Is this the end of politics?

By MoneyWeek editor-in-chief Merryn Somerset Webb Oct 25, 2012

Merryn Somerset-Webb

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I’m reading the latest investment report from Troy Asset Management. It takes a brief look at the idea that a deflationary shock might come from the arrival of the US fiscal cliff at the end of 2012 (the fiscal cliff refers to the moment when the terms of the Budget Control Act of 2011 come into effect and taxes rise as spending cuts start).

The conclusion? “If the past is any guide to the future, politicians will look into the abyss and raise the federal debt ceiling, as they always have since 1917.” That makes sense – particularly if, like me, you’ve just been reading Douglas Carswell’s latest book, The End of Politics.

As he points out, most governments across the world never get smaller. Helped by a mostly co-operative international bond market, regular currency debasements and unequal taxation systems (that load the bill in such a way that the hardest hit groups are too small to protest), they only get bigger.

The biggest bill you’ll ever pay is not the one for your house, for your children’s university education, or for your lifetime’s worth of holidays and cars. Instead, it will be the one you pay for your government.

In Britain, for every £100 the average worker earns, £46 will (forcibly) go towards buying government (that’s up from around £8 in 1900). Much the same goes for America, giving rise to the funny-if-it-wasn’t-so awful fact that America and Britain both have bigger state sectors than communist China. Add it all up and over a lifetime the average working Briton pays around £650,000 for his share of our government.

Lead indicators for Britain's economy

Gold/silver ratio:
A warning for the markets		 Where to next for
UK house prices?		 Is Britain's inflation
about to take off?

You can question whether he gets value for that or not. But Carswell asks a different question: now that the internet allows the taxpayer to decide for himself how much value he gets and to act on that decision, will he keep paying up for a vast bureaucratic state that seems to cost him more and become more indebted every year?

Carswell thinks not. You can read more on this here: Government is dead; long live iDemocracy. And you should probably read his book too – but the essence of his argument is that, while some may think David Cameron’s government is working on a “sustained programme of fiscal austerity”, he is really doing nothing more than tinkering around the edges of an outdated government framework, one that the “digital demos” is (hopefully) soon going to make redundant.

The fact that the modern state is too over burdened to be sustainable is a theme returned to by our own Bill Bonner. Bill’s new favourite spectator sport is Zombie Smackdown. Thanks to the huge debt-to-GDP ratios in America and Britain, and to the shrinking of their tax base, he says, there is no longer enough money to meet the demands of every subsidised sector out there.

That means there is a battle ahead: “solar panel manufacturers will have to duke it out with ethanol producers”; farmers with defence contractors; and college professors with overseas aid organisations. Something to look forward to.

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Published in UK economy | More articles by Merryn Somerset Webb

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  • 1. TobyJames

    (27 October 2012, 11:38AM)  Complain about this comment

    More than 50% of taxpayers get out more than they pay in, 21% work in the public sector and then there are those dependent on benefits. Where's the majority going to from who want to shrink government and the tax take? Turkeys don't vote for Xmas. All we've had are parties promising to maintain services and cut tax which leads to higher borrowing and the mess we're in.

  • 2. Leslie48

    (28 October 2012, 02:33PM)  Complain about this comment

    Together we live in a civilised society that looks after toddlers & educates the children ,tends to the sick & disabled & growing numbers of elderly and cancer victims & all within our families, helps those made redundant & the jobless, helps deserted mums , rescues us from accidents, protects us from crime & fraud, builds infra-structure so we can travel & transport our goods, helps universities with human capital so we can compete - our societies are advanced not under-developed; we have evolved over the last 100 years.

    Now the hard right ,Tea-party tendency want to take us back & drastically cut the state but most Brits want the German or North European model of civilised societies and balanced , growing economies not the ugly social divisions of the USA and Americas ( Canada excepted of course)

  • 3. GFL

    (29 October 2012, 02:52PM)  Complain about this comment

    There are so many factors at play – the first is no government will ever cut more than the market requires them to, even if there is a clear economic benefit – growing governments win/buy elections! Politicians, like most people, are primarily interested in themselves. With 4-year election cycles, the best thing a politician can do for himself is borrow/promise as much as he possibly can; if there is ever a debt crisis the general public are not blame him for ‘giving too much money to the poor’, or ‘supporting green projects’ no matter how wasteful they are. Lastly, most people do not understand money and how wealth is created, just watch any popular mainstream politics programme, there seems to be overwhelming support for greater taxation and ‘government creating more jobs’; which in turn helps boost unemployment statistics. The negative impact of growing governments plays out over many years, which makes it very difficult hold anyone accountable.

  • 4. GFL

    (29 October 2012, 02:53PM)  Complain about this comment

    Another element at play here is the creation of more and more money – not only though QE or intervention but generally due to fractional reserve and complex financial instruments. Corporations and very wealthy individuals have the easiest access to all of this new credit, which flows into assets so those holding currency get poorer without really understanding why.

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