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Doomsters ride again Samuel Brittan: This house believes that demographics, debt and deficit spell imminent disaster for the G7. [Imminent was interpreted to mean the next five to ten years] City Debate Speech Against 24/01/05 Predictions of doom come up at frequent intervals. They were widespread at the end of the first millennium in the year 1,000 and again of course before 2,000. Remember the dreaded millenium computer bug? Some of us will recall the hysteria at time of the first oil price explosion of 1973 following the Yom Kippur War. This country was said to be ungovernable during the economic tribulations of the 1970s. There were further predictions of doom after the Wall Street crash of 1987 and after the Asian debt crisis of the late 1990s. But a greater threat than any of these - and unconnected with debt and deficits - was the Cuban missile crisis of 1962 when a nuclear war was averted by the restraint of President Kennedy and the wisdom of the Soviet leader Nikita Khruschev in withdrawing the weapons. The very long term future may indeed be bleak. According to the Astronomer Royal, Sir Martin Rees, the earth will “face doom in another six billion years when the Sun in its death throes, swells up into a red giant and vaporises everything remaining on our planet’s surface.” Even over the next 100 years, he gives “our present civilisation“ no better than a 50-50 chance of survival. (Our Final Century, Heinemann, 2003). But he is thinking of things such as nuclear proliferation, terrorists or fanatics with advanced weapons, technological catastrophes, environmental degradation, and so on. It is most unlikely to be because of events in the securities and derivatives markets with which many people in this room deal. I shall continue with a quotation. “We cannot absolutely prove that those are in error who tell us that society has reached a turning point, that we have seen our best days. But so said all who came before us, and with just as much apparent reason. ’A million a year will beggar us,’ said the patriots of 1640. ’£240m of debt’ cried all the statesmen of 1783 in chorus; ’What abilities or what economy on the part of a minister can save a country so burdened?’.” This passage from the famous 19th century historian Macaulay was quoted by Harold Macmillan in his Budget speech of 1956. Macmillan may not have been the greatest of chancellors, but his speeches were, in the short time he occupied the post, the most entertaining. In the 50 years before he spoke the National Debt rose from £650m to £27bn; and, just to bring you up to date, it is now almost £450bn. We can get a better handle on these National Debt figures if we express them as a proportion of GDP. In 2004 this came to 33 per cent. It compares with about 275 per cent in both the Second World War and the Napoleonic Wars. These ratios were reduced and we survived. But even in the Gladstonian heyday of the late 19th century it was hardly ever below 30 per cent. According to his critics the Chancellor needs to raise taxes by around £10bn. pa to meet his own fiscal rules. This may not be pleasant for those who have to pay the extra money. But we are talking about less than one per cent of the national income. By all means have our election fun; but stop the nonsense about doom. The USA has budget and balance of payments deficits on either side of five per cent of GDP. But do not tell me that a country as rich as the US cannot, if it needs to, reduce these percentages to two or three per cent which can be readily financed. If it does not do so with sufficient skill or speed we may indeed have a currency crisis. We have had them before and will have them again. But please do not talk to me about doom. It is of course possible to invent a scenario which something goes wrong in, say, the US financial markets and the response of the Federal Reserve and other central banks is inadequate. This in turn triggers off trade restrictions and other beggar-my-neighbour policies. But what the motion characteristically lacks is any sense of risk or probability. We have survived so many periods of financial tension that the odds in favour of catastrophe in the next five or ten years are low, even though they are somewhat higher over say the next 50 years or century. What is irritating about these doom-mongers is not their pessimism but their fatalism which prevents us from tackling serious issues,such as those discussed in my new book, Against the Flow (Atlantic Books, £25). When there have been price falls in Wall Street I have been asked by broadcasters whether I thought this was another 1929. When I have said “No; but there are real problems”, the usual response has been “Do you know anyone who does think that this is another 1929?” We are also often told horror stories about population. The most usual scare has been that Third World population will increase so much as to defeat efforts to raise living standards there. But now we have a new and opposite scare that the population of Europe is going to die out. Demographic developments have a very long fuse and nothing of this sort is likely within a decade. The problems arise from a low birth rate and an increased life span which are increasing the dependency ratio. This first need here is to index the pension age to longevity. Secondly, it should be easy to increase the number of young people of child bearing age by easing up on immigration, which will indeed happen - however politically unlikely it seems today - if the younger population really does dwindle as the pessimists suppose. The most likely horror scenario arises not from any conventional G7 failings but from the possibility that we may wake up one day and find that the Saudi Arabian regime has been overthrown and that the supply of oil has either been cut off or shoots up in price to say $100 a barrel. The Middle East would not be able to threaten us in this way if the US had taken the precaution of imposing energy taxes to raise the price of petrol to European levels. But even to say this is to suggest how the problem could be tackled without ill advised military forays into countries about which we know very little. This is a threat which is unlikely in any particular year but more probable than not over a decade or two. Yet I do not even have to discuss it any further. It is not demographics, not debts and not even deficits in the conventional sense. Let us dismiss these absurd doomsters and discuss the real problems we face.
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