Warren Buffett wrote that “only when the tide goes out do you discover who’s been swimming naked”. According to Douglas Carswell in his new book The End of Politics (Biteback, £12.99), with the fiscal tide at ebb it is Western governments that have been caught skinny-dipping.
Carswell, Conservative MP for Clacton, charts the growth of the state sector across the West from around 10 per cent of GDP at the turn of the 20th century to approaching 50 per cent today. He also describes the topdown, “constructivist rationalist” model of the provision of goods and services by this expanded state. Both are now unsustainable.
The state will shrink because people are not willing to pay the taxes to support its current size. The state has swollen because the costs have, until now, been shifted to a minority of people via progressive taxation and hidden by inflation and borrowing.
We can borrow no more, Carswell points out, and our currencies are edging closer to inflation thanks to zero interest rates and quantitative easing. Neither can we tax any more. In the old days, when wealth in the West was generated by digging things out of the ground or making other things in factories, these activities could easily be taxed as neither the natural resources or factories could move. That didn’t hold in the longer term. Politicians in the United States impose the highest corporate tax rate in the developed world and then complain about offshoring.
What generates wealth in the West now, as we try to scamper up the value chain, are ideas. These can move around rather easily, making them difficult to tax. The result, Carswell says, is a move to the taxation of consumption which is “flatter” than “progressive” income taxes, and consequently a more proportionate sharing of the burden of state spending. With the end of currency debasement and debt, the end of burden shifting will knock out the last of the three motors of government growth.
Top-down government provision is doomed by what Carswell christens “iDemocracy”. People will be less likely to accept whatever education or healthcare the government decides to give them when they are increasingly used to choice. Collective patterns of work and leisure are giving way to more individually tailored modes. The days when half the population would tune into the Royal Variety Performance have given way to a situation where, as Lily Allen says on the current commercial for Sky+, you can make your own daytime TV.
Carswell argues that big government has never come about by popular demand and that empowered citizens will embrace “iDemocracy”. This underplays, I think, the “collective corruption” which comes from having more than 50 per cent of the country as net recipients of government handouts, as in Britain. People may be reluctant to junk a system, no matter how unsustainable, if they perceive a personal gain from it. But unsustainable it is and, as the saying goes, “If something can’t continue, it won’t.” I hope Carswell is right.