After years of governments living beyond their means, with their entire economies buoyed by easy credit, the inescapable laws of real life are catching up with them.
- As the BBC reports, life in Greece now seems hopeless for many.
- Reuters reports that the EU is to predict a dire 2013 for Spain.
- The looming US “fiscal cliff” of tax rises and spending cuts is a priority for re-elected President Barack Obama.
And many more examples could be given.
The world has tried, since the collapse of Bretton Woods in 1971, a grand experiment in chronically-inflationary paper money. Enormous quantities of new money have been loaned into existence without the backing of prior production and real saving. The result is the massive discoordination of the world economy we see now.
I have written about all this many times before but, in the end, I am optimistic. It is certainly true that the contemporary mainstream of economists has allowed the world to get into this mess but what is needed for a return to prosperity has been known for many years. In 1759, Adam Smith wrote:
Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice: all the rest being brought about by the natural course of things.
There’s much more to be said about the institutions and benefits of a free society and a free economy. A primer is here.
On the questions of peace and security, I’m interested in your thoughts on ‘defence’ spending. What approximate level would you say is appropriate for a country like Britain, as a percentage of GDP? 1%? 2%? 2.5? 10?
I think the question is a red herring. It’s not the right place to start.
I see what you mean, but you must have at least an idea whether you want ‘defence’ spending to go up or down. if there are potential savings for taxpayers to be made by cutting military spending then surely you would support that. (In my view, in the modern world, the chance of war has been substantially reduced by having so many economic and other links between countries, so in fact arguably the work of the police is more useful at defending countries from real threats than conventional ‘defence’ spending.) You said before you believe in ‘a strong defence’. Also I am somewhat surprised at your position here, since you often like to say, for example, state spending can’t be larger than X percent of GDP. Surely you must have some opinion on whether, for example, UKIP’s (or Romney’s) policy of increasing military spending as a percent of GDP is reasonable.