I was interested to see this remark by the hugely intelligent John Stepek of Money Week, in one of his morning bulletins:
Every government, authoritarian or democratic, is terrified of growth slowing. Why? Because they’ll lose their jobs. Whether that’s at the end of a rope or more benignly at the ballot box doesn’t make any practical difference in economic terms. The fact is that the people in power will always do their damndest to keep a boom going for as long as possible. And that’s what ultimately does the economic damage.
Absolutely spot on. For some time, particularly following the credit boom-and-bust, I have wondered (rather worrying) if democracy is our problem – that politicians simply have to keep promising higher spending and lower taxes to win elections. But even ministers in authoritarian governments have told me that they face the same sorts of problems. Maybe they don't bother with elections, but they still have to cultivate some kind of public acceptance. And of course the public want booms because everyone seems to benefit from them. The inevitable downturn, you can blame on someone else – greedy bankers, American imperialists, whoever – so few people actually make the connection.
Now, though, is a good time for governments to make the connection. I would like to see the UK and US in particular fess up to the fact that big over-expansions are what produces big crashes. Once they do fess up, then we can do something about it. Like have some kind of constitutional limits to government spending, borrowing, debt, and tax levels. This is exactly what the President of Georgia – one of the fastest-growing countries in the world, following its economic liberalisations – wants to do. His Liberty Act would amend the constitution to cap government expenditure at 30% of GDP (two-thirds of ours), budget deficits at 3% (a quarter of ours) and public debt at 60% (about a sixth of ours, if you take all the under-the-counter debts into consideration). And he is coming to London to explain it to the Adam Smith Institute, on Friday 12 February at 6.30pm.
