If you suffer from melancholia, or display other symptoms of clinical depression, you might want to skip reading Niall Ferguson’s The Great Degeneration: How Institutions Decay and Economies Die. For the rest of us, it is an essential grounding in the daunting realities facing the current and future generations of the Western democracies, especially the United States.
Ferguson, a Scottish transplant to Harvard and a senior fellow at the Hoover Institution, based this book on his 2012 Reith Lectures for the BBC. Warning: Things are even worse than you thought.
Ferguson’s short, articulate, and powerful book describes a quartet of pathologies plaguing the United States and most Western countries: “democratic deficits,” “regulatory fragility,” the “rule of lawyers” rather than the rule of law, and an “uncivil society.” Ferguson believes these conditions have contributed to making the US a “stationary state,” a term coined by his countryman, Adam Smith. This has led to “a shocking and perhaps unparalleled breach” of Edmund Burke’s partnership which the great Anglo-Irish conservative described as “not only between those who are living, but between those who are living, those who are dead, and those who are to be born.” Ferguson relies heavily on contemporary scholarship but also draws on the intellectual legacy of the formidable triumvirate of Smith, Burke, and Alexis de Tocqueville.
In the 1770s Smith described China then as a stationary state because of economic stagnation resulting from corruption of its laws and institutions. Ferguson now believes that Europe, Japan, and America have experienced the same sort of downward spiral in in their governments and civil societies.
“Public debt –stated and implicit– has become a way for the older generation to live at the expense of the young and the unborn,” says Ferguson. “Regulation has become dysfunctional to the point of increasing the fragility of the [market] system. Lawyers, who can be revolutionaries in a dynamic society, become parasites in a stationary one. And civil society withers into a mere no man’s land between corporate interests and big government.”
Says Ferguson, “Taken together, these are the things I refer to as the Great Degeneration.”
I recall the debate over the US’s $16 trillion deficit in the recent presidential campaign. At the time I thought that number understated the true dimensions of the crisis facing the country. Ferguson concurs: “This is only the second time in American history that combined public and private debt has exceeded 250 percent of GDP.”
Statistics cited for government debt are “deeply misleading, for they encompass only the sums owed by governments in the form of bonds,” writes Ferguson. “The rapidly rising quantity of those bonds certainly implies a growing charge on those in employment, now and in the future, since –even if the current low rates of interest enjoyed by the biggest sovereign borrowers persist– the amount of money needed to service the debt must inexorably rise.”
These figures do not include the even larger liabilities of welfare entitlements — Medicare, Medicaid, and Social Security. “The best available estimate for the difference between the net present value of federal government liabilities and the net present value of future federal revenues is $200 trillion, nearly thirteen times the debt as stated by the US Treasury,” says Professor Ferguson. In addition this staggering number does not include the unfunded liabilities of state and local governments estimated to be around $38 trillion.
“These mind-boggling numbers represent nothing less than a vast claim by the generation currently retired or about to retire on their children and grandchildren, who are obliged by current law to find the money in the future, by submitting either to substantial increases in taxation or to drastic cuts in other forms of public expenditure,” writes Ferguson.
With his gift for irony, Ferguson observes that one of the obstacles to reform is “that the young find it quite hard to compute their own long-term economic interests. It is surprisingly easy to win the support of young voters for policies that would ultimately make matters even worse for them, like maintaining defined benefit pensions for public employees. If young Americans knew what was good for them, they would all be fans of Paul Ryan.” It seems that “intergenerational inequity” is a winner at the polls with voters of all ages.
Maybe it has something to do with the existence of a near complete state monopoly on education at the elementary and secondary level, as opposed to America’s very diverse mix of private and public institutions of higher education. Says Ferguson, “The problem is that public monopoly providers of education suffer from the same problems that afflict monopoly providers of anything: quality declines because of lack of competition and the creeping power of vested ‘producer’ interests.”
Deploying the metaphor of “biodiversity,” Ferguson believes that “A mix of public and private institutions with meaningful competition favours excellence. That is why American universities (which operate within an increasingly global competitive system) are the best in the world—twenty-two out of the world’s top thirty…while American high schools (in a localized monopoly system) are generally rather bad.”
It is no accident, claims Ferguson, that Asian teenagers do so much better than British and American peers in standardized tests in that “private schools educate more than a quarter of pupils in Macao, Hong Kong, South Korea, Taiwan and Japan.” Average math scores for those places is 10 percent higher than the UK and the US. “The gap between them and us is as large as the gap between us and Turkey. It is no coincidence that the share of Turkish students in private schools is below 4 percent.”
Ferguson also cites studies indicating a 10 percent increase in enrollment in private schools also reduces the total education spending per student by over 5 percent of the OECD average.
Niall Ferguson wants to break some institutional furniture. He argues that America and the West need to cut entitlement spending, restrain regulation and government intervention, restructure education to create real competition between public and private schools, hang all the lawyers (OK, I made that one up), and reinvigorate civil society by liberating it from an over-reaching government which has robbed family and community of its functionality.
Truly, “the institutions in our times are out of joint.” It is time “to reverse the Great Degeneration,” says Niall Ferguson.
And today we celebrate...