Look, this is a long and pretty boring article and contains a fair amount of economics. It’s only worth reading if you are wondering about whether the Australian pension system is going to work and its going to deliver on its promise of a gentle and dignified retirement.

I’m going to leave out vast chunks of subversive thinking, like the system was designed to support the aged pension, not replace it, that it is still relatively poorly managed and that, well with the slightest amount of attention, it could be so much better and focus on something else instead.

What I’m going to focus on is this: Keynes is wrong, macroeconomics doesn’t really work and that means people who were expecting decent returns from their pension fund in retirement might have to give up that idea.

I’ve never made a secret that I’m a fan of Keynes, that his idea of Governments using stimulus packages to steer the economy is a pretty sensible and can be backed up by 75 years of post WWII economic success, but it seems now that time maybe over.

It seems stimulus doesn’t work and that macroeconomics is significantly less powerful than behavioral economics and that we will see the end of passive investment driving retirement incomes.

Look at it this way – since October 2007 Governments all around the world have been on a stimulus binge – borrowing trillions to invest in their countries to pump prime the economies.

Usually that means the market is flooded with money, businesses invest, people borrow and the Government starts to worry about the inflationary effect of using the reserve bank as a printing press.

Has it worked? No, for the first time in 75 years – it hasn’t worked at all.

As I write this about $17 bn of Government debt in the Western World has a negative yield and about 500 million people are living in a negative interest rate economy.

Just to put that in broad figures – about 10 times our GDP is out there in negative yield and about 18 times our population are living and retiring in states where money is free.

Free money sounds great right? Borrow it, invest it make a fortune, spend the fortune, repeat the cycle.

But that’s only true if you get growth, if you don’t get growth – then it all goes to hell in a hand basket.

I’ve been writing about this since January, when I came back from Europe and the negative bond pool was only $5.5 trillion. Back then I thought, political events would be trumped by macroeconomic events, but they haven’t been.

So we are left with a new problem. Do we accept that it’s OK to have negative sovereign bond yields or do we think that the system is buggered and we have do something about it?

As always I’m in the do something about it camp. Action beats thought every single time.

Look since about 2010, we have come off the simple path of using stimulus to drive the economy and fiscal policy to restrain it, we are now into the woods and onto a journey without economic maps – and if anyone anywhere is telling you they know how to handle this, they are either a savant or a bullshitter.

Faced the that choice, its generally safer to go with bullshitter.

I’m not going to write about this uncertainty affects the young here, though it does, but I’m going to write about how it damages the old.

When people stop work – they consume savings. Either savings put aside for them in the form of deferred taxes by the Government or savings they have put aside themselves in superannuation schemes.

But, here’s the rub, if everything is going well they can live off the income from their savings – the economic rent they receive from investing in the market.

If things aren’t going well, they can’t. They need to consume their capital – and that’s painful and time bound and an eventual burden on the Government.

Well get used to the pain. The failure of the macroeconomics to get the economy moving – the failure of the Governments to overcome fear – means the death of this idea and frankly that’s very bad news and means that the pension systems are a fraud. They wont be able to provide for your retirement. It turns out, that’s up to you.

I’m not going to abandon Keynes entirely – because he kind of saw this coming – buried in the General Theory – hidden in Chapter 24, he wrote that this might happen – but for very different reasons. He foresaw full employment suppressing demand, not a liquidity trap.

In any case the solution to this might be both  brutal and simple. To get things moving again, to get pension funds and investment fund driving real returns they have to stop being passive investors.

It’s no longer enough to invest in the market and simply see what happens, they are going to have to go direct, to inject capital into businesses to back ideas and to back people, at least with some of their money.

It’s going to be riskier, it’s going to have to mean investment teams will have to do real work, but frankly if we ever want real growth again, it’s going to be worth it.