Economics:'When the facts change, I change my mind. What do you do, sir?" Thus spoke John Maynard Keynes when accused of inconsistency for changing his mind on economic policy. Confronted with the misery of the Great Depression, Keynes was more concerned about doing the right thing than saving face.

Had his contemporaries - particularly politicians - shown a little less face-saving vanity, the Great Depression and the war it gave rise to might not have happened.

When Keynesianism did catch on, the man himself was dead and the damage was done. The crisis that could have been stopped was over. By then, Europe's golden expansion of 1960s and early 1970s was under way.

As Keynes would have recognised, Ireland in 1977 was no place to implement Keynesian policies designed for the 1930s: the facts had changed and policies should have changed accordingly. The fact that they didn't reflects what happens when politicians become more concerned about consistency than about doing the right thing.

Thirty years later, in a different way, economic history is repeating itself: House prices fell in April for the second month in a row.

On Tuesday came confirmation that this is finally affecting tax revenues. For the first time since October 2003, revenues in the first five months of 2007 have fallen below official targets. The reason? Stamp duty revenues fell in May by 9.6 per cent. In the year-to-date, they fell €107 million below target.

When added to shortfalls in capital gains tax, capital acquisitions tax, income tax and VAT, the trend shows how the Government's dependence on property-related taxes is now coming home to roost (luckily for it, after the election).

There is more to come. Given time lags in collecting data on house prices, April's falls really reflect market activity a few months before. There is a further lag between the closing of a house purchase and the payment of stamp duty. May's revenue statistics are not a blip.

Something is happening to tax revenues; something that Keynes himself would have understood very well. In an idea taken up 50 years later by Arthur Laffer, he pointed out that if you tax anything too much, revenues from it decline, as we discovered to our cost with income tax rates in the 1980s. For every tax, there are thresholds and rates that are optimum - i.e that maximise revenue and minimise economic harm. Having failed even to index stamp-duty thresholds, the burden of stamp duty has now crossed that threshold.

Together with rising interest rates, Government policy is now having exactly the opposite effect to what was intended.

But it doesn't have to be this way. We don't have to kill the goose that laid the golden egg. When launching Fianna Fáil's election manifesto, Bertie Ahern announced his intention to abolish stamp duty for all first-time buyers.

On Brian Cowen's advice, he would not go further. Just as with income tax rates in the 1980s, Cowen's officials fear that a more widespread reform might impact on its revenues. And just as with income tax rates in the 1980s, they are completely wrong. As Keynes grasped in the 1930s, the facts have changed.

However unethical a policy, the Government could at least get away with stamp duty in a rising market: capital gains were more than enough to fund house purchase. From being a speed bump in front of a juggernaut, today's more static market makes stamp duty more like a brick wall in front of bicycle.

The second-hand market is part of this wall, as is clear if we look at geographical differences in recent house price trends.

In the commuter belt around Dublin, prices are down by 3.6 per cent. But it is existing properties - properties more exposed to the second-hand market that are underperforming relative to new properties.

Prices in the latter category are holding reasonably firm, suggesting that the plan to abolish stamp duty for first-time buyers is paying dividends.

Aside from the lull in prices, stamp duty is also impacting on the amount of buying and selling in the market. On Wednesday, the Irish Banking Federation and PricewaterhouseCoopers showed a 19 per cent fall in the number of mortgages issued. The difference between the first and second-hand market is striking: First-time mortgages have fallen by 10 per cent; for mover purchasers, the fall is a whopping 25 per cent.

Given that policy U-turns can give the appearance of weakness and damage a politician's career, initial reluctance to face facts is - provided it is temporary - acceptable. Had Fianna Fáil followed its manifesto launch with an announcement that it was going to extend stamp-duty reform to the second-hand market, it would have smacked of desperation.

Now the election is over and Fianna Fáil has won it. But it might note that parties that promised to reform stamp duty did well in the election, the PDs excepted (Given their 10-year acquiescence with stamp duty, it is easy to see why this is so).

It might also note that the less Government taxes the economy, the better the economy does. Now that the election is over, Brian Cowen should worry less about losing face and more about the economy. He should now reform stamp duty properly. Keynes would approve.