Keynes Betrayed: When the Cure Became the Disease

Debt is taking the blame. We watch trillions pile up in the United States, France, Italy and elsewhere in Europe, and wonder how far it can go.

But debt is not the disease. It is the symptom.

The disease is a budget deficit that has become permanent.

We need to go back to Keynes. John Maynard Keynes never envisioned deficits as a normal, permanent feature of government. His thinking was rooted above all in the economic cycle. When the economy collapses, private investment dries up, unemployment rises, and fear paralyzes businesses and households, the state must step in. It spends, invests and accepts a temporary deficit. Monetary policy can also become more accommodative.

It was a remedy.

An economic antibiotic administered when the body is sick.

The problem is that we have ended up taking the antibiotic every day.

The deficit, which was supposed to address the bad years, has become entrenched in the good ones. It no longer finances only wars, recessions, major investments or disasters. It also pays for the day-to-day running of the state: public administration, pensions, social benefits, defense, subsidies, bureaucracies and, sometimes, institutions whose costs no one dares seriously to question anymore.

And since the gap between what the state spends and what it collects in revenue has to be financed somehow, it borrows.

The mechanism is almost childishly simple:

deficit, debt, interest payments, another deficit, more debt.

For a long time, it works. Politically, it is even wonderful.

Debt allows governments to spend today without immediately collecting the revenue needed to pay for it. It allows them to satisfy today’s voters by passing part of the bill on to tomorrow’s voters.

This is where Keynes runs into a problem his economic theory was never designed to solve: the constraints of the democratic timetable.

Four Years Versus Forty

Debt is a long-term proposition, spanning twenty, thirty or even forty years. Governments, by contrast, think about the next election.

In the United States, presidential elections come around every four years, and the midterm elections in between serve as an early reminder to those in power that voters will hold them accountable. In Europe, the political cycle works differently, but the constraint remains the same: why pay the political price of a reform today when its benefits may not be felt until the next government takes office?

Cutting spending immediately creates discontent. Abolishing a government agency immediately triggers resistance. Reforming the pension system immediately brings people into the streets.

Borrowing, by contrast, barely makes a sound.

This may be the fundamental flaw of public debt: it creates a political disconnect between spending and paying for it.

Gradually, everyone comes to defend their own piece of the state. A ministry defends its budget, a government agency its staffing levels, beneficiaries the benefits they receive, and politicians their electoral base. All of this is human. Each position is even rational when considered in isolation.

But the sum of all these rational behaviors can become collectively irrational.

No one wants to make sacrifices. So governments borrow.

When Debt Pays for the Present

Not all debt is created equal.

When a government borrows to build productive infrastructure, it passes on a debt to the next generation, certainly, but also an asset.

When it borrows to weather an economic depression, it may prevent the economy from collapsing.

But when a government borrows year after year simply to cover its day-to-day spending, the nature of that debt changes.

The next generation inherits the bill without necessarily inheriting any corresponding asset.

This is the distinction between investment debt and consumption debt that we have gradually lost sight of.

The US figures are becoming increasingly concerning. The Congressional Budget Office (CBO) estimates the federal budget deficit at around $1.9 trillion in 2026, or nearly 5.8% of GDP. Debt held by the public stands at around 101% of GDP and, according to the CBO’s current projections, is expected to continue rising sharply over the coming decades.

Yet the most important factor is not the figure itself, but the trajectory.

There is no magic threshold – 100%, 120% or 150% of GDP – beyond which a country automatically goes bankrupt. Japan alone is enough to demonstrate that.

The real question is much simpler: is debt growing persistently faster than the economy’s capacity to service it?

If the answer is yes, the problem will eventually emerge.

Lebanon Should Have Taught Us Something

We Lebanese know all too well how this story ends.

That does not mean, of course, that the United States or France is comparable to Lebanon. Their economic structures, currencies, institutions and access to financing are fundamentally different.

But Lebanon has a more universal lesson to teach us.

A debt crisis does not begin on the day a country defaults.

It begins long before that, when everyone knows the system needs reform, but everyone would rather buy another year.

Governments borrow to avoid making sacrifices. Then they borrow again because the first loan has allowed them to avoid those sacrifices in the first place.

Paradoxically, the very fact that they can still secure financing becomes proof that they can keep going.

Until lenders begin to have doubts.

At that point, the market does not necessarily say, “I’m no longer willing to lend to you.” It starts by saying, “I’ll lend to you, but at a higher cost.”

That is when the mechanism becomes dangerous.

More debt means higher interest payments. Higher interest payments widen the deficit. The deficit requires more borrowing.

Debt begins to generate more debt.

The Sacrifice We Choose or the Sacrifice We Are Forced to Make

The cost of running the Western state must therefore be restructured.

The word “restructure” does not mean dismantling the welfare state, abandoning the most vulnerable or eliminating essential public services.

It means making choices.

What is essential? What is no longer necessary? Which government agencies can be merged? Which privileges can no longer be justified? Which expenditures prepare for the future, and which merely serve to maintain the status quo? Where can technology replace administrative structures that have become too cumbersome?

And above all, would we still accept certain public expenditures if we had to pay for them immediately through taxes rather than quietly through debt?

To borrow an old French expression, it is time to “trim the fat” from the state.

Not to weaken the state. Quite the opposite.

The aim is to restore a state strong enough to intervene on a massive scale when the next genuine crisis hits.

For if we keep using up our fiscal ammunition in ordinary times, what will be left when the next crisis in scale of 1929 or 2008, the next pandemic or some other unforeseen crisis comes along?

This is precisely where Keynes was betrayed.

We kept his medicine but forgot his diagnosis.

The deficit was supposed to be countercyclical. It became structural.

The exception became the rule.

And the instrument designed to save the economy in bad times is now too often used to avoid difficult choices in ordinary times.

Debt, then, is not our true enemy. Debt is a tool.

The danger begins when a society comes to believe that this tool can spare it from sacrifice.

We can postpone spending. We can refinance debt. We can lower interest rates. We can keep borrowing for a few more years.

But we cannot repeal arithmetic.

And history almost always presents nations with the same choice:

make the necessary sacrifices while they can still choose to do so, or be forced to make them later, when they no longer have a choice.