Balanced Keynesianism and Its Application to Cutting the Trade Deficits

Abstract In the twenty-first century, the goals of mankind are evolving from raising near-term prosperity to unlimited term sustainable survival of mankind in an acceptable state. This is bound to lead to a scientific revolution—a paradigm shift. A return to the generalized ideas of Keynes must be an integral part of that shift. I propose that the Keynes’s approach to economics must be complemented by imposing (Pigovian) taxes on negative externalities. The resulting “Balanced Keynesianism” (BK) in international trade is “Compensated Free Trade” (CFT), which should be unilaterally imposed by the US government on each of its mercantilist trading partners. It easily wins in comparison with other proposed methods of cutting the trade deficit. Under CFT, a limit is imposed on export revenues of each trading partner. As we shall see, it is the only methodology that allows large-scale and fast US deficits cutting, while automatically preventing trade wars and repercussions. CFT allows having the nation-state, democracy, and globalization at the same time.