Government is simply unaffordable
By Janet Daley
Was 2012 the year when the democratic world lost its grip on reality? Must we assume now that no party that speaks the truth about the economic future has a chance of winning power in a national election? With the results of presidential contests in the United States and France as evidence, this would seem to be the only possible conclusion. Any political leader prepared to deceive the electorate into believing that government spending, and the vast system of services that it provides, can go on as before – or that they will be able to resume as soon as this momentary emergency is over – was propelled into office virtually by acclamation.
So universal has this rule turned out to be that parties and leaders who know better – whose economic literacy is beyond question – are now afraid even to hint at the fact which must eventually be faced. The promises that governments are making to their electorates are not just misleading: they are unforgivably dishonest. It will not be possible to go on as we are, or to return to the expectations that we once had. The immediate emergency created by the crash of 2008 was not some temporary blip in the infinitely expanding growth of the beneficent state. It was, in fact, almost irrelevant to the larger truth which it happened, by coincidence, to bring into view. Government on the scale established in most modern western countries is simply unaffordable. In Britain, the disagreement between Labour and the Conservatives over how to reduce the deficit (cut spending or increase borrowing?) is ridiculously insignificant and out of touch with the actual proportions of the problem. In the UK, the US, and (above all) the countries of the EU, democratic politics is being conducted on false premises.
Of course, once in power all governments must deal with reality – even if they have been elected on a systematic lie. As one ex-minister famously put it when he was released from the burden of office: “There’s no money left.” So that challenge must be met. How do you propose to go on providing the entitlements that you have sworn never to end, without any money? The victorious political parties of the Left have a ready answer to that one. They will raise taxes on the “rich”. In France and the United States, this is the formula that is being presented not only as an economic solution but also as a just social settlement, since the “rich” are inherently wicked and must have acquired their wealth by confiscating it from the poor.
Of course, the moral logic of this principle is absurd. The amount of wealth in an economy is not fixed so that one person having more means that somebody else must have less. But, for the purposes of our problem, it is the fault in the economic logic that is more important. The amount of money that is required to fund government entitlement programmes is now so enormous that it could not be procured by even very large increases in taxation on the “rich”. Assuming that you could get all of the rich members of your population to stand still and be fleeced (rather than leaving the country, as Gérard Depardieu and a vast army of his French brethren are doing), there are simply not enough of them to provide the revenue that a universal, comprehensive benefits system requires. And if all the French rich did stay put, and submit to President Hollande’s quixotic 75 per cent income tax, they would soon be too impoverished to invest in the supply side of the economy, which would undermine any possibility of growth.
Barack Obama knows that a tax rise of those proportions in the US would be politically suicidal, so he proposes a much more modest increase – an income tax rate of around 40 per cent on the highest earners sounds very modest indeed to British ears. But that is precisely the problem. If a tax rise is modest enough to be politically acceptable to much of the electorate, it will not produce anything like enough to finance the universal American entitlement programmes, social security and Medicare, into a future with an ageing population. There is no way that “taxing the rich” – that irresistibly glib Left-wing solution to everything – can make present and projected levels of government spending affordable. That is why Britain and almost all the countries of the EU have redefined the word “rich” to mean those who are earning scarcely twice the average wage, and pulled more and more middle-income people into high tax bands. Not only are there vastly more of them but they are far more likely to stand still and be fleeced, because they do not have the mobility of the truly rich.
Is this the lesson of a year of false economic hopes and cynical political deceptions? That governments will have to accomplish by stealth and betrayed promises what they did not dare to propose when running for office? Here in Britain, the Conservatives make much of their determination to cut welfare, as if out-of-work benefits were the heart of the government spending problem. But in fact, in the medium and long term, it is the state benefits that working people think of as a right that present a far more serious dilemma. The reality is that our ever-rising state pension and entirely free health care system are as unsustainable as social security and Medicare in the US. It is not going to be possible for the NHS, paid for by general taxation, to offer world-class modern medical provision – with its never-ending advances and innovations – into the indefinite future.
At some point, we will have to accept that government-funded health care will consist of subsidised core services to be topped up by the patient’s own insurance or personal funds, just as dentistry and opticians’ services are now. Similarly, pension provision will have to be largely the responsibility of the individual. The greatest contribution that government will be able make to these efforts will be in cutting personal taxes, thus leaving people with more money to pay for provision that they will be free to choose for themselves.
This is not an ideological argument about the moral advantages of a smaller state: it is simple economic necessity. As the man said, there’s no money left. And the only ways that anybody can think of for the state to get more of it are either futile (taxing the “rich”) or destructive of any possibility of recovery (more borrowing). What began as a banking collapse has turned into a crisis of democratic politics. Is this what we have to look forward to? The process of campaigning and voting will be an irrelevance: all parties will tell pretty much the same lies. Whichever one is marginally more credible than the others will gain power (probably in coalition with another bunch of liars), and then have to do what needs to be done in whatever desperate, underhand ways it can devise. Nobody will feel that he got what he voted for, because what he voted for was impossible. Not a happy thought to leave you with at Christmas. Sorry.