Saturday, January 24, 2009

Rolling back the State

... won't happen. Only a major disaster is capable of breaking the hands that are strangling us. But maybe that is what is now on its way.

Mish reported yesterday how the banks are insolvent, and in his opinion monetary reflation can't work , for three reasons:

1. Putting more cash into the system to create inflation to reduce the real burden of debt, won't create jobs, raise wages, or stop outsourcing (China's nominal GDP per capita is $2,483, America's $45,725, according to IMF figures).
2. But "quantitative easing" - monetary inflation - will lead to a currency drop (if it succeeds) and the reaction will be a raising of interest rates as lenders try to protect the real value of their loans.
3. And if government creates jobs directly, it again skews the economy, giving higher importance to the objects it chooses than the market would, if left to itself; in short, what economists call "malinvestment".

A longish essay over on Mises looks at how the State has seized the wealth and assumed many of the functions of the private citizen, and how the First World War and subsequent events helped accelerate a process that had begun long before.

Back in the 70s, I came across the work of Ivan Illich. His general thesis was that the State takes over activities that previously we performed ourselves - teaching our children, tending to our sick and injured, etc. These functions are then made into organisations with big buildings, many workers and officials, and large budgets - all paid for by taxation. Sociologists call this "reification". It increases the size and power of the State - and here we are.

They don't even do the job well.

As someone in education (as well as finance), I don't subscribe to the airy assertion that "our youngsters leave school illiterate", but they don't read or write as much or as well as they did, and what the liberals have done to the curriculum in English (for example) is painful to see. Heads of English in secondary schools in the 70s literally burned or threw out their schools' textbooks and coursebooks (I remember hearing of three separate cases); but the temptation to micromanage returned. It's like the historical irony that saw the French kill their King and end up with an Emperor.

And having seen the medical service in action on my wife a few years back, I no longer have the blind faith in doctors that I used to have. Phil Hammond (the GP/journalist/entertainer) tells us that the NHS kills or maims about 10% of its hospital patients, and Illich was ahead of him again (Medical Nemesis, 1974).

That's not to say we don't need doctors or teachers, but once created, institutions develop a will to live and purposes of their own, and can drift perilously off-task. Individuals who join them can become sidetracked by career opportunities and political hobby-horses, and in any case have to accommodate themselves to working in a structure run by others who have already done so and altered the operational rules to fit their interests.

Looks like the banks have done the same.

We have to hope that, however painful, after the coming changes there may be some better balance between the citizens taking care of their families, and that black hole of wealth and power, the State.


Anonymous said...

This is why I worry about Western, and specifically UK, societies. So much of what is neccessary to exist as a human being (food, clothing, housing) is provided free either directly by the State, or by proxy (by providing a basic free State income - benefits). There is no longer any requirement on an individual to DO anything to get the basics. The State will provide, whatever you do.

Lose your job (say by your own fault - you punch your boss), you still get benefits. Lose your house, because you spend all your money on drink & fags rather than the mortgage or rent, the State will house you. Have children you can't afford, get more benefits. Get ill through being morbidly obese, the NHS will care for you. Take illegal drugs, the NHS will try and save you if you overdose, and even provide methadone if so needed. You'll still get benefits even if you do spend them all on drugs. There is zero responsibility required of a UK citizen anymore. There is nothing you can do that will cast you out of the protective blanket of the State's care.

So many people are now dependent on the State to keep them alive (ie without State care would probably end up dying in the streets, or rioting & looting) that it is politically impossible to rebalance the system towards self reliance. The number of losers would be so great that no politician could even contemplate it.

So the only way the system will be rebalanced (and it must - we cannot continue to spend increasing amounts on supporting an increasing % of the population) is by some catastrophic failure. IE the State literally runs out of money, due to reduced tax income from lower economic activity, increased expenditure on more benefits, and the refusal of foreigners to lend us more money.

Then it is too late for a gradual reduction in social spending. You would be faced with large numbers of people with no money to pay for food and heating, let alone rents. Anarchy on the streets would ensue in my opinion. And the refusal of politicains to face this issue now, leads us inexorably towards the catastrophic scenario.

RobW said...

It's interesting. One really can't tell what will happen.

There are so many socialists in this country. Especially among my youthful generation. And they draw completely different conclusions on this crisis.

Which I think is a real strength for the state.

Sackerson said...

Thank you for your comments, both. I think a crisis will result(for a time) in some form of "strong leadership". And behaviour will change quickly - there's a step learning curve in war, they say. Probably a temporary end to drunken debauchery, except where it has always thrived, i.e. among the elite and in private.

Paddington said...

Sackerson - think 'Victory gin'. It's a great way to control discontent from spilling into general society, and has worked since the pyramids were built, with beer as payment.