Monday 17 February 2014

Financing Liberalism

Financing Liberalism

Let us start at the basics of Liberalism and get more complicated from there. Liberalism believes that society should be based upon the autonomous individual, that each person is a free agent able to invent and reinvent themselves as they desire. Broadly speaking Liberalism is divided into two parts, Right or Economic Liberalism and Left or Social Liberalism and each part is very interested in money.

Economic Liberalism is interested, many times it seems obsessed with, making money, people exist to make money, companies exist to make money and Government exists to make it easier to make money. Some are interested in social issues but mostly they are interested in money, the world is measured using money. Because money is measurable, you can measure how much each person has or hasn't got, how much a nation has and divide it per capita to find out how much each person is worth from that nation. While it certainly has a point it takes it to extremes and forgets that behind the money are people.

Social Liberalism is interested in money, but not to make money, it doesn't really understand or even want to understand how that happens. What it is interested in is spending money. Because it agrees that money is measurable, you can measure how much money goes to each area of Government, you can measure how much each segment of society has or gets. Everything can be measured and money not only solves problems but it is a measurable method of showing, of proving, how much you care. The more money, the more you care.

Interestingly both branches of Liberalism believe that money is the answer, that money is a means of solving problems. Not genius, not hardwork, not effort, not innovation, not technology, money buys those things and it is money that solves problems. Any problem can be solved with money and any good book on modern history since the 1930's will show you the truth of that. Businesses that spend money on ideas that can never work but keep spending, Governments that decide large amounts of money will win wars or solve social problems simply by spending the assigned money. It is so appealing because it's the easy answer, sadly I cannot think of a single social problem that has been solved that way, nor a single war won just by spending money.

But money is of great practical importance to Liberalism because as the social supports of the family and the church are replaced by autonomous individuals the tasks that families and churches once performed still need to be done. Only now the Government is "forced" to provide them and that requires alot of money. From the 1940's to the 1970's most Liberal Governments used high taxation to achieve their aims. But that is a form of Socialism and Socialism destroys wealth. It stops investment, it stops confidence and it spends the money it does have on unproductive areas of the national life. No matter how important such spending may seem it can only last while the money lasts and as this policy destroys wealth it does not last.

But Liberal Governments then privatized the assets it had nationalized in the past. This allowed it to pay off bills and keep spending while blaming any shortfall upon the private businesses that had bought the assets. It has worked for a surprisingly long time. But the money obtained didn't really last for long because there is always something to spend it on. As they had been forced to lower taxes the Governments now borrowed money and they borrowed and they borrowed. The idea was that the economy would rise and that the money would be paid off over such a long time that inflation would take care of the cover price. So for example the Government borrows $50 but pays it off over 25 years, thats $2 a year, plus interest lets say 10%, thats $2.20 each year for 50 years, but over time inflation means that $50 today is worth $30 or $15 or $3 in 50 years time. So that $2.20 today in 50 years time is worth $1.32 or $0.66 or $0.13.  By worth I mean has the spending power of. But of course they didn't borrow $50 they borrowed billions and in some cases trillions of dollars.

If Government is to do so much it must spend large sums of money and that money can only come from two sources, either it comes from taxation or it is borrowed. In theory there are other ways but they are really only subsets of taxation or borrowing. It cannot seriously reduce spending because if it does society doesn't function as well. It is replacing services provided by the family and the churches so it needs the money they used to run it's self. It isn't very efficient because it needs to spend money to provide a service that is often provided for free by the family or the church. Child minding, pastoral care, welfare support, much of this was provided for free by volunteers, obviously money was still needed but it was a cheaper way of providing these services. Now that work must be paid for by people who have the required training, all of which cost money. The greatest irony is that in the past much of this volunteer work was done by wives who now are encouraged to work outside the home, in many cases getting paid to do the work they once did as a volunteer.

Liberal Governments have used trick after trick to provide financing for themselves, but I'm left wondering what the next one will be. Part of me is intrigued by their ability to keep finding new ways to finance themselves, but it does mean that the financial fall will be hard, very hard when it comes. Liberalism believes in growth and that growth provides a future with more wealth than today. There is no reason why Liberalism as an economic system cannot work for a long while, but forever? Now thats a pretty tall order!

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