Andrew Lilico, on CapX
“Our fiscal situation is hopelessly beyond the capacity of our politics to address it. Tax and spending is so high, and so concentrated in unproductive activities such as NHS spending, that it is bearing down on growth, creating a doom loop of insufficient tax revenues to keep our debts from rising leading to increased tax rates leading to lower GDP growth leading to lower tax revenues. The only ways out are fiscal crisis, inflating away our debts or brute luck. What’s my guess? I’m still betting on luck, with new technologies boosting growth enough for us to escape, but crisis is getting nearer and nearer with every month that passes.”
When people start holding out for the whizz-bang potential of tech, or just plain luck, to take us away from the brink, things aren’t good. Plan for the worst, and hope for the best is a smarter strategy. At the moment, the UK, like all too many other developed countries, appears to be stuck in what Lilico refers to the “doom-loop” of sluggish growth, an ageing population, falling revenue, higher borrowing, and so forth. The term “doom-loop” got used a lot, I recall, during the pandemic, when some of our present discontents took a turn for the worse. Breaking free of such a “loop” will require a level of brute courage and honesty that, unfortunately, will be a tall order. I am not even sure how far down this path Nigel Farage of Reform can go – particularly if he is trying to woo disgruntled, “our NHS” Labour voters in the north, Midlands and other parts of the UK. As for the Tories…they appear for the moment to have gone on a sabbatical.
Where to turn for ideas? Well, I’ve started to read the books (here and here) on the UK’s economic plight by Jonathan Patrick Moynihan, who is a member of the House of Lords (“Baron Moynihan of Chelsea”), and a businessman and venture capitalist. The books are superbly written, and rather lovely items in their own right with the cartoons of famous politicians and pundits on the dust covers. They seem to chart a way forward. But at root the message is hard: cut spending, and shed a lot of functions.
The question, for me, is when and how does the work of pushing back against the current insanity start, assuming that Starmer, Reeves and the rest of these jokers see out a full parliamentary term.
At what point, for example, would an Argentinian-style chainsaw approach be required? Are we going to need a case of crisis treatment when all else has failed?
For sure dramatic cuts to spending might save Britain. But the discovery of an actual tree on which money grows might also save Britain. But neither has a hope in hell of actually happening. So I’m afraid the only option is economic collapse.
The optimum conditions for such a cut spending approach were recently in place in Washington and, as governor DeSantis said “Doge fought the swamp and the swamp won”.
I suppose technological revolution can change the bleak reality, though whether positive or negative im not sure.
I’d be curious to know what these new technologies are that Lilico supposes will save us.
Martin, so am I!
Replacing the civil servants with AI?
…and yet the bulge of the ageing population will wither away (après moi la sécheresse), which will also reduce the cost of geriatric care to the NHS.
Prune the NHS of unnecessary items (more contentious, but tattoo removal for example, or fertility treatment) and soon we would be wrestling expenditure back to within our means.
Put a lifetime limit on benefits (again contentious). Tell the population that these limits will be firmly applied and any further benefits will be supplied by charity.
But most of all – really mean it this time.
But that’s what has always saved us throughout history. New tech, which increases food production, or energy harvesting, or cheaper/better building methods and materials . . . .
Paul Ehrlich’s mistake was that he assumed stasis in tech. Sure, the world population might have been problematic had we not improved wheat and rice and oil and whatnot. But we did, and now he’s a punchline.
And so the default view has become “but man will overcome.” It’s worked so far.
We could stop doing the Net Zero crap, that could at least help a bit. Stop doing deliberate self inflicted harm for no reason.
There’s no doom loop, the money backing this spending isn’t real, the ‘promises’ that have to be paid for aren’t even written in wind and all that will happen is that a lot of people will find that their IOUs from the State are very notional. It’s all made up, the money and the entitlements.
Of course, people will have to adapt their expectations, but there will be a transition to the underlying economic reality, which, if what you are doing is not economic, will result in horrible consequences. But almost no one wants the show to stop, or even re-write the lines.
So I agree with the OP, except that I don’t have the imagination to see that any of these ‘liabilities’ have any meaningful existence or consequence, as the State can wipe them out at will.
@Stonyground
We could stop doing the Net Zero crap, that could at least help a bit. Stop doing deliberate self inflicted harm for no reason.
Sure and if we start unicorn farming the profits from that will offset our problems too. And that is about as likely as what you are suggesting. There are lots of things we could THEORETICALLY do, as in the laws of Physics don’t prevent it, but none of them are actually POLITICALLY possible to do. It is why the OP’s comment “beyond the capacity of our politics to address it” is spot on.
@Mr Ed
There’s no doom loop, the money backing this spending isn’t real, the ‘promises’ that have to be paid for aren’t even written in wind and all that will happen is that a lot of people will find that their IOUs from the State are very notional. It’s all made up, the money and the entitlements.
The money might be fiat but the empty refrigerators of the OAPs and freezing temperatures in their homes that result from the inability to rely the government’s promises in a substantive way will not be fiat or imaginary. People have built their life plans on these things that are “written in the wind” and when the bubble pops it will be calamitous.
So I agree with the OP, except that I don’t have the imagination to see that any of these ‘liabilities’ have any meaningful existence or consequence, as the State can wipe them out at will.
The liabilities most certainly do have existence in the minds of the people to whom they were made, and reneging on them will most certainly have very direct consequences to them. To some degree the government can inflate them away but Britain will be a very different place when you need a wheelbarrow full of pounds to buy a pint of milk.
Moreover, the “money” behind these liabilities are the mechanism by which the economy runs. Without it being a reliable store of value or medium of exchange it will be impossible to perform economic activity. I knew this guy who was a dentist during the Great Depression. Nobody had any money so he’d do a dental extraction in exchange for a chicken, or fill a cavity in exchange for a day working in the yard. That’s what happens when money doesn’t work any more.
Like I said above, technology will change the game dramatically, as BobbyB says, it always has. But this new technology is categorically different than previous technologies and so I think it is still an open question, in my mind anyway, as to which way it will go, for good or for ill.
Aren’t there any economists who think the solution is more people? I mean, the more brains we have solving problems, the better off we all are. Basically what bobby b said at 6:14pm
And those brains have so far been able to solve all the resource and energy challenges, more food per acre farmed, a LOT more energy from nuclear and fracking, and our fossil fuel burning has even put more plant food into the air and warmed the place up a bit, so more food! But we have to get the politics right or none of this matters. All of our problems, perceived (climate, racism in the West, pollution) and real (pollution, green energy) are largely politically caused.
The great difficulty is that, at least in the United Kingdom, the Collectivist establishment have an iron grip on the narrative.
The crises that has been created by vast government spending, for example over 400 Billion Pounds of (counter productive) Covid debt spending, on-top-of government spending that was already cripplingly high and increasing (“austerity” being Public Relations spin) is, instead, blamed on “Liz Truss tax cuts” – which did-not-happen. The reality, crippling high government spending, is hidden (indeed the conversation is about “spending cuts” when government spending keeps going UP) and endless lies about “tax cuts” or “the rich not paying their fair share” are pushed.
I am sometimes accused of “banging on about” Ireland in the late 1840s – but it is not just “history”, as an establishment that can describe crippling tax increases (the reality of Ireland in the late 1840s – due to such things as the Poor Law Tax that was created in 1838, and then greatly increased in a vicious cycle) as “laissez faire” is capable of any level of dishonesty.
We live today in a society where even to discuss the harm done by the Covid injections (which were not “vaccines” as that word was traditionally defined) can not be freely discussed – honest discussion of the deaths and injuries caused by the injections pushed by the establishment (government, media, health authorities…..) “violates community guidelines” – but vicious establishment lies do NOT “violate community guidelines”. Many people have been killed or injured by these injections – but we are not allowed to freely discuss it.
It is much the same with government spending – the dishonest narrative (that is endlessly pushed) is “cuts” even as government spending, already cripplingly high, continues-to-increase.
A society where truth is crushed and lies dominate – can not reform itself.
For reform to happen, for the collapse of the United Kingdom to be averted, there must first be an honest discussion.
How can government spending be got under control – when people do not even know how high it is (how almost half the economy goes on government spending), indeed when the entire discussion is dominated by absurd lies about “spending cuts” and “the rich not paying their fair share in taxes”?
And an honest discussion, at least in the “mainstream”, is not allowed in the United Kingdom – on this or many other subjects.
If the government further increases taxation to try and finance the growing burden of government spending, revenue will FALL – yes higher taxes, at this point, will mean lower revenue.
That is indeed a “doom-loop” – as higher government spending and higher taxes will drive the economy down, leading to still higher spending (on benefits and so on) and still higher taxes.
And, all the while, the public discourse (the narrative) will be about “spending cuts” and “the rich not paying their fair share of taxes”.
Unless this narrative changes, unless the truth (the truth of cripplingly high government spending) becomes generally known – this country is going to fall.
It is that brutally simple.
As I reread Lilico’s quote above, I’m thinking that any form of savings kept in the country is deeply and seriously at risk.
That would be their easiest first target if they hit a real revenue emergency.
Time to check the qualified accounts to see what percentage if any is invested with y’all.
Not only does that give a savings in terms of salaries, it cuts the political heart out of the problem
Seems unlikely to me in the short term. I work in the private sector and AI isn’t making a dent there yet. It’s just too hard to retrofit AI solutions to existing bureaucratic processes, whether in the private or public sector. My guess is that the productivity gains will come from new entrant companies – much easier to make the most out of emergent technologies when you are starting from scratch. The problem with the public sector is that it isn’t contestable to the same extent as the private sector. That being said, in the short term I’d say its more likely that AI will hold back salaries in much of the private sector (e.g. finance), and it will become more likely that the average person in the top 25th percentile of income is a civil servant. Already, it’s quite shocking how much of the middle class is either employed by the government or hanger on sectors like charities.
I can only think of a handful of countries that sorted out their finances, and in all cases it was after a financial crisis.
UK under Thatcher, following the 70s.
Argentina currently, under Milei. Took them long enough to get there.
Sweden, after the financial crisis in the early 90s. The ‘austerity’ was led by a social democratic government and balanced budgets have become a cross party orthodoxy since. We’ll see how long that lasts.
Germany after Weimar/second world war
New Zealand – can’t recall exactly when it was.
Politicians and voters are just hugely reluctant to tighten their belts until the shit hits the fan and splatters the wall with writing, to coin a phrase.
My view, for some years now, is that before any meaningful change can happen you need a redux of the 1970’s. You need a crisis moment where you have run out of road to kick the can. This played a large part in Thatcher’s rise and, more contemporarily, drove Milei’s rise.
The one, small, advantage that the UK has (much like the U.S.) thanks to not joining the Euro is that debt is primarily denominated in sterling and around 40% (from memory) is held by the Bank of England (i.e., in effect, the government is paying interest to itself and can control repayment through inflation – which of course has other downsides, but is something that can be done).
Also “Doom Loop” i.e., in the bad part of the Laffer curve.
About 25% of UK government debt is inflation linked, so you can’t inflate away that. But it is only 25% (and in addition repayment is more concentrated around the end of the life of the bond compared with conventional bonds of the same maturity) so inflation still has a big impact on the debt burden. I expect that it would be done in some underhand manner, e.g. mandate the Bank of England to target nominal GDP growth of 5% p.a., which could in theory be 2.5% real growth and 2.5% inflation, but more likely will be 5.0% inflation.
Argentina was able to have reform, rolling back of the state, because everyone knew that government spending was out of control.
In the United Kingdom very many people believe that government spending has been “cut” – because that is what they have been constantly told, for many years.
Whist the ruling “narrative” is based on LIES, that government spending has been cut – when it has been massively increased, reform (rolling back of the state) is, to say the least, unlikely.
@Jon Eds
UK under Thatcher, following the 70s.
It is worth pointing out that Thatcher only succeeded because of out of the blue events in the South Atlantic. Had the Falklands War not massively boosted her popularity she would have lost massively in 1983 and Britain would have elected Michael Foot. I mean Michael Foot FFS. Were it not for General Galtieri the Thatcher revolution would have been strangled in its crib.
“new technologies boosting growth so much that we will escape” – escape from the “debt trap”.
Sadly this is about as likely as the Economist magazine’s (and the objective reality is that it is a magazine – although it calls itself a newspaper) idea that the solution to Britain’s economic and social problems is “Bonnie Blue”.
“Bonnie Blue” is what used to be called a whore – who is known for having public sexual intercourse with hundreds of men. This is the person the Economist magazine presents, without irony, as the wonderful symbol of the New Britain.
“Bonnie Blue” (and the men – who are just as bad) will not save Britain – and neither will “AI”.
Paul,
As the third world in its millions is welcomed here with open arms to feck us both monetarily and literally Bonnie Blue would indeed be an apt symbol for the “New Britain” of the last 10-20 years were it not for the fact that she appears to be acting voluntarily.
Start by abolishing the NHS. While you’re at it, get rid of everything which has a TLA (three letter acronym) for a name.
@SteveD
Start by abolishing the NHS. While you’re at it, get rid of everything which has a TLA (three letter acronym) for a name.
Since you are not absolute potentate of all Britain, how do you plan to go about doing that?
John – yes.
And British towns and cities are filled with missing-the-point.
Put up a “Nazi” sticker and you will get two years in prison (yes real Nazi would want to kill me, Red Sea Pedestrian that I am – but two years in prison for, supposedly, putting up little “small hats, big problems” stickers – what sort of crack-brained tyranny does that), but put up Communist stickers and posters – and you do not get a day in prison. A Two Tier “Justice” system indeed.
When I go into town (and Kettering is an average English town) it is smothered in Communist stickers and posters (large posters) – of course I take them down, but more are soon back up – celebrating mass murderers such as “Lenin” and demanding revolution so the Communists can murder millions more people.
So there is radical dissent in Britain – but it is from the wrong direction.
The dissenters (at least the active ones – the people who “do stuff”) want MORE Collectivist tyranny, not less.
“Britain should roll back the state” – yes it should, but that is not going to happen. The opposite is going to happen.
And, no, “new technologies”, such as “AI”, are NOT going to save Britain.