Government - Getting Nothing for Something

Theodore Dalrymple:

Last night the streetlights in my pleasant little English market town were switched off at midnight. In fact they’ve been switching them off at midnight for two months, but I have not been here to notice it. However, in this little development (or is it a reversal of development?) may be seen all the economic troubles of the whole Western world.

The lights are switched off as a cost-saving measure, not because of the aesthetic and cultural advantages of darkness (which, in my opinion, do actually exist), or because there is anything wrong with the electricity supply. Private houses are unaffected. You can still burn the midnight oil if you want to. 

But why do costs need to be cut? A brief description of some of the town’s finances might be helpful. Its most highly paid official receives in emoluments nearly 20 percent of the town’s income through local taxation. The payment of pensions to past employees, which are completely unfunded and must be found from current income, consume another 20 to 25 percent of that tax revenue. Two years ago a former employee took the council to a labor tribunal for wrongful dismissal, and the council spent 66 percent of its income in that year on legal fees. (The employee’s complaints against the council were not upheld, but that was scarcely of any comfort to the taxpayers, for the costs were not recoverable—even though natural justice required that she should be driven into penury and made homeless for the rest of her life to pay for her legal action, which was both frivolous and dishonest.)

Even if it provided no services at all, the council would still run at a deficit if it continued only with its essential business, which is to pay the salaries and pensions of those who work in it, and the various parasitical rent-seekers, like employment lawyers, who live at its expense. And so the bureaucracy (and its hangers-on) does not exist to serve the public, but the public exists to serve the bureaucracy. In the past, the council had reserves to meet its deficits, but these have been run into the ground, and it has therefore had to appeal to other, larger sources of public funds for help, which themselves run on the same great pyramid-principle as that of the town council. Indeed, the whole country, the whole continent, the whole hemisphere is run on that principle.

But what cannot go on forever will not go on forever. The music, if it has not yet stopped completely, is slowing down and growing fainter. The town council finds it more and more difficult to run a deficit, and since it must continue to pay its salaries and pensions or lose its primary purpose altogether, the only option that remains to it is to cut services such as lighting and rubbish collection (already down to once a fortnight, so that many people find themselves not only paying the council for rubbish collection but disposing of their own rubbish). 

The curious thing is that the suppression of services has occasioned no public outcry. Why not? The first thing to mention is that a large proportion of the population pays no local taxes—it is too poor, too handicapped, too unemployed, too ill, too unwilling, too dependent on the state already—to do so. Such people feel no outrage because in their hearts they know, as Lear put it, nothing will come of nothing.

As for the taxpayers, they have had a long schooling in low expectations from their taxes: they may pay 40 per cent (80 per cent within living memory) of their income above a certain level in taxes, as well as taxes on everything that they buy or do. But they would not be so foolish as to conclude that therefore their children will be properly educated by the state, or that they will be well looked-after when they are ill. That would not be the case even if they paid 100 percent of their income to the state. So it doesn’t surprise them that the council will do anything rather than reduce payments to its staff and hangers-on. They are resigned to it, and to the council’s motto adapted from the old Roman one. Not “Let the heavens fall so long as justice is done,” but “Let the lights go out so long as the pensions are paid.”

How have we arrived at this situation, which might seem bizarre to a Martian arriving on Earth for the first time? I think the root cause of it is fiat money, the conjuring of currency out of nothing by the central banks. Fiat money has accustomed governments to the idea that they can go on borrowing and spending money forever without ever having to pay it back. This alters their attitude to deficit spending, which is not as the occasion requires (as Keynes envisaged), but permanent, the way we live now. And it alters the whole character of the citizenry as well. For them prudence becomes foolishness and foolishness prudence; speculation is necessary for all who do not want to end up impoverished, and there can be no such thing as enough, even for those who are not greedy by nature, for money is no longer a store of value. More, more, more is necessary, if you want to keep what little you already have.

It was the First World War that taught modern governments to spend in order to pursue ends that they could not afford, in this case mass slaughter lasting four years. Sir Edward Grey, the British Foreign Secretary, said on the eve of war that “The lamps are going out all over Europe, we shall not see them lit again in our life-time.” He did not foresee that, just over a century later, the lamps would go out in my little town, because the town adopted the same way of financing its activities as that in which the First World War was financed, with the results that we all know only too well.