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November 17th 2012 print

Peter Smith

Reality’s tide engulfs the left’s largesse

Where next for governments and the "free stuff" they dispense when no pockets of wealth remain to be picked? Back to the realm of budgetary sanity -- a journey now begun to the accompaniment of  riots, domestic fury and fierce civil strife

It is familiar territory. Most major industrial countries including, the USA, Canada, Japan, the UK, France, Germany and Italy have government gross indebtedness of over, or rapidly approaching, 100 per cent of GDP, with nary a balanced budget, never mind a surplus, in sight.

Some countries are being dragged kicking and screaming to implement half-baked, half-hearted, totally inadequate, so-called, austerity measures. The mere announcements of these measures have been met with street riots.

Increasingly government revenue is spent on meeting interest payments as the demand among the mendicants and special interests for free stuff continues unabated. Vandalism in the guise of environmental regulations and taxes punish competitive industries as they nurture and reward the uncompetitive.

Oh well, I am sure it will all turn out well in the end, if we only bury our heads in the sand.

Sometimes we are reminded that government debt has been higher in the past. For example, US federal government debt reached a peak of 122% of GDP in 1946 compared with an estimated 105% now. The difference is that the US had just fought WWII and spending for health, education, pensions and welfare across all of government (federal, state and local) was 21% of spending (in 1947) compared with 60% today. Nor did business face the current dead weight of red tape and environmental regulations.

The road ahead in the US, and everywhere else, was far rosier than it is now. Those forging ahead had much lighter loads to haul and carry and there were far fewer obstacles in their path.

I am now ready to declare, except in Australia, that the corner has been turned in the battle of ideas, notwithstanding Romney’s defeat and the earlier victory of the old socialist guard in the guise of François Hollande in France. If not the beginning of the end for nanny-state socialism (“progressivism” if you like). It is, as someone of peerless stature once said, the end of the beginning.

Quite simply, the sanctimonious redistributionists, and the left-wing political parasites who live off creating dependency, have in most places run out of other people’s money to share about. The kitty is empty. Sure, they will flail around for a while like landed fish, hoping to extract some dollars from the rich. But too little is available and the middle class have been bled dry. The chickens are rapidly coming home to roost.

Conservatives should now simply keep on asking the question: Where is the money coming from? Never mind the grand schemes to spend more on education and health and welfare and so on, without limit, as though there were a bottomless pit of dough. For the most part, we don’t have to engage anymore on these unaffordable chimeras dressed up as rights.

In the US, an astute tactical ploy would be for Republicans to give President Obama free rein over the next two months, then sit back and watch the ruin unfold. Unfortunately misplaced patriotism will get in their way. This will allow Obama to scapegoat Republicans for the ruin (one of his particular fortes) for a while, but debt and deficits will still go on shredding the very basis of the Democrat’s platform. Where, exactly, do you go as a dispenser of largesse when you have no largesse left to dispense?

In Australia we are at an earlier stage of ruin. There is still something left in our tank for the left to drain and share about. Debt has been run up quickly in five years, from zero to over 20% of GDP. This was an amazing feat of spending by Rudd, Gillard and Swan. But wait; don’t doubt their preparedness to spend more money if it can possibly be gouged from taxpayers and bond markets; and to appoint armies of public servants to administer it all.

Generous paid parental leave, the Gonski education spendfest, ever more money for hospitals to reduce those stubbornly long queues for free treatment, ever more generous childcare subsidies for dual-income families, whiter teeth for those without toothbrushes, more dole in the wings and, the daddy of them all, the national disability (welfare) scheme. It is called "an insurance scheme", but that is a complete joke. It has no relationship with insurance. It is welfare pure and simple.

It is worth going to the analysis of Andrew Baker at the Center for Indepedent Studies, “The New Leviathan: A National Disability Insurance Scheme”, to understand just how massive and unaffordable this scheme would become if it were ever implemented. Because, be clear about this, nothing is on the table in terms of reducing expenditure elsewhere to pay for it. It exists in a Panglossian world where some serendipitous developments are bound to occur to make it all affordable.

This is not the cultural cringe speaking; we are behind the curve. The rest of the world has the cliff in view. We are too far away to see it and can still stop in good time. But we won’t stop. The allure of free stuff, like an addictive drug, is too powerful to resist. That is what the evidence from the rest of the world tells us. The battle of ideas will go on here before austerity measures are forced on us by the IMF and the left’s agenda finally loses its clout.

Peter Smith, a frequent Quadrant Online contributor, is the author of Bad Economics

Peter Smith, a frequent Quadrant Online contributor, is the author of Bad Economics