Anyone who has reflected in this anniversary year on the causes of the First World War will recognize that the one consensual view among all historians is to refer to “causes” in the plural. That is because every cataclysm that occurs in human affairs invariably has more than one origin. Yet there is always a single predominant factor – in 1914 the naval and military rivalry between Germany and Britain – that leaves the international community vulnerable to a crisis triggered by ancillary problems. In modern idiom, this concatenation of circumstances creates a “perfect storm”.
There is a Perfect Storm theory regarding the prospects for the global economy and it is attracting adherents. Last January at the World Economic Forum in Davos the economist Nouriel Roubini said it appeared markets had sailed into a “mini-perfect storm” causing much volatility. Days later, economists at Société Générale wrote to clients under the heading “Perfect Storm Brewing As Policy Turns”, warning that “many wonder if we are now heading for a perfect storm”, expressing concern that China was increasingly being sucked in to the general volatility, while Europe’s economy was tumbling towards deflation despite reforms inadequate to raise growth sufficiently and “put public debt trajectories on a sustainable path”.
That last concern, if an economic Perfect Storm engulfs us, will be identified by future historians as the primary cause: governments are living beyond their citizens’ means. State profligacy is the single biggest threat to the global economy. Formidable as the many secondary hazards are, the primary potential for a perfect storm arises from sovereign debt. The scale of this menace is breathtaking. Britain, which likes to bask in its reputation as a fiscally responsible nation, is just another offender. The UK government’s target of reducing borrowing from £107.7bn in 2013-14 to £95.5bn in 2014-15 lacks credibility, considering borrowing in this fiscal year from April to August was £2.6bn higher than in the same period last year.
The Treasury pins its hopes on a windfall of tax receipts from the self-employed at the end of January, oblivious to the reality that the strangulation of enterprise by high taxation is a core cause of the malaise. Meantime, the ominous spectre lurking behind token tinkering with the budget deficit is the UK national debt, now officially computed at £1.4 trillion and growing at a rate of £5,170 per second. Even that is not the ultimate bad news: if all government liabilities are factored in, including state and public sector pensions, the real national debt stands at £4.8 trillion.
Across the developed world governments have, for decades, been spending their citizens’ money like drunken sailors. EU governments’ expenditure in 2013 amounted to 49.1 per cent of GDP – 49.8 per cent in the Eurozone. In France it was 57.1 per cent and public debt there now exceeds 90 per cent of GDP. In Italy government expenditure was 50.6 per cent of GDP; in recent years Italy has lost a quarter of its economy. If these countries were located in Africa they would be written off as failed states.
Supposedly free market-oriented Western governments, across political party lines, are infatuated with a socialist concept of the state that inflates their power and oversight of their citizens. At the same time, they want to enjoy a standard of living only capitalism can generate. In that, they resemble more closely than they would care to admit the regime in Beijing. When all the weasel vocabulary of “fairness” and “equality” is stripped away the underlying reality is quasi-Marxist. Nationalisation of the means of production, distribution and exchange was a spectacular failure; so now the ploy is to allow free enterprise to create wealth and then confiscate unsustainable proportions of it. The flaw in this programme of state larceny is that excessive taxation emasculates entrepreneurs; eventually it is like putting geldings out to stud.
The supreme example of this neo-Marxist construct is the European Union. Its obsession with bureaucracy, with micromanagement, with social engineering and with its own expansionist ambitions – which provoked the war in Ukraine despite the propagandist scapegoating of Russia – epitomise the new soft totalitarianism. Now eurozone countries are discovering that neo-Marxist policies and a synthetic imperial currency produce Soviet-style economies. French Finance Minister Michel Sapin (“We refuse austerity”) has had to halve his forecast of France’s GDP this year to just 0.5 per cent; GDP stagnated in the first two quarters of 2014. Italy, Europe’s third largest economy, entered a second recession in the second quarter of this year. The IMF expects Italian GDP to post –0.1 per cent growth for 2014. Adjusted for inflation, Italy’s GDP posted no growth between 2000 and 2013; in the same period US output rose by 25 per cent.
The EU is not only economically innumerate, it is tyrannical, empowering the intruder State to invade every area of life, from the family to the boardroom. Even the United States, supposedly the exemplar of the free market, manufactured the sub-prime crisis as a result of the government compelling lenders to give mortgages to insolvent borrowers from “marginalized” demographic sectors. State profligacy has so debilitated the global economy that its immune system is vulnerable to the onset of financial ailments a genuine free market could shake off. If a lethal combination of statism, neo-Keynesianism, crypto-socialism and the thousand natural hazards intrinsic to global markets does not create a perfect storm that will blow away our current standard of living we shall be very lucky.