Crisis of statism, not capitalism

In search of that magic money tree

t might not have been the ‘crisis of capitalism’ which some have been waiting so long for, but it is widely thought that the last few years certainly represent a “crisis of capitalism”. But if you think of capitalism as a system whereby profits and losses acting unhindered by the hand of government guide capital to its most productive uses, this is difficult to sustain.

The sectors which blew up and took the rest of the economy with them were riddled with intervention. Banks have their capital adequacy rates set and their bad investments covered by government. The housing market is kept inflated with all manner of tax breaks and politically motivated distortions like Fannie Mae, Freddie Mac, and the Community Reinvestment Act. Behind it all interest rates are set by a small panel of political appointees, much as the price of alum keys was set in the Soviet Union.

But as we see violence on the streets of Athens and Madrid, the Occupy protests in the United States, and unadulterated rage on the pages of The Guardian’s Comment is Free (Cif), there is certainly some sort of crisis afoot. It is, however, a crisis of big government.

Over the last few decades governments throughout the western world have made extravagant spending commitments. In Ireland the welfare budget was tripled. In Greece pastry chefs, radio announcers, hairdressers, and steam bath masseurs were included among 600 professions deemed so “arduous and perilous” that workers could retire at 50 on a state pension of 95 percent of their final salary.

But it wasn’t just small basket case economies doing it; big basket case economies were doing it too. France decided that its workers could work no more than 35 hours a week and still generate the wealth to pay for everyone to retire at 60 and spend a third of their lives as state pensioners. In the United States the Bush administration launched the largest expansion of Federal spending since Lyndon Johnson’s Great Society program of the 1960s. In Britain the Labour government increased spending by more than half in six years.

As long as you didn’t look either too closely or too far ahead, these massive spending commitments looked just about affordable as long as there was plenty of money to spend. And there was. In Britain tax receipts rose by 40 percent between 2001 and 2007. In the United States, Federal tax revenues rose by 30 percent between 2000 and 2007. French tax revenue increased by 30 percent between 2002 and 2008.

But these were the effects of the bubble. These were taxes swelled by property values, house sales, and bank profits on those house sales and the myriad ancillary transactions such as securitisation. With the bursting of that bubble that wealth is gone, if it was even there in first place, and it is not coming back. Nor should it.

That does mean, however, that lots of the extravagant government spending promises made before the bust now stand revealed for what they are; unaffordable in the absence of bubble taxation. And given the undesirability of bubbles, that just makes them unaffordable full stop. No amount of general strikes, protesting, occupying, or posting on CiF will change that. We do not have a mighty oak of a money tree, but a bunce bonsai and, in truth, that’s all we ever did have.

Since the crisis hit we have seen both the unavoidability of this truth and the reluctance of electorates to accept it. In the last few years the voters of Greece, Spain, and France have voted out ‘austerity’ governments only to have ‘austerity’ visited upon them anyway by their replacements (at least they were asked, unlike the Italians). There is a very good chance that this November and in May 2015 the voters of the United States and United Kingdom will discover that reality doesn’t just disappear because you tick a box marked ‘Obama’ or ‘Miliband’.

The amount of money spent by the government has grown inexorably. We have reached its limit. In Britain, since 1964, whether top rates of tax have been at 83 percent, as in the 1970s, or 40 percent, the percentage of national income paid in taxes has never exceeded 38% of GDP.

Whatever the designs of the politicians, the social democrats, the Labour party, the Guardian, or Polly Toynbee, the British people, collectively and unconsciously, seem to have decided that they are not willing to fund a state sector any bigger than this. When the share of state spending as a share of GDP reaches 45 percent or 50 percent, as it has recently, the only way is down. That is where we are now.

If the extravagant spending promises of politicians outstrip both the capabilities of even a well-functioning capitalism to generate the necessary wealth and the public’s willingness to pay for it, that is not capitalism’s crisis, but a crisis of big government. Its time is up.

This article first appeared at The Commentator

The polarization of politics: Let’s mingle more

My captain, my captain

As a Trekkie I was keen to watch Patrick Stewart, late of the Starship Enterprise, boldly going on the BBC’s Hardtalk. Stewart is a man I greatly admire not only for pulling off the impossible and filling Captain Kirk’s seat, but for an acting career that spans Sejanus in I, Claudius and a hypersexed version of himself in Extras.

So it was disappointing to actually see Stewart in action. I knew he was a Labour supporter; he’s a Yorkshireman and luvvie after all. But he went further. He said he actually feels “uncomfortable” around Conservatives. This was yet another manifestation of a depressing trend. People are increasingly unable to tolerate anyone whose politics aren’t just like theirs.

The trend is further developed in the United States than in Britain. In the US the tone of political debate is frequently poisonous. From the right you have ‘conservatives’ accusing ‘liberals’ of wanting to destroy America. From the left you get ‘liberals’ accusing ‘conservatives’ of wanting to grind everyone else into poverty. To each their opponents are not merely wrong, not simply possessed of a different philosophy, but are actually evil. Neither side recognises any common ground at all with the other.

We have not been free of this in Britain. In 1945 Winston Churchill warned that if Labour won the election Clement Atlee would usher in a British “Gestapo” and opposition to Margaret Thatcher frequently scaled quite epic heights of demented lunacy. It still does.

But this was the exception in Britain, perhaps because figures like Harold Wilson, Edward Heath, John Major, or Tony Blair drew most of their flack from their supposed supporters. Enoch Powell could disagree utterly with both Tony Benn and Michael Foot yet maintain warmer personal relations with either than Foot and Benn could manage with each other.

This has been changing. As the coalition undertakes to slow the growth in government debt so that it only doubles in five years, some on the Left have reacted as though civilization is about to end. Worse, they attribute it, as in America, not merely to error or possession of a different philosophy, but to evil itself.

Polly Toynbee, a trail blazer for the New Nastiness in British political discourse, described the popular proposal to cap Housing Benefit to a still pretty generous £400 a week for a four-bedroom property and £250 a week for a two-bedroom home as the Tories’ “final solution for the poor”, seeing in the cuddly Grant Shapps the echo of Heydrich and Himmler.

I am quite sure that someone of a left wing persuasion reading this will respond that the Right does plenty of it too. No doubt the Daily Mail and Peter Hitchens will be mentioned. And they may well be right. I concede the distinct possibility that both sides are as bad as each other but I shan’t find any comfort in it.

The rhetoric of someone like Toynbee and her counterparts on the Right is harmful. If, for example, you are a Guardian reader who accepts Toynbee’s view of the world then, by extension, you must consider people like me, as an occasional supporter of the Conservative Party, a crypto-Nazi.

If this sounds as ridiculous as it ought to then stick Toynbee in the bin. If, however, you do accept her world view that the coalition is evil and acting out of spite then you can understand why someone like Patrick Stewart would feel uncomfortable around Conservatives, even ones like me who wear plastic pointed ears from time to time. We’re Nazis, after all.

This matters. Democracies work because every few years, at election time, the losing party hands power to the winning party on the understanding that, at the next election, power will be handed back to them if they are successful. This is only possible because the parties consider themselves part of the same polity. If they don’t, if they see no common ground, then the basis for electoral democracy breaks down. In many places around the world elections are accompanied by fraud or violence precisely because this common polity doesn’t exist.

This also gives some clue as to where this bitterness comes from. Governments are now, increasingly, mechanisms by which wealth is transferred around society. Unlike wealth creation, which can generate wealth which didn’t previously exist and make everyone better off, wealth transfer is always a zero sum game; one party can only benefit to the extent that some else loses. Wealth creation creates winners. Wealth transfer creates losers as well.

And, as governments grow, so does their role as wealth transferors, increasing the number of both winners and losers in the zero sum game of government. Bitterness grows alongside.

I have a great many friends who would describe themselves as being of a left wing persuasion so I can see what people like Stewart are missing out on. Because I know lefties personally and not solely from the pages of the Mail I know that they don’t all want to put me in a Gulag run by Harriet Harman. And I hope that, from knowing me, they realise that not all ‘right wingers’ want to feast on the carcasses of the poor. Each of us thinks the other is wrong; neither thinks the other is evil.

What is under threat in Britain, and almost dead in America, is this sense of commonality, of being part of a shared polity with people we disagree with, but who are, for the most part, just as sincere and well-motivated as we are. And we won’t keep it if, like Patrick Stewart, we seal ourselves off from those we disagree with.

We need to mingle more, not less. Unless you think Picard was a better captain than Kirk, then I really will never talk to you again.

This article originally appeared at The Commentator

Healthcare – Public and private

Move over love, we’ve got another two to fit in here

In the summer when the shocking abuse of residents at the Winterbourne View care home in Bristol was revealed Polly Toynbee took to the pages of the Guardian crowing that ” The “dead hand of the state” looks rather more welcoming than the grasping hand of private equity”

This week saw a report from the Care Quality Commission found that half of all hospitals were filing in their duty of care for the elderly and that 20% of all hospitals were so bad they were breaking the law.

Does this call into question the entire basis of publicly provided health and social care as, for Ms Toynbee, Winterbourne View did for private provision? Ms Toynbee has yet to address the CQC report.