I have an op-ed article in the Times today, arguing that there is light at the end of the tunnel for the world's and the British economy: the long-term gains from living within our means are huge:
Matthew Parris hit a nerve last Saturday with his argument that we have lived beyond our means and must now expect to have to work harder and be 25 per cent poorer. It resonated with me as well as many readers. He cut through all the detail of debt, default and deficits to extract an essential truth. The West has run a pyramid scheme, spending borrowed capital to boost current living standards. From pensions to mortgages, from public spending to consumer extravagance, the reckoning has arrived.
All true, but here are a few thoughts to cheer you, and Matthew, up. First, the money was ultimately borrowed from those who had net assets, mostly the Chinese. Allowing for a few mathematical wrinkles, the world cannot be in debt - though given half a chance Goldman Sachs would surely find a way to arrange a loan from the Martians. So the world economy as a whole cannot be a pyramid scheme.
And the world economy as a whole has continued to grow: it shrank by just 0.6 per cent in 2009 then rebounded upward by 5 per cent in 2010, according to the IMF. The last four years have been rotten ones for us, but good ones for Chinese, Indians, Brazilians, even Africans. Nigeria is growing at 9 per cent a year.
Much of Africa, having stagnated in the 1980s and 1990s, has begun growing like an Asian tiger, incrementally raising life expectancy and living standards, inexorably cutting birthrates and poverty. Since Africa holds many of the world's poorest people, this is great news for anybody who cares about humanity as a whole. There is a long way to go, but the pessimists who said that Africa could never emulate Asia are increasingly being proved wrong.
Cold comfort for Britons, you say? Asian tigers have eaten our lunch: if African lions are joining the feast, what hope have we? A lot, actually. Sure, we could have grown faster too if we had borrowed less and trained engineers rather than community outreach co-ordinators. But trade is not a zero-sum game. Other people getting richer means more customers for our goods and services. Some European exports to China, ranging from insurance to perfume, are booming. Asian airlines are ordering Airbuses as if they were pizzas.
There is an opportunity there to be grasped.
Besides, a decade of stagnation while we pay down (or default on, or inflate away) our debts, if that is what we face, does not mean a decade of technological stagnation. The 1930s brought a rash of innovations - from neoprene to nylon, from Lego to Biro, from sliced bread to television - that made life better and so will the 2010s. Economic growth works by shaving seconds off the time you must work to afford something you want, freeing you to spend that spared time satisfying a new need. The more we work for each other, and the more we amplify our productivity with gadgets and gas, the more wants we can each satisfy.
Take last week's news that Blackpool is sitting on a truly gigantic gas field, now accessible thanks to new technology. Cheap, clean, relatively low-carbon shale gas can cut the costs of electricity, transport and manufacturing, as it has started to do in America already. That will lower the costs of goods and services, freeing consumers to afford more of them, which creates jobs and raises living standards. (And it makes the increasing of fuel poverty and desecration of landscapes by wind farms unnecessary.)
Think of technological change this way. Even if you time-travelled back to 1980 with your modern salary, and found yourself far richer than most people, you still could not find wheeled suitcases, mobile-phone signals, hepatitis C vaccines or decaf mocha lattes on the high street. Likewise, time-travel forward to a prosperous 2040 without a wage increase and you might find yourself relatively poor. But think of the products you could find there, some of them supplied by newly rich and inventive Africans. Other people getting rich means other people working to invent things for you.
This is why Matthew Parris is wrong to say that the free market does not guarantee growth - at least for the world as a whole. The expansion of specialisation and exchange around the world will all but guarantee the world a steady stream of innovations that raise living standards. It is our job to make sure that we can grab our share of those benefits.
If Britain continues to live beyond its means, and continues to pick losers such as wind power and (God forbid) Miliband-defined "producers", then we will indeed slip down the economic league table. We could even be stupid enough to emulate North Korea or Somalia and achieve absolute decline, missing out on the new ideas, services and goods that the world will be making. But that would require heroic efforts of collective madness that are surely beyond even us. Aren't they?
So it is only half the story to say that we need to get back to work if we are to work off the debt and afford the lifestyle we thought we already had. In the long run it is more positive than that. If we get back to work, productively, there is a gigantic opportunity - to sell enough goods and services to the consumers of the world so that we can afford to buy all the wonderful things they could supply us in return. That's how we can double our real per capita income yet again, as we have already done three and half times since 1830.
Prosperity is not a heap of assets. It is a system of efficient supply and demand. Remember what Lord Macaulay said about the aftermath of the South Sea Bubble: "If any person had told the Parliament which met in perplexity and terror after the crash in 1720 that in 1830 the wealth of England would surpass all their wildest dreams ... that stage coaches would run from London to York in 24 hours, that men would be in the habit of sailing without wind, and would be beginning to ride without horses, our ancestors would have given as much credit to the prediction as they gave to Gulliver's Travels. Yet the prediction would have been true."
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