Blog 2023 Malcolm Blair-Robinson

The Price of Big Government

Many U.K. readers will have seen the excellent Channel 4 documentary by Mark Durkin last evening which brought home the scale of the public debt here. I have already explored these figures many times, so I will not repeat them. 

The programme examined in depth the fact that big government (as opposed to state ownership) is a drain on the economy because it has to be paid for by the taxes on wealth creation by the private sector as the government makes no wealth. Properly organised and kept small, government can facilitate enterprise and wealth creation which in turn raises standards and creates jobs and multiplies. Big government burdens.

There is a case for arguing that major government shareholdings in corporations, especially banks and public utilities can be a good idea if it brings profits back to the Treasury, which can then invest them in services, but as a shareholder and not as manger. We had an element of this with the nationalised industries, but the lack of business acumen in their management made them sluggish and often unprofitable. The taxpayer/shareholder is different to nationalisation but no different to the pension saver/shareholder through their pension fund. Left-wingers might want to explore this.

What simply cannot sustain, as the C4 documentary showed, is a bureaucratic state which accounts for over half the country’s GDP as we have now in the UK. To underline this came the startling disclosure that the percentage of GDP controlled by the state in the United Kingdom, a free enterprise democracy, is twice the level of the GDP controlled by the Chinese government in a one party communist state. Dear me.

Quantitative Easing

America came in for a good deal of criticism in Seoul for its latest batch of QE from the Fed. Quite right too. To expand the money supply whilst spending at cosmic levels on borrowed money risks a very bid bang indeed. Even if there is no explosion economically, it further damages the economic clout of the U.S..

Modern money is not based on gold, it is based on assets and wealth creation. Thus anybody can make electronic money and that is what happened in the boom before the crash. By parcelling up worthless securities and creating a market for them to be traded, money was created with no substance.  When the crunch came there was nothing there. The Fed and the government had to rush in with real money to plug the gap. This they had to borrow mostly from China. Printing money, to use the old name, is very dangerous. If the Banks had all been allowed to go bust and QE had been used to restock depositor accounts it would be less inflammable. Using it on top of massive borrowing and government expenditure leads to an accelerating defamation of the currency. It was tried by the Confederacy, the Wiemar Republic and Zimbabwe and led to economic collapse every time.

G. 20 and the Balance of Power

It is clear from the reports of goings on at the G.20 that the balance of economic power has shifted away from the United States. The condition of its own economy, the fact that it was at the heart of the global financial crisis and the fact that the Asian economies are doing so much better (and have all the cash) has ended an era. It is not likely to return.

Britain has always had a trader’s instinct, this is how and why it built its Empire. It now has a monetarist government, busy slashing government spending and size. It is following a different fiscal path to the U.S., which unusually is led by a left of centre administration, so the U.K. is much closer to understanding China’s position. Germany has emerged from the crisis as the economic power of Europe, which it will progressively dominate financially, not least because it has spotted that the balance has shifted to Asia. This is why its factories are on overtime exporting cars to China.

How this is going to pan out for America remains to be seen. It is a country of unmatched potential and resilience, but is politically not only divided and divided within the divisions, but suffering from a lack of confidence driven by uncertainty. At the moment it is not calling the shots. That is a new experience for all Americans alive today.