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I went to see last night “The Standard of Living”, the play now in London about John Maynard Keynes’s life, and I really enjoyed it. It captures well his life and the times. However I disagree with an important part of the economics, a confusion that is behind the entire economic policy debate in Britain and the rest of Europe today: the confusion between Beveridge and Keynes. The report by William Beveridge (an LSE economist and ex-director) led to an enormous expansion of the welfare state. That is often confused (also in the play) with Keynes’s views, as if the large and continuously growing post-war welfare state had anything to do with demand stabilization. Keynesian demand management is what Andrés Velasco (also an LSE prof), as Finance Minister in Chile, did during the 2000s copper boom: he ran surpluses of 7% of GDP and more in 2006 and 2007 and put the money in a stabilization fund abroad. This was 12% of GDP by the end of 2008, when public debt was 4% of GDP. Public sector workers burned his effigy in Santiago asking for it to be spent. When the copper price collapsed along with the global economy, this surplus allowed him to introduce a massive stimulus package worth 2.8% of GDP, larger relative to the economy than the American one, which allowed him to stabilize Chile’s economy through the financial crisis. “Being a Keynesian means being one in both parts of the cycle,” he told The Economist. Today, very few governments are doing this. It is “whatever it takes” in crisis, and “welfare is untouchable” when the crisis finishes. This leads to a continuous ratchet up of spending that strangles any productive activity. Keynes was in favour of using debt to stimulate demand, but under no circumnstances to finance permanent welfare spending. He wanted an ordinary budget for the state and then a capital budget that would be used for the demand management and that would be invested only in productive capacity. While Beveridge was about social redistribution, an issue of social policy, Keynes was about stabilization. The play and a lot of commentary seem to conflate both things and use demand management to justify permanent structural social policy. I think this is pretty instructive for what’s happening in the UK and in the rest of Europe today. There is a widespread confusion that it’s neoliberalism which is hollowing out the state, when in fact the UK’s public spending burden is at around 45.6% of GDP this year, and the OBR expects it to stay around 45% for ten years running, the longest sustained period of spending this high since the Second World War; EU governments spend 49.5% of GDP (Eurostat, 2025). Outside wartime and the pandemic, the state has never been this large for this long. Neither neoliberalism nor austerity is at fault for the lack of investment. Governments cannot hit the fiscal rules without touching the triple lock, and other welfare entitlements (free transport for the over 60s here in London!) that most MPs consider untouchable. What gets cut all the time to make the numbers add up is infrastructure, energy, grids, R&D, innovation, etc. The UK’s gross fixed capital formation is at 18-19% of GDP, which is the lowest in the G7, and the general government investment is also behind the OECD average. The debate misunderstands the risk of pension sustainability. It is not that at some point in the future pensions become unsustainable. It is that today, their relentless growth eliminates the space to invest in infrastructure, innovation and the rest. Sadly, no party dares to make this argument. And even economists who defend the entrepreneurial or innovative state cannot bring themselves to state the obvious: that there is a huge opportunity cost in having one of every 5 new cars sold in the UK being paid by the state as a disability benefit, or in having free transport for all over 60 year olds.