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.
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on a “sustained programme of fiscal austerity”, he is really doing nothing more than tinkering around the edges of an outdated government framework, one that the “digital demos” is (hopefully) soon going to make redundant.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.