 years.

Writing the General Theory of Employment, Interest and Money in 1936, John Maynard Keynes rejected the virtuous cycle as a model for economic growth and alarmingly suggested that poverty exists because economies save too much as a result of interest rates being too high.

Keynes therefore advocated that governments manipulate interest rates lower through money printing, engendering economic booms through greater investment and consumption.

Keynes also recommended that governments seek to engineer the elimination of recessions and thereby create ‘permanent quasi-booms’ through a continual lowering of interest rates (ultimately to zero) and evermore increases in government spending.

Consequentially, and not foreseen by Keynes, economies, under his framework, create enormous amounts of money and credit leading to artificially low interest rates; are obsessed with consumerism; are swamped with debt; experience significant mal-investment, asset price bubbles and economic inequality; suffer from low economic growth; and ultimately experience sizeable economic crashes and currency crises.

Unfortunately for Australia most, if not all, of our high school economic teachers and university economic faculties have taught Keynes’ economic theories to Australian students for several decades at the expense of other macroeconomic frameworks.

As a result, the Keynesian framework has both penetrated and dominated the economic thinking throughout all areas of Australia’s major governmental, financial and academic institutions.

Not surprisingly, after decades of operating under this framework, Australia now has the lowest official interest rates on record, low rates of household savings, record household debt, record foreign debt, a housing price bubble, record economic inequality, dramatically rising government debt and below trend economic growth.

For Australia to play its part in restoring and preserving western civilisation, Australian policy makers and institutions must discard the Keynesian economic framework and embrace, and internationally advocate for, the virtuous cycle. To do so will require a significant transformation and a disciplined commitment in our economic thinking, public policies as well as economic behaviour.

Fundamentally, Australian policy makers should seek to actively target and implement policies which foster a healthier national savings rate.

Singapore, for example, was able to achieve an average annual GDP growth rate of 7.8% per annum between 1960 – 2003 and transform itself from a 3rd world to a 1st world country within a single generation by dramatically increasing its annual savings ratio of gross national income from 12% to over 50%.

For the West and Australia to flourish this century, we must be willing to live simpler, work harder, sacrifice more and create more value by embracing entrepreneurship, industry and commercial risk.

John Adams is a former Coalition Advisor. This op-ed first appeared in the Daily telegraph.

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18 Responses to Guest Post: John Adams A Flourishing West requires Virtuous Growth

  1. RobK

    John,
    I hear what you are saying and for the most part kind of agree. Where I have some difficulty with your arguments is deciding which are causes and which are effects. Innovation and risk taking requires savings and rewards, no question. If that environment exists you don’t need to encourage savings or social engineering. It is, as they say, organic. People do it because they want to, it makes sense and is rewarding. All the government has to do is basic law and order, then keep out the way.

  2. RobK

    “For the West and Australia to flourish this century, we must be willing to live simpler, work harder, sacrifice more and create more value by embracing entrepreneurship, industry and commercial risk.
    There’s a problem here: you can’t just tell people what they should do. You can even legislate it successfully. People will do amazing things if left to their own devices. They will build community, enterprise and innovation to suit their needs.

  3. RobK

    Oops.. You cant even legislate it. Sorry.

  4. Roger

    current levels of citizen disenchantment with the political establishment is not only being driven by high rates of immigration,

    John,

    Verb must agree with subject!

  5. A Lurker

    For the West and Australia to flourish this century, we must be willing to live simpler, work harder, sacrifice more …

    I’d suggest that the bottom third of Australian society already practice those virtues through simple necessity (talk to your local pensioner or low-income earner about having to choose food over keeping warm/cold). So, keeping that in mind, let me rewrite your concluding sentence…

    For the West and Australia to flourish this century, we who possess a healthy disposable income, must be willing to live simpler, work harder, sacrifice more and create more value by embracing entrepreneurship, industry and commercial risk.

    p.s. Do you practice what you preach?

  6. Graeme

    I studied Keynesian Economics at high school in the early 70s, was taught Keynesian Economics at university, then taught Keynesian Economics in my schools as per the NSW Economics syllabus. It was only in the last years of my teaching career that I came to realise that what I was teaching was no longer applicable to economies. This came about by reading numerous articles on Quadrant Online by several economists (whose names currently elude me in my retirement). What worried me was that if a student tendered an alternative view to economic management in their HSC essays, that they would not get the marks. Why? The exam markers would also be brainwashed Keynesian and the suggested answers would only take the Keynesian approach as a top answer.

  7. Muddy

    Nothing will change until we have a decent purge.

  8. Chris M

    Keynes was a homosexual activist bent on destroying the west. Today he would be a Greens leader.

  9. JohnA

    RobK #2441888, posted on July 15, 2017 at 6:23 pm

    John,
    I hear what you are saying and for the most part kind of agree. Where I have some difficulty with your arguments is deciding which are causes and which are effects. Innovation and risk taking requires savings and rewards, no question. If that environment exists you don’t need to encourage savings or social engineering. It is, as they say, organic. People do it because they want to, it makes sense and is rewarding. All the government has to do is basic law and order, then keep out the way.

    Golly-gee – just what the Bible says. That much-derided Christian book which provided the fundamental ethos (and ethics) of the West for almost 2000 years.

  10. True Aussie

    Typical bullshit.

    The West flourished thanks to 3 things

    1. European people
    2. Christianity
    3. Greco-Roman cultural inheritance.

  11. RobK

    I particularly like the bit in the bible about maximum 10% tax. I do think they were onto something good there, makes a lot of sense.

  12. Helen

    4. Colonisation of other countries and use of their resources to the west’s advancement.

  13. cui bono

    What can a sensible govt do today? Slash immigration. Restrict it to skilled English speakers aged 25-40.
    Won’t happen, of course.

  14. Tel

    4. Colonisation of other countries and use of their resources to the west’s advancement.

    When it comes to resources like oil, it was only because of Western technological discoveries that the oil had any value to speak of. The Arab countries have known about crude oil for thousands of years, and they basically let it sit there because they didn’t have anything they could do with it. In some places they used the tar as a building material (waterproofing) and they also knew something about distillation which eventually led to the use of Greek Fire in the Middle Ages, but neither of these were a significant source of wealth.

  15. Empire

    Keynes also recommended that governments seek to engineer the elimination of recessions and thereby create ‘permanent quasi-booms’ through a continual lowering of interest rates (ultimately to zero) and evermore increases in government

    He also recommended that governments seek to engineer the elimination of undesirables. Keynes was the founding treasurer of the University of Cambridge Eugenics Society and director of the London Eugenics Society for seven years.

    An amoral narcissist whose ambition far exceeded his ability, yet a skilfull self promoter. I can understand his con enduring until the mid 60s, but once the Bretton-Woods framework began to unravel, it was obvious that Lord Keynes was a dope. How anyone in 2017 can sit through the Hayek interviews and not be convinced that Keynesianism is junk, is beyond me.

    In fairness to Keynes though, what our present looting overlords call Keynesianism is in fact a complete bastardisation that ignores the cycle altogether. Perpetual Deficit Theory?

    Singapore, for example, was able to achieve an average annual GDP growth rate of 7.8% per annum between 1960 – 2003 and transform itself from a 3rd world to a 1st world country within a single generation by dramatically increasing its annual savings ratio of gross national income from 12% to over 50%

    For the West and Australia to flourish this century, we must be willing to live simpler, work harder, sacrifice more and create more value by embracing entrepreneurship, industry and commercial risk.

    The last para is fair. Having destroyed so much capital, it will take sacrifice to rebuild. The savings/ratio aspiration (even if desirable), is sounding typically authoritarian though. The conditions to achieve it do not presently exist. The state must first make a strategic permanent retreat from the economy and the home. This is as much a cultural as an economic project.

  16. Wayne Job

    Keynes lost the plot and we followed like idiots leftist crap that has sent us broke.

  17. Anthony Park

    Im guessing the current low interest rates and low savings rates have not reduced poverty as Keynes suggested?

  18. True Aussie

    Colonisation of other countries and use of their resources to the west’s advancement.

    Typical leftist bullshit. The West flourished long before they began colonising other countries.

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