Friday, 21 July 2023

Mapping the True Political Landscape

 

1.    Led Astray by Language

In ‘Freedom & Identity’ I made reference to the fact that the terms ‘left’ and ‘right’ only started being used in politics in the summer of 1789, during the French Revolution’, when the French National Assembly sat to decide on a new constitution, with two principal models up for discussion. The first was that of a constitutional monarchy which had already been operating in Britain for the best part of a century and was advocated by the more conservative members of the Assembly who were reluctant to go the whole way and remove the king altogether. The second model was that of a republic of the kind which had been established in America just two years earlier and was supported by what might be described as the more radical or revolutionary members of the Assembly such as Maximilien Robespierre.

As the weeks went by and positions hardened, it then just so happened that supporters of each side naturally started sitting together on each side of the aisle which divided the assembly chamber, with constitutional monarchists sitting on the right hand side and republicans on the left. This, however, was pure chance. It could have been the other way round, with republicans taking their seats on the right and constitutional monarchists on the left. For there is nothing inherent in the meaning of either of the two words ‘left’ and ‘right’ that suggests a political disposition. Nor, once these terms had become associated with certain dispositions, did they imply any specific political philosophy. For the most that could be said was that those on the right were a little more cautious and conservative in how they thought reforms should proceed while those on the left wanted more radical change.

Still, it may be said, we know what these terms mean today. But do we? Apart from being a term of abuse, what do we really mean when we call someone ‘right wing’? That they are a Fascist? Surely not. Not only is the use of these terms both lazy and divisive, however, allowing us to stigmatise our political opponents without even trying to understand their actual views or consider whether they might not have some validity, but they are also extremely misleading. For they give the impression that all political positions sit somewhere on a one-dimensional spectrum from left to right. As I also pointed out in ‘Freedom & Identity’, however, it is just as possible for a radical reformer to be a nationalist, for instance, as it is for a conservative, strongly suggesting, therefore, that nationalism, to take just one example, is not on the same political axis as radicalism and conservatism and that the true space in which politics operates is therefore far more multidimensional.

To understand what these multiple dimensions are, however, it is not sufficient merely to rid ourselves of these empty concepts of ‘left’ and ‘right’, we also need to define or map out the real political landscape in terms of the actual differences and oppositions which the terms ‘left’ and ‘right’ merely gloss over, and which for those of us rooted in the Anglo Saxon political tradition, first started to take shape in 1688, when seven prominent politicians in London, including Henry Sydney, 1st Earl of Romney, who actually drafted the document, wrote a letter to William of Orange in The Hague, inviting him to come to England and become king, thereby initiating what came to be known as the Glorious Revolution.

2.    Legitimacy & Consent

Although it is generally supposed that what precipitated this unprecedented act was the fact that the incumbent on the English and Scottish thrones at that time, James II of England and James VII of Scotland, was a catholic, in many ways this is an oversimplification of a far more complicated and nuanced state of affairs. For while James’ overly conspicuous efforts to promote tolerance of his religion in both England and Scotland were certainly resented and deplored by the vast majority of the public, it wasn’t his religion as such that most disturbed English politicians, but that which lurked within it. For at the intersection of politics and Catholicism, there was a belief, probably held by all the Stuart kings and certainly held by James’ father, Charles I, that kings are anointed by God and are only therefore answerable to God, not the people and certainly not parliament. Having already fought one bloody civil war and executed the then king to disabuse any future monarch of this idea, the last thing politicians in London wanted, therefore, was to go down this road again, which they feared they might have to if James continued on the absolutist course which, by the summer of 1688, he appeared to have chosen.

The problem was that they could not just get rid of him, not only because any attempt to do so would have precipitated precisely what they wanted to avoid, but because they had tried this before, in the case of his father, and it hadn’t worked. For although they had given Oliver Cromwell the title of Lord Protector and had made him king in all but name, the fact remained that he wasn’t a king and didn’t therefore have the air of legitimacy which kings claimed as a consequence of their ‘divine right’. As a result, he had not commanded the same authority as his predecessor, had been constantly at odds with a divided parliament, which saw him less as their leader than a dictator, and ended up ruling as despotically as any monarch. What the political opponents of James II needed, therefore, was a real king, but one whose power they could limit and control.

Fortunately, England’s traumatic experience of the civil war, the execution of its king, and the repressiveness of the short-lived Commonwealth had, in itself, led many of the country’s best minds to think about a possible solution, it being generally agreed that human existence in a state of nature, as Thomas Hobbes described it in Leviathan, would be ‘solitary, poor, nasty, brutish, and short’, and that some form of government was therefore required to create and enforce laws for the common good. If a government was not going to be simply imposed by force, however, and legitimacy could not be founded on divine right without this degenerating into absolutism, the question was on what a legitimate form of government should be based. And the answer which England’s collective genius quite naturally came up with, of course, was a contract.

In a land of merchant traders, at a time of rapidly expanding commerce, it was, in fact, the most obvious and easily understood solution available. As expressed in John Locke’s ‘Two Treatises of Government’, it was also entirely logical. For if one accepts that the right of any government to govern cannot morally be based on force or the coercion of people who do not agree to be so governed, it follows that any legitimate government must be based on consent. It then further follows that if this consent is not to be based on the people’s belief in the government’s God given right to govern, as the Stuarts had maintained, then it can only be based on it being in the people’s best interests, not as a paternalistic government might choose see those interests, but as the people, themselves, see them. In other words, it has to be a deal done between government and consenting adults.

Not, of course, that this logical requirement – that the relationship between any legitimate government and the governed be based on a contract freely entered into on both sides – in itself determines the actual terms of the contract, not least because it is the negotiation of these terms that actually fulfils the requirement. Given that, in 17th century England, it was almost universally agreed that the primary purpose of government was to prevent the country descending into what Hobbes described as a ‘war of all against all’, however, it followed that, at a minimum, one of the principal terms of the contract had to enjoin the governed to refrain from indulging in those types of behaviour which would either constitute or result in this kind of anarchic free-for-all. Even more significantly, this in turn ensured that government fulfilled its own side of the bargain. For if it was going to avoid failing in its primary purpose of preserving law and order, then it had a reciprocal duty to extend the protection of the law to all law abiding citizens who might otherwise fall prey to such lawlessness and consequently be driven into taking the law into their own hands.

Nor was this the end of the myriad logical ramifications which flowed from conceiving of the relationship between the government and the governed in contractual terms. For the precise laws which the governed were obliged to obey were, of course, continually changing with changing circumstances. This meant that the contract wasn’t a one-off agreement but a continuous process, in which the governed, or their representatives, had to agree to all new legislation in order to prevent unnecessary and detrimental new laws being dictatorially imposed upon them. This therefore meant that some form of democracy was also needed.

It also brought about a separation of powers. For if the government could not make new laws without the agreement of the governed, this not only meant that some form of legislative body was required but that the legislature had to have sufficient powers to prevent it simply being overridden. This also meant, therefore, that the judiciary had a certain degree of independence. For although judges were appointed by the executive, in this case the king,  the laws they were required to uphold were created by the legislature, thus giving rise to the tripartite form of government which was later enshrined in the constitution of the United Sates, and which has been held up ever since as one of mankind’s greatest achievements.

In England, however, all this happened nearly a hundred years earlier with the enactment of the Bill of Rights in February 1689, to which William of Orange and his wife Mary were required to agree before they could be crowned, and which laid out, in precise terms, the roles and duties of both the crown and parliament, making it impossible for either institution to rule alone and creating, as a result,  one of the most stable forms of government the world had ever known, and which has so far lasted for more than three hundred years without any serious constitutional crises.

3.    Whigs & Tories

At this point, however, you may be wondering what all this has to do with politics. After all, the formulation of a constitution has more to do with philosophy and law than with the everyday matters with which politics usually deals. The separation of powers required to avoid a monarchy descending into absolutism, however, in itself created a political division: one which naturally pitted those whose interests were vested in the monarchy against those whose interests were best served by having the freedom to pursue those interests without government interference.

Thus, on the one hand, one had an ancient aristocracy whose wealth largely consisted of land from which they obtained rents and whose status, influence and ability to gain more wealth was almost entirely dependent on obtaining preferment at court, while on the other, one had the new men whose wealth was largely based on trade and industry and who saw their future in exploration and innovation or, more broadly speaking, change, rather than the preservation of the status quo. To see the Tories and Whigs purely in terms economic and personal interests, however, is again something of an over simplification, not least because although part of what the Tories quite naturally wished to preserve was their ancestral privilege, another part was something which they feared the logic of the new men might destroy.

I say this because not everything that enables a society to function smoothly, without friction, can be worked out as logically as England’s new constitution or needs to be enshrined in law. Indeed, most of the rules which govern society have nothing to do with the law. Most of them evolve over time as unwritten codes of conduct, which, through trial and error and the salutary lessons of those who blunder off the charted course, are found to be helpful and even invaluable in maintaining social order, avoiding personal tragedy and promoting general happiness and wellbeing. In the 18th century, for instance, no young lady would have been allowed to wander around the town unaccompanied, not because their families wanted to arbitrarily restrict their freedom, but because such rules were necessary to protect them, not just from violent assault, but from the attentions of personable young men, who, through flattery and charm, might elicit from them some indiscretion injurious to their reputations and those of their families, thereby very possibly diminishing their chances of making the kind of marriage upon which their future security depended.

For the same reason, no gentleman would have approached a young lady on her own in such a situation except, perhaps, to offer her his services in finding her a carriage to take her home. For to take advantage of an unaccompanied young lady in such circumstances would have equally damaged the reputation of the gentleman concerned, very possibly leading him to be thought of as a rake and a scoundrel and causing him to be denied entry to respectable households, where any man wishing to pay court to the daughter of the house would first have to present himself to her father and ask whether he may call upon his daughter the next time the family was ‘at home’, when the young lady in question would, of course, be properly chaperoned.

Today, of course, we tend to think of such customs and traditions as lying somewhere between the quaint and the absurd. All this tells us, however, is that what society regards as correct and permissible behaviour is not immutable, continually changing over time. Whether consciously or not, what those of a conservative disposition have always tended to believe, however, is that such customs and traditions represent the accumulated wisdom of an entire way of life, with which one meddles at one’s peril. For given the complexity of any society, no one can ever really know what effects even a very small and seemingly innocuous change in its organisation may have. Pull at one loose thread and the entire fabric of society could unravel.

Suppose, for instance, that we allowed young ladies to wander around on their own and flirt with any young man who took their fancy. Nothing wrong with that, you might think. But suppose that one of the consequences of this was thousands of unmarried mothers living on state benefits at the tax payer’s expense and/or the state sanctioned murder of unborn babies. You may of course still think that this is a price worth paying for freeing women from the restrictions under which they previously lived. But is it what is best for society as a whole? And should what is best for society as a whole take precedence, as conservatives tend to believe. Or should the freedom of the individual to make their own way in life, not just in an economic sense but in how they choose to live their lives, have a much higher priority, as is fundamental to the philosophy of liberalism.

That’s not to say, of course, that many liberals in the 18th or 19th centuries would have allowed their daughters to wander abroad unaccompanied. For they generally went along with the mores of their time like everyone else. For them, however, being free to make one’s own choices was nevertheless a matter of principle, which was further reinforced by the belief that, just as Sir Christopher Wren had redesigned London on rational, geometrical principles after the great fire of 1666, replacing the higgledy-piggledy chaos of narrow streets and alleyways with broad tree-lined avenues and sweeping thoroughfares, so too, in an age of reason, society could be more rationally organised. And it was this that conservatives principally rejected: not just the idea that logic could replace what centuries of accumulated wisdom had distilled, but that an individual should place his own judgement above that of an entire culture, something which they not only saw as an act of reckless folly but of outrageous hubris.

In this regard, therefore, what divided liberals and conservatives was not just their respective economic interests, but a combination of both a philosophical outlook and a character trait: exactly the same combination of philosophical outlook and character trait that was demonstrated in Paris in the summer 1789, when the French National Assembly separated itself into those of a more cautious and conservative disposition on the right hand side of the aisle, and those of a more confident and radical outlook on the left.

4.    The Introduction of a Third Political Position

Given the immense subtlety at play within the various differences that combined to forge this complex political polarisation, one may be forgiven for thinking, therefore, that, rather than try to unravel each individual strand, it would be easier to adopt the long accepted political convention of simply labelling the two poles ‘left’ and right’. Not only is this extremely unhelpful in trying to understand the political argument, however, but this kind of linear bifurcation is only really applicable to the 18th century, when only 3% of the population of England were eligible to vote and when the division of the electorate into Whigs and Tories merely represented the political differences at that time operating within the ruling elite. It did not represent the political differences operating between the ruling elite and the rest of the country, which had no political representation at all: a fact which, in itself, was seen by many as a gross injustice.

That’s not to say, of course, that from time to time there hadn’t been previous attempts to launch more broadly based political movements, some of which had had a distinctly modern and even ‘socialist’ feel. In Germany, during the late 16th century, for instance, Anabaptists had advocated holding all property in common, while in England, during the Civil War, the Levellers had proposed that all private property should be taken into public ownership. Being totally antithetical to the ruling class, however, all these movements tended to be short-lived and outside the mainstream political debate. It was only during the 19th century, when campaigns for electoral reform and universal suffrage began to gain momentum, that the political debate began to broaden. And it was only after the first world war, with the Representation of the People Act in the United Kingdom, for instance, that the political landscape actually began to change.

The mistake most people make, however, is to think of this change as merely an extension of the old linear bifurcation, in which the range of interests represented was now driven even further left to include those of ordinary working people. This, however, does not reflect the fact that what we broadly call ‘socialism’ is based on a wholly different political philosophy, one of the core principles of which is that of equally, placing it very firmly at odds with both liberalism and conservatism. In fact, contrary to the one dimensional linear model which we have retained despite its obvious inapplicability, this emphasis on egalitarianism places socialism even further away from liberalism than it does from that to which it is thought to be diametrically opposed. This is because two of the most important precepts at the heart of classical liberalism were individual freedom and meritocracy. That is to say that what liberals wanted was the freedom to make their own way in the world based on whatever talents they may have had and their own hard work, not some accident of birth. There is nothing, however, meritocratic about socialism, the purpose of which is to create a more equal society, a goal to which traditional conservatives, oddly enough, were not entirely opposed.

I say this because while 16th and 17th century aristocrats would have been utterly appalled by the idea of taking all property into common ownership, as the Anabaptists and Levellers proposed, they were not completely averse to sharing a little of what they had, as long, that is, as they were seen as doing so. For what they really cared about, of course, was maintaining their positions of power and authority. And nothing does this more effectively than by being a patron and benefactor to those who, in return, demonstrate a proper degree of gratitude. Thus, traditional conservatives have always understood the political wisdom of endowing a school or hospital, for instance. For as long as their patronage was acknowledged, not only were they able to feel good about themselves by contributing to society but they further cemented their position within it.

The reason they opposed socialism, therefore, was not because it forced them to share some of their wealth, but because it took the power of patronage away from them. Instead of being able to choose the recipients of their largesse and making their donations in public, what they would otherwise have given freely was now simply taken away from them in taxation and redistributed by a government which also took their place as the poor’s universal benefactor: something which traditional conservatives not only found politically unacceptable but personally galling.

In contrast, the opposition to socialism by traditional liberals was far more principled, being based on two main arguments. The first was that governmental patronage, like any form of patronage, is a threat to individual liberty. For whoever pays for something generally gets to decide what that something is. If the state pays for your children’s education, for instance, it will largely be the state that decides what they are taught. If  you pay a doctor for a private consultation, in contrast, he may advise you to reduce your alcohol consumption, but you will not be obliged to listen to him lecturing you on the subject. If you want to live your life the way you want, a sentiment which is central to liberal philosophy, you therefore have to be self-reliant, taking responsibility for yourself rather than being dependent on others.

This then leads to the second liberal argument against socialism, which is that government interventions and support lead to irresponsibility. For if there is always a helping hand there to catch you if you fall, you will not take quite the same care to stay on your own two feet. What’s more, you actually need to see others fall in order to be reminded to take more care. Cruel as it may seem, classical liberalism therefore needs some people to fail in life in order that others may learn from it. This doesn’t mean that you should not then lend them a hand. For once the lesson has been learnt, there is no point in extending their suffering. But to continually intervene to prevent people from falling means that people never learn.

Thus, the opposition to socialism by conservatives and liberals took completely different forms. What’s more, with respect to patronage, liberal opposition applied equally to both socialists and conservatives, making the idea that these three very different political outlooks could all sit on the same one dimensional axis completely absurd. In fact, a far more accurate geometrical model would be a triangle, with each point opposing the other two in some regard.

5.    The Inexorable Spread of Socialism

Even this, however, doesn’t reflect the full complexity of the situation, not least because socialism, itself, has a number different forms depending on the role of the state.

The simplest role the state can play, for instance, is that of a mere conduit, channelling wealth from one group of people in the form of taxes to another group of people in the form of benefits and services. Because this kind of redistributive socialism is the easiest to implement, it is also the most common, although ease of implementation does not, in itself, fully explain why it has now more or less taken over the entire political landscape throughout the western world. This, in fact, has more to do with people’s naivety, lack of economic understanding and misplaced self-interest.

I say this because once redistributive socialism began to take hold after the second world war, people gradually stopped asking which party’s policies were best for the country and started to ask instead which party’s policies were best for themselves. As a result, such issues as the quality of hospitals and schools and the availability of childcare and low cost housing naturally began to take priority over such matters as how these things were going to be paid for or what effect higher rates of taxation would have on the overall economy. This then meant that health care, education, social housing etc. all had to be continually improved – at whatever the cost – or the party in government simply wouldn’t be re-elected.

As a result of this electoral logic, almost every political party in the western world, whatever they may call themselves, is now a redistributive socialist party and could not be anything else. Even the British Conservative Party, which once stood up against this tide of creeping socialism on the grounds that it would eventually destroy the economy is now more or less indistinguishable from all the other British political parties in this regard, with the further inevitable consequence that the party’s erstwhile prediction of economic disaster is fast coming true. Over taxation has killed off much of British industry or forced it to be offshored, while the excess borrowing needed to maintain public expenditure on reduced real-term tax base has resulted in a mountain of debt which can only be serviced and refinanced with the aid of constant money printing.

As self-destructive as redistributive socialism tends to be, however, it is nowhere near as economically catastrophic as the second most common form of socialism to be tried. For while redistributive socialism redistributes some of the income which privately owned wealth generates, for the most part it does not attempt to redistribute the wealth itself. The one exception is inheritance tax, which actually involves the seizure of capital assets by the state. In contrast, the confiscation and resulting public ownership of all the capital assets from which income is generated is at the very heart of communism.

This makes it inherently more difficult to implement and operate than redistributive socialism, not least because a communist state, unlike a redistributive state, still needs to generate an income from the capital assets it confiscates. This is because it can’t just sell them. For that would be to return them to private ownership. Nor can it rent them to a third party, in that this third party would then have to use them to generate an income from which to pay the rent, which would mean running a private business. A communist state has no other option, therefore, but to work or manage the confiscated assets itself.

The problem with this is that, while the state has an incentive to maximize the income generated by its assets – to pay its workers etc. – its workers have no such incentive. After all, they don’t own the assets and don’t get to keep the income generated by them. Yes, they have a job, which they may lose if they do not do it adequately. But this is a negative incentive rather than a positive one – a stick rather than a carrot – and only ensures that the workers involved do the minimum required. It does not ensure that they go the extra mile when necessary, especially as such precedents may actually raise the required standard of performance. Someone who owns their own farm and has a crop to get in before a storm hits, in contrast, will work all night if they have to, especially if it means being able to feed their family throughout the winter.

Economies which provide positive incentives thus tend to be far more productive than economies in which the incentives are merely negative. One can, of course, increase the disagreeableness of failure by making examples of those who are seen to perform badly. But this has a tendency to drive the most capable people out of the productive part of the economy, where there is always a chance that they may miss a target or fail to fill their quota, and into the distributive or administrative parts of the economy where failure is far less likely and where there may also be opportunities for personal gain.

This is because low productivity in the productive part of the economy almost invariably results in shortages. If one is working in that part of the economy which allocates and distributes that which is in short supply, therefore, one will almost certainly encounter those who are willing to pay a little more in order to receive a little more. Thus public ownership and low productivity almost invariably result in corruption. Worse still, low productivity and corruption have a tendency to reinforce each other, setting up a vicious circle in which more and more people expend more and more of their energy on whatever piece of grift they have got going for them than on anything genuinely productive until, eventually, the whole economy collapses, as happened in the Soviet Union.

By the second quarter of the 20th century, therefore, an intuitive understanding that a system based entirely on public ownership could never work led a number of nevertheless socialist-minded politicians to try a third form of socialism, in which populist governments attempted to direct the economy for the benefit of ordinary working people without actually taking over the means of production and distribution. Instead, they worked in partnership with the owners of corporations who, for the most part, were extremely happy to support this new form of government in return for lucrative government contracts.

The problem with this, however, is that it tends to give rise to what we now know as crony capitalism and the misallocation of resources, which almost inevitably occurs whenever governments get involved with business in this way. This is because, ordinarily, business owners will only invest in a project if they are fairly certain that it is going to make a profit. Even so, there is always a chance that it may fail, there being no such thing as a risk-free capital investment except when it is unwritten or paid for entirely by a third party with unlimited resources, most commonly a government. The problem is that when governments take the risk out of capital investment in this way, corporations are willing to undertake projects even when they are fairly sure that they would never make a profit on a purely commercial basis. In fact, many corporations actually come to prefer this arrangement and get so used to this risk-free way of doing business that they will only undertake projects when their return on investment is guaranteed by government in this way. This does not mean, however, that the projects are actually viable, which is to say self-sustaining. The corporations concerned make a profit out of them, but only because they are publicly subsidised. If a project needs to be publicly subsidised in order to be profitable, however, this means that it actually consumes more resources than it produces and is therefore actually destructive of the economy.

A good example of an alliance of this kind – between a socialist government on the one hand and compliant corporations on the other – and the devastating effect it can have on the economy is the regime of Juan Peron, who came to power in Argentina in 1946 having spent the previous three years as Minister of Labour, during which period he established the first national insurance system in his country’s history, settled numerous industrial disputes in favour of labour unions, and introduced a wide range of welfare benefits for unionised workers, all of which made him immensely popular with ordinary working people.

When, as a consequence, he was subsequently elected president, he then set about a programme of modernisation, working with both local businesses and multinational corporations to greatly improve the country’s transportation, communication and energy infrastructures, while nationalising the railways  and several regional airlines, which he amalgamated to form a single national airline. He also built new schools and hospitals, raised the minimum wage and capped food prices.

All this was only possible, however, because, during the war, neutral Argentina had built up reserves of around $1.7 billion, mostly from the sale of canned food to the allies. By 1950, however, this was all gone. Worse still, all the infrastructure development had led to a massive increase in capital imports for the construction industry, which was further exacerbated by the fact that the improved standard of living experienced by most Argentinians had given them a taste for imported consumer goods, none of which was offset by an equivalent increase in exports.

Part of the reason for this was structural in that the Argentinian economy was still largely agrarian, being based on huge cattle ranches owned by a land-owning aristocracy whose basic outlook was traditional and conservative. As a result, the country’s manufacturing industry was dominated by food processing, which had very little scope for expansion. And although, as part of his modernisation campaign, Peron naturally encouraged diversification, he was greatly hampered in this by the fact that, due to so much of Argentina’s wealth being concentrated in the hands of rich land owners, the country had very little in the way of an entrepreneurial middle class. With all its capital reserves used up, very little foreign exchange coming in and huge amounts of dollars going out, the result was that, by 1950, Peron was forced to ask the USA for a loan of $125 million simply in order not to default on the country’s foreign debt.

Worse still, Argentina’s central bank, which Peron had also nationalised, then took the fateful but probably unavoidable decision to devalue the peso, eventually by an astonishing 70%, which, while it did not significantly expand exports – at least, not in terms of their now greatly diminish dollar value – it greatly increased the price of imports, with the further result that, by 1951, inflation had soared to over 50%, wiping out all of the increases in the standard of living enjoyed by Argentinian workers over the previous five years.

This quite naturally led to enormous discontent as well as growing political opposition, not just from the communists, who had always seen Peron’s form of socialism as a cop out,  but equally from the country’s traditional rulers, the land-owning aristocracy, as well as such unexpected groups as university professors and students. With nothing he could actually do to ameliorate the situation, however, Peron now made what was probably his biggest mistake. In what was rapidly becoming his standard response to dissent, he used the of Coordinación de Informaciones de Estado (State Intelligence Coordination, CIDE) to crush all opposition, killing hundreds of people and plunging the country into something approaching a civil war until, eventually, he was removed from office by a military coup in 1955.

What makes this such a tragedy, however, is that it was all entirely predictable. For if one consumes more wealth at home than one creates, and cannot sustainably obtain fresh inputs of capital from abroad, eventually one goes bust. It’s why the only country that has been able to maintain this kind of socialism for any significant period of time is the USA, which has only been able to do so because it issues the currency that is used in 80% of world trade. This means that the currency is in high demand and therefore has a higher value than would be the case if it was only used to buy goods and services from America. What’s more, being in such demand, its value is fairly stable, with the result that, for more than fifty years, central banks around the world have been happy to keep it as a reserve currency.

The bad news, however, as I have explained at greater length elsewhere, is that, because the dollar has a higher value than would be the case if it were only used to buy American goods and services, this makes those goods and services far more expensive than they would be if the dollar’s value were determined purely by the demand for American exports. Over the last fifty years, as a result, US exports have steadily declined, along with its manufacturing industry, with the further consequence that the country is now a  net importer, effectively consuming more resources than it actually creates: just like Argentina under Peron. It is able to do this, however, because the dollar reserves held in the central banks of other countries are not actually held in dollars, on which no interest is paid, but in dollar denominated Treasury bonds, notes and bills, on which interest is paid.

That is to say that for much of the last fifty years, and certainly for the last thirty years, the USA has been able to provide a higher standard of living for its people than would otherwise be the case because other countries have been lending it the money it needs to make up the difference between the amount of wealth it consumes and the amount of wealth it creates.

This money is then used to meet two major requirements. The first is the need to subsidise people’s incomes with welfare payments. This is necessary because the offshoring of so much US industry due to the uncompetitive strength of the dollar has naturally led to a decline in well-paid manufacturing jobs and an increase in poorly paid jobs in retail and hospitality, for instance. In 2022, as a result, total federal spending on welfare reached an all-time high of  $1.75 trillion, which does not include state welfare payments or state spending on such services as education.

The second major need for expenditure is on the military which consumed $850 billion in 2022 and, with so much support going to Ukraine, is likely to consume in excess of $1 trillion in 2023, even though the US is not directly engaged in any current war and certainly doesn’t need such a massive military establishment to defend itself. The purpose of this military establishment, however, is not to defend the American homeland, but the status of the dollar as the currency used for most international trade. For if it were to lose this status, other countries would no longer have a reason to hold US Treasuries as part of their reserves. They would therefore sell them, causing their value to fall and increasing their relative yield. This would mean that all future issuances of Treasuries would have to be at equally high rates of interest, thereby increasing the cost of US borrowing. Worse still, with so many unwanted US Treasuries flooding the market at knock-down prices, the Treasury may actually find it difficult to issue enough new bonds to redeem or even service its existing debt, which currently stands at $32.5 trillion. The chances are, therefore, that it would default, with almost unimaginable consequences.

This is why any world leader who even talks about using some other currency to conduct international business, especially in commodities, is very quickly and permanently removed, Saddam Hussein in Iraq and Colonel Gaddafi in Libya being prime examples. As I have also explained elsewhere, this is also the real reason for the war in Ukraine. For had Russia remained the principal supplier of Europe’s natural gas, eventually its case for being paid in roubles would have become irresistible, especially if Nord Stream 2 had been turned on, thereby increasing Russia’s dominance of the European gas market even further.

Given that this would have set a precedent which other suppliers of commodities around the world would have no doubt tried to emulate, it was absolutely vital to US interests, therefore, that Europe be decoupled from Russia by provoking the Russians into taking military action against a neighbouring country which many EU member states could be persuaded to regard as almost one of their own. The problem with this strategy, however, is that should Russia actually prevail in Ukraine, which is very possible, and should the EU then try to come to terms with Russia in order to save its own economy, it is very possible that the war in Ukraine will precipitate precisely what it was designed to prevent. For as part of the EU’s reconciliation with Russia, it is inconceivable that it would not agree to pay for Russian gas and other commodities in roubles.

This makes the war in Ukraine that much more dangerous for the entire world. For it is now vital to US interests and, indeed, the USA’s very existence as a unified nation state, that the Ukrainian’s do not lose the war. This means that if they are seen to be losing, the US and NATO may feel constrained to intervene directly, turning a local, relatively contained conflict into a global war which could quite easily then become a nuclear war.

6.    The Rise of Internationalism

That most people do not appear to understand this risk is due, in no small part, to the fact that the truth about what is at stake in Ukraine has been deliberately withheld from them. Instead they have been told that this entirely ‘unprovoked’ war was started on a whim by a deranged, tyrannical dictator who has to be removed in order to save the civilised world. Not only is geopolitics seldom that simple, however, but the national politics underlying the geopolitics is seldom that simple.

I say this because the US constitution has the same philosophical roots as the English Bill of Rights. In fact, John Locke, whose writings were the basis for the latter, also helped to write the constitution of Carolina, upon which much of the US constitution is based. For much of the USA’s history, therefore, US politics was firmly grounded in Locke’s liberal ideals of freedom and responsibility, combined with traditional conservative values based on Christianity, thereby raising the question as to when the USA stopped being a liberal democracy and turned into the imperialist oligarchy it would appear to be today, comprising establishment politicians who promise all kinds of free stuff to people who can’t get well paid jobs because all the well paid jobs have been offshored, and the crony capitalists of the military industrial complex who are the primary beneficiaries of this offshoring.

To understand how this happened, however, one first has to understand another unfortunate consequence of our strange misconceptions about the nature of politics, which is again rather well illustrated by the example of Juan Peron, who, despite his quintessentially socialist policies, is not generally regarded as a socialist, but a fascist. In fact, Spruille Braden, who was US Ambassador to Argentina in 1946 and who spoke at political rallies during the presidential election opposing Peron’s candidacy, actually published a white paper, known as the ‘Blue Book’, in which he openly accused Peron of fascist tendencies. Nor was this simply because he gave asylum to ex-Nazis such as Josef Mengele and Adolf Eichmann and used the CIDE to ‘disappear’ political opponents, particularly communists. It was more because he was a charismatic populist, much in the style of Mussolini or Hitler.

As I also pointed out in ‘Freedom & Identity’, however, before the first world war, Mussolini also regarded himself as a socialist. In fact, he never thought of himself as anything else. In collaboration with the Marxist Hegelian philosopher Giovanni Gentile, he only created fascism because he had learnt from World War I that ordinary working people, whether or not they are in uniform, identify far more with others from their own town or village, region or country – people who speak the same language and share the same culture – than they are ever likely to identify with an international proletariat. His conclusion, therefore, was that, if a socialist state was ever to be truly realised, it had to be based upon such nationalistic and cultural foundations rather than on pure Marxist ideology.

Because we are burdened with this strange notion that all ideologies are situated on a one dimensional spectrum that runs from left to right, however, it is very difficult for us to get our heads round this. After all, socialism is an ideology of the left, whereas fascist is an ideology of the far right. That, however, is not how Mussolini or Hitler or, indeed, Juan Peron saw it. To them, fascism was a form of socialism. It’s why Hitler called his party the Nationalsozialistische Deutsche Arbeiterpartei or NSDAP, which, in English, is the  National Socialist German Workers' Party.

Seeing how fascists and communists were everywhere in opposition, however, it was as if we couldn’t take the ‘socialist’ or ‘workers’ elements within this title seriously and just assumed, therefore, that it was the ‘nationalist’ part that was dominant. We also assumed that it was the nationalist aspect of National Socialism that was the problem: that it was this that had caused Hitler to make war on his neighbours. We did not stop to consider the fact that Britain, France and the USA – where some Americans still fly the Star-Spangled Banner above their front lawns each morning – were equally as nationalistic or that the real difference between these countries and Nazi Germany was that none of their economies were centrally planned by a state which consumed more resources than its economy actually produced, meaning that, if it didn’t want to end up like Argentina and couldn’t borrow money like the USA, it had very little choice but to plunder the economies of its neighbours.

Of course, it may be argued that the grandiose nature of so many of Nazi Germany’s infrastructure projects was the real problem in this regard, rather than a its spending on social services, for instance, and that if it hadn’t been so puffed up with national pride it would not have found itself so short of money. While this is very probably true, however, it does not negate the fact that if the Nazis hadn’t believed in a centrally planned economy and had left it up to private enterprise to only invest in projects that business owners believed would make a profit, the state treasury would not have wasted billions on building autobahns which remained largely empty, and the country would not have been more or less bankrupt within five years of Hitler coming to power, much in the same way that Argentina was bankrupt within five years of Juan Peron becoming president, not because of his nationalism, but because of his socialism. The only difference was that whereas the Argentinian military decided to depose Peron, Hitler invaded Poland.

Because we did not understand this, however, and thought that nationalism was to blame for the second world war, we then made the even worse mistake of thinking that the post-war world had to be rebuilt on a far more internationalist basis, in which, instead of competing for limited resources, nation states worked together in a far more cooperative way to increase resources and make them go further. Thus, in Europe, ancient rivals France and Germany became bound to each other in the European Coal and Steel Community (ECSC), which later became the Common Market and then the European Union. At a global level, the United Nations was formed with all its associated and affiliations agencies, such as the International Monetary Fund (IMF), the World Health Organisation (WHO), the General Agreement on Tariffs and Trade (GATT), which later became the World Trade Organisation (WTO) and, more recently, the Intergovernmental Panel on Climate Change (IPCC).

What no one seems to have realised, however, is that, in creating all these international organisations, not only was power being gradually transferred from elected national governments to unelected officials, but that the separation of powers between the executive and the legislature within national governments was also being undermined. For while most countries require that their legislatures ratify all international treaties, it is the executives, of course, who appoint representatives to the international forums at which these treaties are negotiated and from which they are then handed back down to national legislatures for ratification. By this stage, however, not only are most treaties already a ‘done deal’, making ratification a mere formality, but the representatives of the more powerful national governments negotiating these treaties will have usually done some deal between themselves, thereby making alliances between the executives of each nation state far more important than the relationship between the executives and their legislatures and the people they represent.

Ever since the end of the second world war, as a result, all meaningful power has been slowly but systematically handed over to a cabal of powerful world leaders and their appointed bureaucrats, with the result that democracy, itself, has been effectively side-lined. No one in Britain, for instance, has ever voted for the abolition of fossil fuels, a move to all electric vehicles and an electricity grid powered entirely by renewables. In fact, I’m not even sure how we got to this point. Presumably, we agreed something at the IPCC which was then passed into UK law in line with our treaty obligations under the Paris Accords. This, however, is precisely the kind of top-down autocratic government which the 1689 Bill of Rights was designed to prevent.

Worse still, our determination to ensure that nation states cooperate with each other rather than compete has now made it very difficult for most nation states to defend themselves against unfair competition. For not only do WTO rules state that, without a recognised trade deal, all signatories to the WTO must treat all trading partners equally, thereby making discriminatory tariffs illegal under international law, but our deregulation of financial markets has made it more or less impossible to impose capital controls on multinational corporations, making it all too easy for them to relocate their manufacturing operations to countries with lower labour costs and then import the resulting products back into their home market at lower prices than those of their domestic competitors, thereby forcing these competitors to do the same thing or go bust.

The inevitable result has been a steady offshoring of manufacturing from which the only people to gain are multinational corporations, themselves, and the various financial institutions which own them. For while it is routinely argued that consumers gain from lower cost imports, this would only be the case if they still had the well paid manufacturing jobs that would allow them to buy them. As it is, they are now forced to rely on government support in one form or another, which governments are obliged to provide in order to be re-elected but can only afford by borrowing money from the same financial institutions that own the multinational corporations and which, together with them, are part of that same cabal of world leaders and international technocrats which now rules the world, not for the benefit of any of its citizens but solely for the benefit of themselves.

For the simple truth is that they do not care about us, only about our continued submission to their rule. We saw this during the Covid pandemic, when all opposition to lockdowns and being injected with inadequately tested, experimental vaccines was ruthlessly suppressed. We are also now seeing it with regard to the war in Ukraine, where hundreds of thousands of people are being killed simply to preserve this deceitful world order, but where the truth has been so hidden under a smokescreen of propaganda that hardly anyone knows what is really going on. For the same group of people who now rule the world also, of course, own most of the mainstream media. Not only do they therefore control most of what we see, hear and read but they also do everything they can to censor what few independent media outlets exist.

This makes it all the more vital, however, that we break their spell: that we stop thinking about the world in the overly simplistic terms in which they want us to think, especially with respect to politics. For if we stopped thinking about politics in terms of left and right, and stopped assuming, among other things, that it is merely about the competing interests of different groups, we might start thinking instead about what politics is really about – or, at least, what it ought to be about – which, as John Locke understood, is the implementation and exercise of government according to those values and principles which reason and experience tell us are most likely to ensure that a society both flourishes and lives at peace with itself. For only if we return to these fundamentals do we have any chance of restoring democracy and creating a world which is not ruled from above by a globalist elite with their own agenda, but is grounded in the real interests of free people, who, by reason of being given the right to make their own choices, know that they also have to take responsibility for whatever they decide.

Sunday, 11 June 2023

The Economic Causes & Effects of Demographic Decline in the Developed World

1.    Replacement Fertility Rates

According to the United Nations, the global population replacement rate is 2.1. That is to say that in order to maintain the current level of global population, every woman on earth has to have, on average, 2.1 children, although there are, of course, regional variations. In countries with high infant mortality rates, for instance, more children are required to ensure that enough girls reach reproductive maturity. And something similar is true with respect to high parturition mortality rates. For if a woman dies giving birth to her first child, she obviously cannot give birth to a second.

Indeed, given the still quite high infant and parturition mortality rates in the developing world, it is a wonder that the global replacement fertility rate is as low as it is, especially when one considers that even if the developed world’s infant and parturition mortality rates were zero, it is mathematically impossible for any population to remain at the same level if its fertility rate falls below 2. This is because each woman in the population has to produce a minimum of two children in order to statistically ensure that she replaces herself.

It is therefore a cause of some concern that, again according to the United Nations, there are currently 95 countries in the world with fertility rates below 2.0, the lowest being South Korea where the rate is just 0.84. Were this to remain unchanged, this would mean that, by the end of the century, South Korea’s population will have shrunk by around 60% from its current level of 51.75 million to around 20.75 million.

And there are plenty of other countries in a similar position. Take Japan, for instance. Although its fertility rate is substantially higher than South Korea’s, at 1.40, its population of 123.29 million fell by around 700,000 over the last year, not least because its low birth rate was not offset by any significant level of immigration. This is in marked contrast to the UK, for instance, which has a fertility rate of 1.56, and should therefore have experienced a fall in population of around 225,000 over the last 12 months. Because UK net immigration – the difference between those arriving in the country and those leaving it – is currently running at more than 500,000 per annum, however, this meant that, even taking into account unexplained excess deaths, the population still actually grew by 227,000 during this period: something which many people would argue is, in itself, a problem, in that, for most of this century, the UK has been gradually but effectively replacing its indigenous population with a new migrant population, thereby giving rise to an entirely different set of problems, to some of which I shall return later.

2.    The Causes of Demographic Decline

Before examining the likely consequences of this widespread demographic decline in more detail, however, we first need to understand why it is happening, not least because the most salient characteristic of those countries in which women are having the least children is, of course, that they are all wealthy, while the 25 countries in the world with the highest fertility rates – all of which are in Africa – are among the poorest.

The country with the highest fertility rate, for instance, which currently stands at 6.89, is the Republic of Niger, 80% of which lies within the Sahara and is so arid and inhospitable that the subsistence farmers who largely make up its population generate an annual per capita income of just US $613. With such dire levels of poverty, one wonders, therefore, how people can bear to bring children into the world at all. It is precisely this grinding poverty, however, that drives the fertility rate. For if one lives in a such an unforgiving land, in a country with no state funded welfare system, one has to have as many children as possible simply to ensure that enough of them survive to continue providing for their parents in old age.

Up until the second half of the 20th century, moreover, this was the norm throughout the entire world. In temperate regions such as Europe, the situation may never have been quite so extreme, but without the state to provide a welfare safety net, one of the biggest incentives people have always had for having children is to ensure their future economic security. It is why, not just families, but whole communities took such great interest in seeing their young people forming strong and stable unions, and why the birth of every child was a cause of celebration. For barring illness and other misfortunes, each child born traditionally represented another productive pair of hands who would, in due course, help ensure the whole community’s continued prosperity.

It wasn’t until after the second world war, in fact, when an era of cheap oil brought about an exponential growth in wealth based on the widespread use of the internal combustion engine, that decisions were made throughout most of the developed world to change this fundamental aspect of all previous human societies: a transformation which was principally achieved by providing senior citizens with state pensions, thereby transferring responsibility for the economic welfare of the elderly from the family to the state and reducing the importance of the family to most people’s future economic wellbeing.

While an improvement in economic conditions may have made this fundamental transformation of society possible, however, the most important thing to note about this largely unheralded revolution is that increased wealth did not, in itself, cause or bring about the change. After all, the wealth could have simply been left in the hands of those employed in making it, thereby enabling families to better look after their elderly themselves. What’s more, it is likely that a better off society would have been more inclined to contribute to those charities which already existed to provide support for old people who did not have families of their own to fulfil this role. National governments did not therefore have to intervene in the way they did for the lives of the elderly to be improved by a general increase in prosperity. The decisions were thus largely political in nature.

That’s not to say, of course, that such decisions weren’t taken for the best of reasons: to prevent old people falling through the gaps in the care that was then available, for instance, or to enable them to retire with dignity without having to go cap-in-hand to charitable institutions. What is still nevertheless the case, however, is that in taking these decisions, governments failed to take into account the long term consequences this transformation would have on society as a whole, especially given the fact – which no one, of course, could have anticipated – that this change more or less coincided with the introduction of an effective and easy to use form of contraception, which meant that, for the first time ever, women could risk having sex without first securing the commitment of a partner on whom they could depend if they became pregnant.

This then had two further consequences. Firstly, it meant that women could delay getting married until after they had experienced more of what life had to offer, including both a career and a more adventurous sex life.  Even more importantly, it meant that, even after they were married, they could now plan when they had children, thereby allowing them to combine a career with having a family: something which was simply impossible when children came along haphazardly, forcing on women irregular periods of pregnancy and child rearing which effectively kept them out of the work force, not least because very few employers were willing to hire employees who were likely to be that unreliable.

Thus it was that a comprehensive welfare system – one which liberated both men and women from the need to have children in order to have someone to support them in their old age – combined with a reliable form contraception, suddenly gave women more freedom than they had ever had before. However, it was not just women themselves who were keen to embrace the opportunities this presented. Indeed, there were others with far less honest and honourable motives who were even more intent that they should fulfil their potential. For throughout the decades during which women had been forced to spend their child-bearing years at home, most families, of course, had had to live on the income of just one wage-earner. In order to do so, however, women had to produce a huge variety of goods and services in the home. These ranged from home-cooked meals made from basic ingredients, knitted and home-sewn clothes for both themselves and their children, all-day childcare for their pre-school infants and, of course, care for their elderly parents, all of which they provided without any financial remuneration.

What this meant, therefore, was that half the entire adult population was engaged in economic activity in one form or another upon which no monetary value had ever been placed and for which no money actually changed hands, making it simply impossible, therefore, for anyone to make a profit from it or for it to be taxed. As soon as women had been biologically freed to join the wage-earning labour force, therefore, both government and big business were not just keen to get them out of the home and into the factory, but were positively salivating at the prospect of all the additional revenues this would generate. For by getting women to produce industrial versions of the food and clothing which they had previously made at home, they no longer had the time, of course, to make the old homemade versions. This meant that they now had to buy them readymade on their way home from work, using the wages they received in exchange for their labour as payment, a percentage of which was then returned to the business owner as profit, while another percentage went to the government in tax.

The problem was that, while many women clearly thought that this was a better arrangement, one of its worst consequences, as I explained in ‘Women’s Liberation and the Monetarisation of the Economy’, was that it was highly inflationary. For although industrialisation brought about some increases in productivity, overall production did not increase anywhere near as much as the increases in the money supply which resulted from paying women to produce the same goods and services they had previously produced for free. Worse still, this inflation was largely invisible and so did not result in a commensurate increase in wages.

This was because standard inflation indexes, such the Retail Price Index (RPI) or the Consumer Price Index (CPI), only measure increases in the price of the same or similar items over time. They don’t measure the difference in cost between a cottage pie made from basic ingredients at home and one bought in a supermarket, especially as the homemade cottage pie was traditionally made from left-overs from the Sunday roast. Thus while, according to the RPI, £1 in 1960 had the same purchasing power as £22.62 in 2020, in reality its value was much higher. Indeed, if one bases the relative valuation on other indexes, such as the Commodity Price Index, £1 in 1960 would have actually been worth £79.99 at 2020 prices, more than three and a half times the official figure.

That’s not to say, of course, that all this inflation was caused simply by women going out to work. In 1971, for instance, there was the small matter of the US coming off the gold standard, causing a massive devaluation of the dollar – and all other currencies pegged to it – when set against gold and other commodities. Then, in 1974, there was the 300% hike in oil prices which the west had to pay in return for Saudi Arabia’s promise to continue pricing its oil in dollars, thereby ensuring that the dollar remained a reserve currency. Nevertheless, the monetarisation of goods and services which women had previously produced without monetary remuneration still made a hefty contribution to 1970s inflation, as can be best seen, perhaps, in the case of services which had simply not existed before women started working outside the home. The most notable of these services, of course, was childcare, which, by the 1990s, consumed up to 25% of average take-home pay per child. Thus, if a family placed two children with a pre-school childminder, it could have cost them up to 50% of one of the parents’ salaries, a cost which simply did not exist before.

Of course, most governments throughout the developed world soon recognised this problem and started providing financial support for childcare either through the tax system or through direct subsidies. All this really meant, however, was that working families had pay indirectly for childcare through some other form of taxation. After all, the money had to come from somewhere. More to the point, subsidising monetarised childcare does not solve the underlying problem, which is that, due to the fundamental restructuring of the economies of the developed world over the last sixty years, families have been loaded with more and more costs while the value of the money in which they are paid has been constantly eroded without most people even realising this.

The result is that, whereas in 1960, families with three, four or even five children could manage perfectly well on the salary of just one wage-earner, families with just one or two children today often struggle to manage with both parents working, making two children the most that the average family can afford, thereby making it more or less impossible for fertility rates in developed countries to rise above 2.0.

3.    The Consequences of Demographic Decline

Of course, there will be some who will say that this is a good thing, that the planet is overpopulated and that a reduction in population would be beneficial for the environment. However, this reduction is only happening in the developed world. The developing world is still producing as many children as ever, with the result that the global fertility rate, at 2.2, is still actually greater than the required replacement rate, which means that the global population is still growing.

This will no doubt lead others to argue that the developed world should therefore adopt a policy of offsetting their demographic decline by taking in more immigrants, as the UK would appear to be doing. What this fails to understand, however, is that the problem is not about absolute population levels. If it’s about population at all, in fact, it is about the ratio between different generations. For if a country has a fertility rate of 1.50, for instance, this means that each generation will produce 25% less children than the previous generation. This in turn means that, when these children grow up, there will be 25% less adults of working age to support their parents, the whole demographic structure of society being top-heavy with old people.

Nor will this change when the post-war generation of baby-boomers dies out. For as long as a fertility rate of 1.50 persists, every generation will be 25% smaller than its predecessor, while the ratios between generations will always remain the same.

So why, you ask, would immigration not solve the problem? It would, after all, increase the number of people of working age. The problem, however, is not just about the numbers. It is also about having a working population with sufficient education and skills to generate enough wealth to fulfil the Herculean task of supporting a disproportionately oversized elder generation. And the majority of migrants entering Europe just do not fit this description. After all, in most cases they are fleeing poverty, having been born in countries which have only been able to provide them with the most basic level of education. When they get to Europe, therefore, they are only qualified for the lowest paid jobs, which do not generate enough tax revenues to cover their own children’s educational costs, let alone pay for the pensions and health care of the elderly. In fact, most first generation immigrants are a drain on the economy of their host country. It is only when their children grow up and join the jobs market, having received a higher standard of education than their parents, that they can start making a contribution to the community as a whole. As soon as this happens, however, they find themselves in exactly the same position as their native counterparts: stuck in an high tax, low pay economy in which, even with both parents working and all the welfare benefits their adopted home now gives them, they still can’t afford to have more than two children.

This is because what the developed economies of the world actually did when they transferred responsibility for the non-productive parts of their economy from the family to the state was initiate a vicious circle in which the productive sectors of the economy were so squeezed by inflation and taxation that they contracted, producing fewer productive workers for the next generation, which was consequently squeezed even further to pay for all social services and welfare benefits upon which all generations have now come to rely and regard as their due.

Indeed, the fact that nearly everyone today not only relies on this system but believes that, in any civilized society, everyone should be entitled to free health care, at least thirteen years of free full time education and a living pension when they retire means that breaking out of this vicious circle is so politically fraught that even when many developed countries reached the point at which they could no longer extract any more tax from their productive population, governments still did not cut public expenditure. All they did was borrow the money, instead, lowering interest rates both to keep their own borrowing costs down and to increase the rate at which money circulated, thereby increasing the M2 money supply so as to avoid depriving the productive sectors of the economy of investment.

The problem with this strategy, however, is that whether one increases the money supply by printing more of it or by increasing its velocity, it is still inflationary, even if the effects are not immediately apparent. This is because inflation does not always appear in consumer prices. If people are finding it hard to make ends meet, for instance, then, even if interest rates are low, they will generally be loath to borrow money to spend on things that do not improve their financial security. If interest rates are low enough, however, they may be induced to borrow money to invest in assets that are likely to appreciate over time, which is exactly what happened in the 1990s and early 2000s when, seeing what was happening to house prices, people rushed into property market, thereby creating a self-fulfilling housing bubble.

The problem was that hard pressed families didn’t see it as a bubble and so used the rising value of their homes to borrow more money to supplement their incomes, making them feel better off than they actually were, until, of course, the housing bubble, like all bubbles, eventually burst, leaving them with nothing but the debt.

Even this, however, did not lead governments to consider changing the fundamental structure of their economies. Instead, they merely doubled down on the monetary theory which had got them into this mess in the first place, not only reducing interest rates still further but actually printing more money in what they euphemistically referred to as ‘quantitative easing’. Far from stimulating the economy, however, as central bankers and governments continued to claim it would, all this extra money printing did was stoke another round of inflation, not this time in the property market, but in financial assets such as stocks, causing stock markets to continually hit record highs, thereby making some people very rich, while the real economy, which stock markets are supposed to represent, remained stagnant.

Not that this, in itself, posed any significant threat. For although this financialised economy was generally bad for ordinary working men and women, for a long time it actually seemed quite stable. Indeed, after watching this scenario play out for nearly fifteen years, I was beginning to believe that the financial system was not going to collapse in on itself as I had initially supposed. And then, of course, Covid came along and governments throughout the world decided to impose the most insanely self-destructive lockdown rules on their economies imaginable, forcing people to stay at home while borrowing even more money to pay them to do nothing, thus increasing the money supply while actually reducing production, thereby causing both shortages and a new wave of inflation, this time in the price of consumer goods, especially food.

What this meant, therefore, was that central banks now had to suddenly go into reverse, bringing quantitative easing to an end and putting up interest rates in order to reduce the velocity at which money was circulating. The problem was that while, by 2022, the economies of most countries had recovered a little since the height of the pandemic a year earlier, in most cases this recovery was still not complete. This meant that most governments were still borrowing substantial amounts of money. In the UK, for instance, government borrowing in 2022 stood at £71.61 billion, which was well down on the £240.97 billion deficit in 2021, but substantially higher than 2019 when the Treasury actually recorded a small surplus. Worse still, the deficit in 2023 is forecast to be £87.37 billion. Because the rate of inflation is still so high, however, the Bank of England can neither reduce interest rates nor print any more money. This means that all this continued borrowing has now got to come from commercial banks, thereby very possibly leading to a liquidity crisis.

We can see this more clearly in the context of the USA, where five major banks, including First Republic Bank, Silicon Valley Bank and Signature Bank, have already failed this year. This is because, when interested rates were low, they all invested some portion of their customers’ deposits in US Treasuries, which were then yielding around 2%. They were able to do this because they were only paying around 0.5% on deposits. When inflation started to rise, however, and the Federal Reserve, like the Bank of England, started to raise interest rates, the market value of these low-yielding Treasuries started to fall below what the banks had originally paid for them.

Not that, at this stage, this was a problem. For the banks could simply hang on to these bonds until they reached maturity, when they would be redeemed at face value. The problem was that when, in line with higher interest rates, the US Treasury then started issuing bills, notes and bonds with higher yields, customers with deposits in banks which were only yielding 0.5% interest, naturally started taking their money out of the banks in order to invest it in these new high-yielding Treasuries. This meant that the banks which held the old, low-yielding Treasuries now had to start selling them at a loss in order to meet their customers’ demands for cash, thereby making themselves technically insolvent, which, when this was discovered, led to even more customers taking their money out these banks, causing them to fail.

Nor is this problem confined to the USA. The same problem would have caused Credit Suisse, Switzerland’s second largest bank, to fail in March this year had it not been taken over by UBS, Switzerland’s largest bank. What’s more the problem is soon likely to become much worse and more widespread. This is because at the end of May, after months of haggling, the US Congress approved a bill to raise the US debt ceiling above the $31.4 trillion at which it had stood since the last time it was raised. As a result, it is now anticipated that the US Treasury will sell another trillion dollars’ worth of Treasuries over the next three months, many of which will be bought by investors who will take the money out of their deposit accounts to do so, thereby causing several more commercial banks to fail, with possible knock-on effects all across the which financial system, which may not be able to survive another such blow.

4.    The Solution

You may of course be wondering what all this has to do with demographic decline. In economics, however, everything is connected. It’s like a massive eco-system: you make a change in one part of the system and it has an effect somewhere else, often where you least expect it. In 1958, for instance, Mao Zedong ordered the extermination of all the sparrows in China as part of the country’s ‘Four Pests’ campaign, the other three pests being rats, flies and mosquitoes, all of which, of course, play some role in spreading disease. In contrast, the sparrow’s sole crime was that each bird was estimated to consume 2 kg of grain per year, which could otherwise have been used to feed people. And so Chairman Mao ordered their eradication. What neither he nor any of his officials seem to have realised, however, was that, in addition to consuming 2 kg of grain per year, sparrows also ate a lot of insects, including locusts, which, without the sparrows to control them, now devastated Chinese crops, contributing significantly to the Great Chinese Famine of 1959 to 1961, in which somewhere between 15 and 55 million people are estimated to have died.

In deciding to transfer economic responsibility for the elderly from the family to the state, we, of course, did nothing quite so obviously stupid or with such immediately devastating effects. By making it both less necessary and less affordable for people to have as many children as they had before, however, we set in train a process of demographic decline in which the working population gradually contracted until it reached a point at which it could no longer generate enough tax revenues to cover the contractual liabilities the state had so foolishly taken on itself, thereby forcing governments to borrow the money instead. In order to avoid liquidity problems, however, this in turn forced them to increase the money supply, which inevitably caused inflation, thereby placing most western governments in the double bind in which they now find themselves: still needing to borrow money to meet their obligations, but unable to print more money to so, thereby making a liquidity crisis more or less inevitable.

Of course, this is a grossly oversimplified model of how we got to where we are today. There were probably hundreds if not thousands of more factors involved, all of which, collectively, forged the history of the post-war era. Right at the heart of this history, however, was the decision, taken throughout most of the developed world, that the state should play a much more prominent role, not just in the everyday lives of ordinary people but, even more particularly, in the management of the economy, with the result that the US federal government now owes $31.82 trillion, or 120% of US GDP, while the UK national debt currently stands at £2.85 trillion, or 101% of UK GDP, neither of which sums can ever be repaid without further massive devaluations of the two countries’ respective currencies, which can only be achieved through inflation, with all the devastating effects this will have on their populations.

The only hope we have of avoiding this is therefore to reverse the developed world’s post-war policy of expanding the state and introduce, instead, an era of state contraction, which might be most usefully begun by abolishing state pensions, which are not only the epitome of state paternalism but are at the centre of everything that has gone so disastrously wrong with the economy over the last sixty years, not least because, in most countries, state pensions have been based on a lie.

I say this because, in the UK at least, the new tax which had to be introduced to pay for these pensions, and other related state benefits, was sold to the British population as a form of insurance. Indeed, it was actually called ‘National Insurance’ (NI), as if it were a fund into which people would pay when they were working and from which they could then make withdrawals if they were out of work and when they retired. However, the ‘contributions’ which were made into the fund were never actually hypothecated or set aside in this way. They were simply lumped together with all the other taxes which the government collected, to be used for public expenditure in general.

This also meant that they were not invested in the way in which real pension funds are invested, so as to accrue interest and hence increase the size of the pension that is eventually paid out. Instead, the government relied on more and more people paying into the scheme in order to pay existing pensioners. In this respect, the UK state pension was and still is a classic pyramid selling or Ponzi scheme, which has always relied on there being more people at the base of pyramid, paying into the scheme, than there are at the top, taking money out. Not only does this make all such schemes intrinsically unsustainable, however, but by making the having of children both less necessary and less affordable, the very nature of this particular scheme, in itself, ensured this outcome.

Given that they are so unsustainable, it follows, therefore, that if state pensions of this type are not abolished, one of two things will happen. Either governments will continually raise the pension age so that young people today, who are just starting to make NI contributions, will probably never receive a pension, or governments, unable to borrow more money without causing either a liquidity crisis or hyperinflation, will simply go bankrupt, with the result that the pensions will not be paid anyway. It would be far better, therefore, for governments to announce a gradual reduction in the state pension over, say, the next fifty years, combined with a commensurate reduction in NI contributions so that people can make alternative provision for themselves by paying more into personal pension plans.

The problem, of course, is that this, in itself, would cause governments to incur additional costs. For while graduated reductions in contributions would have to take effect immediately, it being impossible to ask people to pay more into a pension fund than they are ever going to get out, reductions in the pensions, themselves, could only take place gradually, and could only apply to new  pensioners, it being impossible to reduce payments to existing pensioners without causing unacceptable hardship.

To complicate matters even more, the viability of any such state pension abolition scheme would also depend on keeping inflation low and interest rates high over the next fifty years. For one of the great problems with personal pension plans over the last two decades has been that, with interest rates at record lows, they simply haven’t produced pension pots of an adequate size by the time the intended pensions were due to start being drawn down, a problem which is now being further exacerbated by high inflation. 

To solve this problem, we should also therefore abolish central banks, as, indeed, I recommended in ‘Rebuilding The World After The Next Crash’. This would stop governments lowering interest rates to stimulate demand, a policy to which modern governments are seemingly addicted, even though it has never actually worked. Instead, commercial banks would set their own interest rates, not in an attempt to manipulate the economy, but simply to balance the supply and demand for money. Thus, if the demand for money were high, banks would put up interest rates both to attract deposits and to dampen demand by weeding out projects that were only marginally viable at low interest rates. If, on the other hand, demand for money were weak, banks would reduce interest rates both to discourage deposits and encourage potential borrowers to come forward. After all, this is the way commercial banks used to operate before central banks were created. And it worked perfectly well.

It may, of course, be objected that without central banks, commercial banks have no one to fall back on if they get into difficulties and thus risk losing their customers’ money. It should be pointed out, however, that the five US banks which have failed so far this year have all done so as a result of the Federal Reserve raising interest rates in order to solve a problem which the Fed itself created by reducing interest rates to almost nothing for more than ten years in the clearly misplaced belief that this would revive a stagnant economy. At the same time, they then started  printing money so that a spendthrift Federal government could spend it on perpetual foreign wars, which added nothing to the US economy, and bloated welfare programmes which do nothing to incentivised people to engage in the kind of activities which do in fact stimulate economic growth.

Behind all these crazy economic policies, however, there is a far more fundamental problem: us, or rather our even more misplaced belief that, despite all the evidence to the contrary, we are masters of the universe who can meddle in complex eco-systems without invariably making matters worse, when all our experience ought to be telling us that we should leave well alone, allow free markets to find their natural point of balance and rely on families to look after their own. Not only have we long since stopped believing in such natural and organic solutions, however, but having been immersed in a particular mind-set since the end of the second world war, we have come to believe that it is the function and duty of politicians to fix all of life’s problems for us. Worse still, politicians have come to believe this, too, and would not know what they were for if it wasn’t to meddle in complex eco-systems to make them better.

The result is that we will not be abolishing either central banks or the state pension any time soon. Instead, we will keep up the juggling act, taking one corrective or palliative measure after another in order to the solve the problems created by our previous corrective measures, until eventually the whole thing collapses and we have to start again. And even then we will do exactly the same thing. For the one thing that history teaches us is that we never learn anything from history. And yet still we think we are gods.