From The Telegraph:
Back in the early 1980s, America’s national debt was $908bn. By 1996, it had reached $5,000bn, before soaring through $10,000bn in 2008, as the sub-prime crisis hit and the resulting recession slashed revenues and increased benefit spending. Now we’re at $16,400bn, and counting, with US state liabilities topping 102pc of GDP, up from 70pc just five years ago.
Debt growth at that pace simply cannot be sustainable. That’s why, 18 months ago, the rating agency Standard & Poor’s stripped America of its prized AAA credit rating, decrying “political brinkmanship” and citing fears that the country’s dysfunctional political system couldn’t deliver credible plans to cut the stock of government debt. “The differences between political parties have proven to be extraordinarily difficult to bridge,” said S&P at the time. If anything, with Republicans stung by Obama regaining the White House, the current stand-off looks worse.
America is far from alone. Most of the large “advanced economies” are drowning in debt as we lose competitiveness and our populations age. Among the emerging markets and developing countries, national debt levels average around 30pc of GDP, according to the latest data from the International Monetary Fund. Across the G7, the figure is an incredible 124pc.
As Western growth has slowed in recent years, and benefit-spending risen, spin-obsessed governments have taken the easy route and raised implicit and explicit borrowing, rather than daring to explain to their voters that demography and simple arithmetic require that Western states simply must spend less.
This is precisely what the Davos crowd should be focused on, as boldly stated by Paul Polman, the chief executive of consumer goods giant Unilever, in his extraordinary recent interview with my colleague Kamal Ahmed.
“Governments need to get used to lower spending levels… individuals need to get used to lower pensions and welfare payments… and businesses need to get used to the costs that come with it and bear their part,” said Polman.
Leaders of huge conglomerates exercise extreme caution when making public statements. So when the likes of Polman start breaking ideological taboos, the Western political classes – still locked in their “growth versus austerity” neo-Keynesian parlour game – need to recognise that the game is up.
“People are realising in the West that our model is not a sustainable model,” Polman continued. “The dynamics have now completely shifted but politicians don’t want to explain that to people… vested interests take too big a share of voice.”
The theme of this year’s Davos gathering is “resilient dynamism”. To be sure, as the numerous attending CEOs will attest, the economic environment is tough. In my view, though, too much emphasis is placed on the negative impact of spending cuts on growth, and far too little on the disastrous potential implications – in terms of potential creditor strikes and Congressional blow-ups – when spending gets wildly out of control.
If you didn’t read it when it came out, go back and reread Mead’s The Once and Future Liberalism.