NIALL FERGUSON’S WARNING: ECONOMIC STAGNATION AND GEOPOLITICAL DECLINE OF THE WEST

Real Clear Politics on November 26, 2012, reported on author and historian Niall Ferguson telling CNN that laws are becoming more cumbersome and hurting Western economies. Excerpts below:

Ferguson: It’s unsustainable over the long term, the United States, for example, unless it radically changes its fiscal policy, even with the benefits of cheaper energy. We’ll find that by the middle of this century, all tax revenues will be absorbed by interest payments on the debt. Which is obviously impossible, so something’s got to give. And it will give. I mean, at some point, Americans will have to choose, it may even happen quite soon, between increasing their taxes in a pretty major way, to keep pace with the expenditure that the federal government has been engaging in for the last five or six years,..

Stevens: What, then, is the restructuring that’s needed in the West?

Ferguson: Well, I think the most important thing to recognize is that it’s not just about taxing and spending. If you define this too narrowly — in fiscal terms — then you end up in the mess that Southern Europe is in; trying to balance the budget, even as your economy is shrinking. It’s better, I think, to ask questions of a more profound nature about the institutional framework within which society operates. To me, one of the biggest contrasts between the West and the rest is that things like the rule of law — regulation, bureaucracy — are getting more problematic, more burdensome in Western countries,…

Stevens: You mean they’re getting in the way of development?

Ferguson: Yeah, they really are… one of the arguments I make in my new book, The Great Degeneration, is that the rule of law in the United States has become the rule of lawyers. The legal profession has become a very major source of cost for business. You have a combination of excessively complex regulations and a rather parasitic legal profession, and it battens off the private sector. It’s almost impossible for any financial enterprise to operate in the U.S. without a massive compliance department — teams of lawyers. And that is really a dead cost — it doesn’t add anything to the activity of the economy…

Why is our regulation so over-complicated? Why does the tax code occupy shelves, rather than just a few pages? And why is it that if you want to regulate the financial sector, you need a bill that is 2000-plus pages long? If we could strive for greater simplicity and transparency in the tax code and most regulation, I think there would be real benefits.

Stevens: Do you think the fiscal cliff will become a reality?

Ferguson: I think there is a short term risk that for political advantage the President may try to get the Republicans to look like they pushed the economy over the fiscal cliff. This is very complex political game play that are going on here. And it is risky — for political advantage, the Democrats may in fact be quite happy to go over the fiscal cliff, if the Republicans can be blamed for it.

Note:

NIALL FERGUSON is one of the world’s most renowned historians. In 2012 he published his latest work, The Great Degeneration: How Institutions Decay and Economies Die. Ferguson is also the author of Paper and Iron, The House of Rothschild, The Pity of War, The Cash Nexus, Empire, Colossus, The War of the World, The Ascent of Money,HighFinancier, and Civilization.

He is the Laurence A. Tisch Professor of History at Harvard University, a senior research fellow of Jesus College, Oxford, and a senior research fellow of the Hoover Institution, Stanford University. He is also a regular contributor to Newsweek and Bloomberg television.

The decline and degeneration of the West is something that has long been prophesied. Symptoms of decline are all around us today, it seems: slowing growth, crushing debts, aging populations, anti-social behaviour. But what exactly is amiss with Western civilization? The answer, Niall Ferguson argues, is that our institutions – the intricate frameworks within which a society can flourish or fail – are degenerating. Representative government, the free market, the rule of law and civil society: these were once the four pillars of West European and North American societies. It was these institutions, rather than any geographical or climatic advantages, that set the West on the path to global dominance after around 1500.

In our time, however, these institutions have deteriorated in disturbing ways. Our markets are increasingly distorted by over-complex regulations that are in fact the disease of which they purport to be the cure. The rule of law has metamorphosed into the rule of lawyers. And civil society has degenerated into uncivil society, where we lazily expect all our problems to be solved by the state.

“The Degeneration of the West” is a powerful – and in places polemical – indictment of an era of negligence and complacency. While the Arab world struggles to adopt democracy, and while China may be moving from economic liberalization to the rule of law, Europeans and Americans alike are frittering away the institutional inheritance of centuries. To arrest the degeneration of the West’s once dominant civilization, Ferguson warns, will take heroic leadership and radical reform.

The new book is based on Niall Ferguson’s 2012 BBC Reith Lectures, which were broadcast under the title “The Rule of Law and Its Enemies”.

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