I‘ve been thinking an awful lot about how life and capitalism change when they acquire adult supervision. The trigger for this morning’s thoughts was this story, about a major essay that Kevin Rudd is about to publish.

Last year, Rudd replaced capitalist and staunch US ally John Howard as prime minister of Australia, a country with very significant mineral wealth that supplied a lot of metals and ore to feed China’s industrial … well, it used to be a juggernaut till last quarter. And Rudd is a center-left politician who is not afraid to throw around the idea that yet another “new world order” is a-borning.

And I actually think that he’s not wrong about that. Rudd is calling for an explicit embrace of the idea that unfettered free markets don’t work. This is the next step beyond Obama’s tentative steps in that direction.

Obama is a man who strives mightily never to give offense, and never to stray onto ground that he might have to defend against determined intellectual adversaries. He seeks to make statements that give off an aura of determined strength, without actually being determined or strong.

But Rudd is not a pussy-footer. He is being explicit about the need for forthright control of markets by government, including two critical things: first, a commitment that government should smooth out the unequal social outcomes that come with free-market capitalism. In other words, he cares greatly that no one should have much more in the way of material blessings than anyone else. And second, he cares very much about the restoration of global demand. I’ll come back to this critical point.

I do expect that Rudd’s basic perspective will prevail in the US, although it will come fitfully and over considerable time, precisely because Obama is not a strong leader who lays out and pursues his program, but is rather a pragmatist who will back into whatever seems to make sense on any given day.

Still, I’m going to note, more or less in the manner of an epitaph, what we’re giving up with this debate. Free-market capitalism does indeed produce unequal outcomes, because it rewards people according to talent, industry, and luck. No one has a problem with getting rich as a result of hard work. In hard times, people do have a very big problem with those who get rich as a result of talent and luck.

Here’s the problem: you simply can’t eliminate the rewards that accrue to talent, industry and luck. If you try, you get Maoism or Soviet communism, endless misery, and political evil.

Yet if you pursue the path of Kevin Rudd (and, one suspects, his weak acolyte Obama), the unequal rewards of talent, industry and luck will accrue in the form of political power. We’ll be replacing one kind of unequal outcome (multi-million dollar bonuses for investment bankers) with another (broad, arbitrary bureaucratic control over people’s lives).

To repeat myself, I believe that a version of Rudd’s vision is coming. What does that mean for savings and capital?

Well, keep in mind the point I’ve been making to those who listen since the financial crisis began in August 2007. We’re entering a secular period of lower investment returns, and consequently higher real costs for capital. This is inevitable because of the end of leveraged investment models, and also of the uncertainty that has been cast on the standard ways that everyone manages risk.

But there’s another trend which will depress investment returns and transform economic life fundamentally, and it has to do with Rudd’s model of government control over economic outcomes.

In short, there’s no reason to save money anymore, and there’s very little incentive to invest in the future.

Look how the world’s financial authorities have been handling the ongoing credit crisis, which has effectively ended the provision of private capital for industrial development. The Federal Reserve alone has tripled the size of its balance sheet. We’ve provided hundreds of billions of dollars to replace bank capital which disappeared in the collapse of the housing bubble.

It’s blindingly clear to me, and is probably being darkly glimpsed to many others, that money and equity capital have no permanent reality. Rather, they’re constructs managed by government, certainly with the best of intentions, but with no commitment that the rules of the game will not radically change from one year to the next.

Under these circumstances, any intelligent investor must add a massive uncertainty premium to anything he puts capital into. We’re facing a “soft inflation” in which the future value of savings, even those savings which find their way into investments, is highly uncertain. The future value of any pool of savings is subject to radical swings in value that are completely unlike the probability bands that risk managers customarily think in terms of. And of course this shift in perception was triggered by a systemic failure in nominally-free markets. But the solution to this problem, extensive government control of money and markets, will make permanent the uncertainty surrounding the future value of savings.

It’s the height of irony that in a time of deflation and a much higher real cost of capital, economic actors will behave as if they face massive future inflation instead.

In the future, most investment activity will be driven by government action, because it won’t make sense to investly massively in private projects, except to obtain incremental operating efficiencies, or to expand tangentially into new markets.

This brings us back to the problem of demand, the lack of which is why the world has been plunged into recession. Countries other than the US have very little ability or desire to increase domestic demand in the near term. That’s why they’re all eagerly waiting for the US to pass a trillion-dollar stimulus plan and start importing goods and commodities again.

In the longer term, there may be more options for countries like Australia. Given a few years of breathing room from the current stresses, the forward-looking ones will make structural changes to their economies so that they can generate more consumption by domestic consumers. Within limits, you can increase demand via investment, but if the goal of investment is to increase productive capacity for export, then you’re not solving your problem.

Why not? Because as global imbalances correct over the next several years, there won’t be as much demand to import. The current stimulus is the last leg in the grand cycle of debt-driven overconsumption in the US. A country like Australia needs to be sure that, four years or so from now, they’re not dependent on demand from the US.

The US is entering a period of “soft inflation” alongside of the asset deflation which is already evident. Because of the twin uncertainties (the future value of money, and the future scope of government control over the economy), it’s difficult to construct a case for investing in greater productivity in the US.

The Obama people say, no problem, they’ll supply all the new productivity we need to increase US demand and consumption, in a future world when our ability to import capital will be far less than it is today. They’re talking about putting people to work building windmills and solar panels.