America, The World Is Watching

Speaking to the U.S. Congress in February, President Barack Obama proclaimed, “There is no force more powerful than the example of America.” Had the statement been made by a different President, it would doubtless have been condemned by the media as hubris. But, strip aside the moralising, and it does contain this much truth. Other countries do closely watch what America does, because they admire America’s success — especially material success — and they want to recreate it for themselves. But examples work both ways.

For it is also true that America can set a powerfully bad example, which other nations, for their own bad reasons, will be tempted to follow. That is precisely what is happening now. Whether they will emulate President Obama in his foreign policy of high-minded self-abasement is more than doubtful. But they are certainly tempted to copy his socialistic economics — not least Britain, which despite the lessons taught by Margaret Thatcher has never got socialism altogether out of its system.

Britain’s Prime Minister, Gordon Brown, is among the political walking dead. If anything like current voting intentions materialise in the general election to be called next year, he will be looking for a post with the IMF before Obama’s spending splurge is complete. In the meantime, though, he can draw comfort, if not gain support, from describing his program of financial profligacy as part of a global consensus, to which America’s celebrity President now gives a moral lead.

A belated lead, of course, he would add. The administration of President George W. Bush sharply increased federal spending. But that was never an end in itself; it was regretted; and Bush did not then cement the over-spending with higher taxes — in fact, he cut them. Now, though, the world can see it is different. Yesterday’s deviation has become today’s direction.

With a massive, unfunded, pork-laden, fiscal stimulus unmatched in the country’s history, America has resolved to spend, borrow, plan and inflate its way out of trouble. Almost overnight, a tradition of pioneering, free wheeling, self reliance has yielded to a governing philosophy closer to old fashioned European-style social democracy.

So it is strange that the continental Europeans, who have well entrenched statist philosophies, are thus far proving unwilling to follow America’s new statist solutions. The Europeans want more international regulation, it is true, but that is mainly with a view to pursuing their age-old policy of restraining American power — something which Obama will soon discover has not stopped. But France, Germany and the Central-East European states have no wish to bankrupt themselves by pursuing the new American way. Britain, by contrast, cannot wait, and, under Brown, has not, in fact, waited.

Before Rahm Emanuel came up with his catchy phrase about “never letting a crisis go to waste,” Gordon Brown, who has never uttered a catchy phrase in his life, had acted on it. For ten years as Tony Blair’s Chancellor of the Exchequer, first slowly but then with less restraint, Brown has been pushing up spending and borrowing, relying on levels of economic growth levels that couldn’t continue.

Then as Prime Minister, he was faced with the consequences of his mismanagement at precisely the moment of global meltdown. Brown might, of course, have donned his hair shirt and imposed cuts. Instead, he pulled his old red shirt out of New Labour’s closet and embarked upon a massive programme of spending, borrowing, printing, nationalisation and subsidy. But, as Labour Governments have discovered in the past, he found that the markets were wary of financing it.

So he faced a new dilemma. Belatedly to cut? He dare not. To pretend things weren’t so bad? Worth a go. To raise taxes? Of course! Moreover, to do so in the way the comrades always preferred, by stinging the rich.

Obviously it makes no economic sense. When Thatcher’s government in 1988 cut the top rate of income tax from 60 to 40 per cent, the effect was not just to increase revenues but also to increase the total share of tax paid by the richest group. Less demonstrably but, no less certainly, it also increased wealth creation. Mr Brown’s latest tax hike for top earners to 50 per cent will have the opposite effect. It puts Britain back near the top of the international high tax league, whereas Thatcher inaugurated a low tax revolution.

It also leaves Britain still dangerously in the red, back at the level of borrowing of the 1970s. In the later Thatcher years, Britain repaid debt. Now Britain is set to borrow 12 per cent of GDP and keep on borrowing. Yet even these horrible figures mislead, and are designed to, because they assume a swift recovery that no one beside Brown considers credible.

There is another figure which is even more worrying — and it should worry America too. Although the Labour Government’s poll ratings are abysmal, 57 per cent of the population approves of the new 50 per cent tax rate. This is envy fuelled by fear, and once enough of the population depends on government, fear is easy for politicians to fuel. What Thatcher’s mentor, Sir Keith Joseph, in the 1970s described as the “ratchet effect” works when each new bout of government intervention creates a momentum for more of it. Someone has to be bold enough to force back the ratchet.

Unfortunately, no such person is in sight. Responding to the 50 per cent tax hike, the Conservatives’ Shadow Chancellor, George Osborne, limply observed: “I don’t like it. I don’t think in the long run higher taxes are a great idea for an economy. However, I cannot promise to reverse it.” No trumpet sound was ever less certain. The Conservatives will probably win next year. But they will receive and have sought no mandate for reversing the socialisation of Britain’s economy. Perhaps they might have found the courage to do so, if America were not itself pursuing the same ruinous policy as Gordon Brown.

Tourists visiting the crypt of London’s St. Paul’s Cathedral will find a Latin inscription engraved on the tomb of its great architect, Sir Christopher Wren. It reads (in translation): “If you seek his memorial, look around you”. Americans who look around them now at the state of Britain left by Gordon Brown can discover some awful lessons for their own country.

Britain is suffering a bloated, feather-bedded public sector, unreformed welfare, centralised and top heavy services, a crushing burden of debt, taxes that drive out talent, a political class that has turned in on itself, and a population that seems to have lost all hope of self-betterment through its efforts. If America does not wish to go the same way, it should wake up.