When the Edward Gibbon of the 22nd century comes to write his History of the Decline and Fall of the West, who will feature in his monumental study of the collapse of the most successful economic experiment in human history? In this saga of the mass suicide of the richest nations on earth, there may be particular reference to those national leaders who chose to deny the reality that was, from the vantage point of our future chronicler, so obviously looming. \
But for us, right here, right now, it matters that Barack Obama and George Osborne are playing small-time strategic games with their toy-town enemies while the unutterable economic truth stares them in the face. Mr Obama is locked in an eye-balling contest with a Republican Congress to see who can end up with more ignominy when the United States goes over the fiscal cliff. It is clear now that the president will be quite happy to bring about this apocalypse – which would pull most of the developed world into interminable recession – if he could be sure that it would result in long-term electoral damage to his opponents.
Supposedly from opposite sides of the political divide, the US president and the British Chancellor come to a surprisingly similar conclusion: it is not feasible to speak the truth, let alone act on it. The truth being that present levels of public spending and government intervention in the US, Britain and Europe are unsustainable. The proportion of GDP which is now being spent by the governments of what used to be called the “free world” vastly exceeds what it is possible to raise through taxation without destroying any possibility of creating wealth, and therefore requires either an intolerable degree of national debt or the endless printing of progressively more meaningless money – or both.
How on earth did we get here? As every sane political leader knows by now, this is not just a temporary emergency created by a bizarre fit of reckless lending: the crash of 2008 simply blew the lid off the real scandal of western economic governance. Having won the Cold War and succeeded in settling the great ideological argument of the 20th century in favor of free-market economics, the nations of the West managed to bankrupt themselves by insisting that they could fund a lukewarm form of socialism with the proceeds of capitalism.
What the West took from its defeat of the East was that it must accept the model of the state as social engineer in order to avert any future threat to freedom. Capitalism would only be tolerated if government distributed its wealth evenly across society. The original concept of social security and welfare provision – that no one should be allowed to sink into destitution or real want – had to be revisited. The new ideal was that there should not be inequalities of wealth. The roaring success of the free market created such unprecedented levels of mass prosperity that absolute poverty became virtually extinct in western democracies, so it had to be replaced as a social evil by “relative poverty”. It was not enough that no one should be genuinely poor (hungry and without basic necessities): what was demanded now was that no one should be much worse (or better) off than anyone else. The job of government was to create a society in which there were no significant disparities in earnings or standards of living. So it was not just the unemployed who were given assistance: the low paid had their wages supplemented by working tax credits and in-work benefits so that their earnings could be brought up to the arbitrary level which the state had decided constituted not-poverty.
The paradoxical effect of this is that the only politically acceptable condition is to be earning just enough to maintain independent life – and not a penny more. Everybody is steered by the penalties of the tax system or the gradual withdrawal of benefits into that small space in the middle between being “rich” and being (relatively) poor.
Capitalism is, by its nature, dynamic: it creates transitory disparities of wealth constantly as it reinvents itself. Fortunes are made and lost and, as old industries are replaced by new, the earnings that they create rise and fall. Punishing those who exceed some momentary average income and artificially subsidising those who fall below it – as well as providing for a universal standard of living which bears no relation to merit or even to need – has now reached the unavoidable, unaffordable end of the line.
So who will tell the truth – and then act on it? Who will say not just that welfare must be cut, but that in future MEDICARE will need to rely on a system of co-payments? That people will have to provide for their own retirement because Social Security will be frozen? That without a radical reduction in government intervention, the free and prosperous West will have been a brief historical aberration?