There is only one good, proven, way to organise a political economy in the modern world – and that’s via the Big Honest State. Right now, one key aspect of the BHS is under serious threat.
What is the BHS? As the name suggests, it is large. In quantity, the various organs of a BHS account for 30-60 percent of GDP. In quality, the state dominates education, health care, industrial policy and the financial system. The BHS is also trustworthy. Its official bureaucracies are expected to be, and mostly are, meritocratic and dedicated to the common good. A BHS, though, is far from the total government of fascists and communists. One of the defining facets of the BHS, indeed, is that it works alongside a vibrant non-state sector.
The basic BHS model has been adopted in all advanced economies and it is aspired to by most leaders in almost every developing country. Universal adoption is easy to explain: the BHS works well. It has delivered a reasonable mix of prosperity, protection and social support. It has proved remarkably sturdy. Since the Second World War, no BHS country has had collapsed into chaos, become impoverished or suffered fundamental social breakdown. The system is also popular with voters, even if many government-hating Americans hate to admit it.
However, the BHS is vulnerable to moral decay. It relies on professional integrity and hard work. Such virtues are easily lost, either through corruption or a more insidious failure of will. It is the latter, what old fashioned philosophers called spiritual sloth, that threatens the monetary side of the BHS. Until recently, the BHS was able to produce money which basically kept its value and a financial system which served the common good. If politicians and regulators don’t wake up fairly soon, these accomplishments could be lost.
There are four threats. The first is fiscal laxity. Politicians around the world have become blasé about deficits. To be fair, the record deficits have as yet done no obvious harm and the mechanism which can turn unbalanced government spending into high inflation is poorly understood. Nonetheless, the lack of concern is disturbing, and the willingness of many American politicians to drive the government to the edge of a fiscal cliff is positively alarming.