Democracies don't do austerity!

It is now obvious that many developed European economies need to cut back government expenditure massively. There are good reasons why this is impossible under a democracy and we are going to see some governments the nature of which have not been seen in Western Europe since the middle of the last century and have not been seen in Britain since the Reformation.

I intend to put up a few essays in the next few weeks/months predicting roughly how the coming political deterioration will develop and what it will mean to the actuarial profession.

In 2006/07 when it was obvious we were heading for a credit crunch, the actuarial profession almost completely missed it. The first prediction I am going to make is that the coming political deterioration will also go completely unnoticed by your profession.

 

Will this be an academic study Cardano?

I will be quite interested in seeing this, especially if you could reference to how a few countries got out of debt/high expenditure in history.

If it's not on your list, you can maybe think of including South Africa, where the move to a democratic regime included a reduction in debt (but which was met with an increase in GDP, so it may not necessarily be contrary to your theory).

 

CapitalH, I wish I had time for such an endeavour, but unfortunately I haven't. This will be be a polemical essay.

I will deal will this most thoroughly

I regard the fall in debt in South Africa to be due entirely to the commodity bull market which has now been running for 12 years. Government receipts would have climbed anyway even under apartheid.

There will be various essays, at least one will be on the Reformation and post reformation chaos (1500-1700), which is the last time Europe faced the wholesale liquidation of a substantive welfare state. I will also allude to the collapse of Lombard banking in the 14th century which is the last time we had a banking crisis on the present scale. One will be on central Europe after the 1st World War. I may put one up on Latin American debt crises. One will be on the economics of debt accumulations and how they relate to trade imbalances. One will be on the coming fate of the scapegoat class - investment bankers.

Don't hold your breath though - I'm busy!

 

In the following essays the assumptions below are implied

1) Summer 2007 was not only the end of the usual business cycle (Juglar Cycle), but was also the beginning of liquidation phase of the Kondratieff cycle.
2) We are much nearer the beginning of this crisis than the end.
3) The long term debt levels (Government + Corporate + Personal) that are sustainable are about 100-125% of GDP and with 300-400% outstanding in many developed countries a much larger amount of debt either needs to be paid back/defaulted on or inflated away than was the case in 1929 when debt levels were typically 200-300%.
4) This is a much larger crisis than the 1930's which saw massive economic and political deterioration around the globe.
5) This is a demographic crisis of the Western democracies due to too many births in the late 40's, 50's and 60's and too few births since abortion liberalisation occured in the late 60's and early 70's
6) The banking system has not been saved. At vast cost to future taxpayers, Western governments have just bought a little time. Much of it is doomed to fail by recklessness unparalleled even in the shoddy history of banking.
7) This is the beginning of the end of Welfare state Capitalism as a political system , in a similar manner to the economic crisis in the Eastern block in the late 80's and early 90's was the end to Soviet communism as a political system.

 

It is with a certain amount of regret that I have not had enough time to put up some essays on the coming political deterioration, but after todays events in Greece I will make some time at the end of the academic year