Robert Montgomery plays Philip Marlowe in the 1947 film version of "The lady in the lake"

Taking a break from thinking about the future of the eurozone or the prospects for a UN Parliamentary Assembly, I took a trip to 1940s California in the company of Philip Marlowe, Raymond Chandler’s iconic, hardbitten private detective.  But amidst the glitz of Hollywood and the grime of Bay City, I found the same worries about public life and public behaviour as inhabit the rest of this website.

Here is police captain Webber, in “The lady in the lake”, explaining to Marlowe after two police officers have assaulted our hero while in the course of looking after a client:

“Police business,” he said almost gently, “is a hell of a problem.  It’s a good deal like politics.  It asks for the highest type of men, and there’s nothing in it to attract the highest type of men.  So we have to work with what we get – and we get things like this.”

Somewhere in a society, there will be power, and power can be misused.  In a democracy, we place most of that power in the hands of people we have chosen to hold it, but that power can still be misused.  So we need other constraints on the way in which power is used, outside of those imposed by elections.

The future of the eurozone will only be secured if the power of politicians to run up debts is controlled, given that the countries in the eurozone no longer have the power to print money to pay their bills instead.  World peace can only be secured if national governments are constrained in their ability to cause environmental or economic harm to other countries, or indeed their own citizens.  Captain Webber of the Bay City Police Department does not trust politicians limitlessly, and neither should you.

I was pushing my daughter in her buggy one morning, from the park where we had been playing to the shops to get us some things for lunch, and as we came round a corner¸ from a side road onto the main road, crashing in to us was a cyclist.  He shouldn’t have been on the pavement, of course, and he must have braked hard as soon as he saw us but he still couldn’t avoid hitting us.  He was only going very slowly at the moment of the actual collision, so no-one was hurt, but it was still an accident.

I shouted at him, naturally.  I rarely lose my temper but that was one occasion when I did.  Sorry, he said, it’s all my fault, I accept that, but the road is dangerous and it’s safer to ride on the pavement instead.

But it’s not safer.  It might be safer for him if he rides his bike on the pavement, but he makes it less safe for other people, in this case a two year old in a buggy.  And the public reaction to the behaviour of the captain of the cruise ship that sank, apparently fleeing the vessel before making sure that all his passengers were safe, tells us all we need to know about adult men protecting themselves at the expense of small children.

This problem of selfishness is not confined to the cyclists of north west London.  From banks to tax havens, there are countless examples of people pursuing their own self-interest at the wider (and greater) expense of others.  Adam Smith’s famous invisible hand supposes that the collective interest is served by the pursuit of individual self-interest, and often it is.  But sometimes it isn’t, sometimes those self-interests undermine the collective interest, and those are the occasions when we need the law.

Mitt Romney, Republican front runner, fortunately (picture Jessica Rinaldi / Mitt Romney Media)

The presidential primaries are finally underway in the United States, with candidates competing for the right to be the Republican challenger to Barack Obama in November.  (Obama is unopposed as the Democrat nominee.)

Although Federal Union is a British organisation, it is firmly of the view that events in other countries are not necessarily foreign, and of nothing is this more true that the election of the American president.  The US is the world’s largest military power and its largest single national economy, which means that whatever the Americans do has a great impact on the rest of the world, too.

Four years ago, this blog was unfashionably sceptical of Barack Obama himself (read an analysis here), but possibly a wise judgement as it has turned out.  But what to make now of the Republican candidates traipsing through Iowa and New Hampshire and on to South Carolina and beyond?

The front runner is Mitt Romney, whose proposed foreign policy is predictably the most similar to that of the incumbent.  (American policy shows a remarkable degree of continuity regardless of the election result.)  He criticises Barack Obama’s plans to reduce the size of the American armed forces, proposing a minimum expenditure of 4 per cent of GDP, but such suggestions are easy to make in isolation from a discussion about what taxes might be raised or other expenditure cut in order to afford it.  He wants to be tougher with rivals such as Russia and China and tougher still with threats such as Iran and North Korea, but these are changes of emphasis rather than direction compared with the current administration.  And we must remember he is competing at present for the support of Republican voters: he has to tickle their prejudices rather than confront them with facts.  Why else would his view “that the unilateral attempt to decide issues that are designated for final negotiations is unacceptable” is one to be directed “to the Palestinians” alone?

Newt Gingrich is more definite about the challenges facing America.  For him, the US is “engaged in a long war against radical Islamism”.  He claims that, in the case of Iraq, Afghanistan and elsewhere, “Only a grand strategy for marginalizing, isolating, and defeating radical Islamists across the world will lead to victory.”  However, he also warns that “Military force must be used judiciously and with clear, obtainable objectives understood by Congress.”  Which is to say that George W Bush was simultaneously too soft and too tough.

Rick Santorum takes the Gingrich view, only more so.  His toughness on Iran amounts to outright war straightaway, sub-contracting decisions about that war to an ally: “Stand with Israel as an ally and in any efforts Israel may take to defend themselves from Iranian aggression”.  Never mind what Congress thinks, the Knesset should decide.  He is surely correct to say that American foreign policy should reflect American values, but his interpretation of American values is theocratic as must as it is democratic.

At the opposite end of the spectrum is Ron Paul, a libertarian Congressman from Texas, who wants less war-fighting and not more.  How can the US “Only send our military into conflict with a clear mission” if the enemy is Newt Gingrich’s radical Islamism?  The Republicans are offered a clear choice.  But there is a danger that America might withdraw too much: “We should only fight when it’s in our national security interest, and we should no longer do the corrupt United Nation’s bidding by policing the world.”  If America is, as Ronald Reagan said, the world’s “abiding alternative to tyranny” (quoted by Newt Gingrich), then some kind of policing role is essential.

If all this ideology is not to your taste, then there is Jon Huntsman.  He is a former ambassador – he resigned as ambassador to China in order to run for president – and knows something of the world outside American.  He even has a map on his website!  He is the only one to have anything to say about the European sovereign debt crisis which, if it is not resolved, has the potential to throw off course anything the US might try to do with its own economic revival.  But he is currently polling below satirical comedian Stephen Colbert, so his brand of experience is unlikely to be put up against Barack Obama when the November election comes round.

From a British perspective, Mitt Romney offers the least change compared with the policies of President Obama.  Messrs Gingrich and Santorum would change things in one direction, Ron Paul would change them in the other.  Whatever frustrations we might feel at Obama’s failure to live up to his initial promise, we should cross our fingers that Gingrich, Santorum and Paul are never given the opportunity to live up to theirs.

The UN flag at half-mast

I wrote on this blog recently of the United Nations as having the weakness that it represents only states and not peoples.  Here is an example of the consequences of that weakness.

The picture above right shows the UN flag outside the United Nations headquarters in New York, flying at half-mast to mark the death of Kim Jong-il, president of North Korea.  (H/T Guido Fawkes)  The fact that he was a murderous dictator and a disgusting demagogue is not a reason to withhold this mark of respect, if you are the UN.  An organisation founded purely on the rights of states and not at all on the rights of citizens has no reason to look beyond the national governments of its members.  However bestial their behaviour, they remain equal members of the organisation, claiming equal standing in its decision-making.

While there is an outside chance that the UN will agree to take action against one of its own members, for example against Libya earlier this year, it depends on getting the approval of the Security Council in which five countries have a veto.  Of those five, one is an out-and-out autocracy and another is borderline, and those two have no wish to see democratic ideas and habits spread uncontrollably around the world.  In particular, China and Russia have been protectors and sponsors of North Korea and the regime of Kim Jong-il.

The lowering of that flag in New York is a visual symbol of how inadequate the global institutions really are, because they are based solely on the rights of states and not their citizens.

The heads of government meeting in Brussels, December 2011 (picture European Commission)

The European Council meeting a week ago was convened with the aim of saving the euro.  Agreement was reached at the meeting about a way forward for the EU, even if the UK (and perhaps some others) will not travel with the rest.  But despite a successful meeting, and the euro having survived another seven days, there remain three ways in which the European currency is under mortal threat.

Overwhelmed by debt

The first is that the public finances of one of the member states of the eurozone are simply overwhelmed by debt.  The Greek government has debts amounting to 142 per cent of Greek GDP, the Portuguese government owes 93 per cent of Portuguese GDP, and the debts of the Irish government are 96 of Irish GDP.  Each of these is a large sum of money, a sum of money that has regularly to be refreshed.  It consists of short-term loans that have to be repaid when the loans expire, the money for repayment being found by raising new loans.  If the market refuses to provide the funds for the new loans, for fear of default, then default will likely follow.

However, the European Union has foreseen this problem and acted to prevent it in the case of Greece, Portugal or Ireland by created the European Financial Stability Facility (EFSF), a fund of EUR 440 billion which can lend, and is lending, to countries in need.  Those three countries are therefore probably safe from a short-term collapse.

Meanwhile, there are other, larger countries with much larger debts that the markets are also doubtful about.  The Italian government owes 120 per cent of Italian GDP, or EUR 1.8 trillion, and the government of Spain has debts of 61 per cent of Spanish GDP, or EUR 640 billion.  Those sums together are larger than the EFSF or the European Stability Mechanism (ESM), its successor from 2013, can currently provide.  If confidence in the ability of eurozone governments to repay their debts continues to decline, then the euro itself might not survive.

A national government unable to borrow enough money would be unable to maintain its essential public services.  To keep schools and hospitals open would require the repudiation, in some form, of existing debts and the issuance of some new form of currency to pay ongoing domestic bills.  That would, of course, lead to a country leaving the euro in a chaotic and uncontrolled manner.  Fear of default would spread to the creditors of other weak eurozone members, who would call in their loans and it is hard to imagine that default could be contained to a single country.  The resulting crisis would cripple the European economy: even those countries in good economic shape (or not in the euro at all, like the UK) are heavily dependent on trade with the rest.  No-one would get away unscathed.

The prospect of this calamity has kept the European governments together, despite all the temptations for each of them to try to save themselves at the expense of the others.  They have therefore agreed to write a substantial new treaty with far-reaching restrictions on how national governments manage their public finances.  Limits for borrowing will be introduced, and the European Commission will be tasked with policing those limits and imposing punishments on those that do not comply.  National sovereignty in the field of tax and spending will be severely limited.  This is a lot to ask.

The new treaty cannot be ratified

The new treaty, with these new restrictions on decisions about public spending, making it illegal for a government to try to reflate its own economy, exists at present as no more than a plan.  There will be negotiations over the next three months to turn it into a legally workable form, and if that can be agreed, then it will have to be ratified in every one of the participating EU member states.  This might be as many as 26 countries, not including the UK, of course.

Agreeing the new treaty will be hard – which government wants to give up its hard-won powers over public spending and taxation? – and ratifying it will be even harder.  It will require changes to national constitutions in most of the member states, and changing constitutions is not easy.  Often, it will require the support not only of the governing party or parties, but also the principal opposition parties.  They might have ideological or tactical reasons to object.  In some countries, such as Ireland, there will have to be a referendum as well.  And we all know how unpredictable referendums on European questions can be.  Add to that unpredictability, the realisation that the new treaty introduces substantial new constraints on national politics.  Ratification will be doubly difficult.

At the time of the ratification of previous treaties, there has been a positive and attractive vista painted of what that new treaty will bring.  A single market!  A new currency!  Better cooperation on justice and internal affairs or foreign policy.  But this time?  To avoid the disaster that might result from default and eurozone collapse.  Not the most attractive grounds on which to fight for public opinion.

If the new treaty cannot be agreed, or if ratification fails, the euro is then imperilled.  The countries that are currently offering the emergency loans are doing so on a short-term basis.  This new treaty is intended, over time, to relieve the pressure on national governments in the markets and enable them to start borrowing again on their own account.  But without a new treaty, the governments that are offering loans will find themselves with an unlimited and open-ended commitment.  The German constitutional court has ruled that Germany cannot take on such an obligation, and the voters in many other member states would no doubt reach the same conclusion.

The only way the eurozone can be kept going, with the wolves of default kept from the door, is if the emergency lenders can be persuaded to continue for a while longer, but they will only do so if there is an end in sight.  Without a strategy for relieving the lenders of their burden, they will choose to drop it themselves.

The treaty is ratified but does not work

But even agreeing and ratifying the new treaty might not be enough.  In the happy event that the new treaty comes into force, the participating national governments will have to abide by its rules on public borrowing.  A country’s structural deficit should be no more than 0.5 per cent of GDP, and borrowing in any one year (in the worst case scenario) should be no more than 3 per cent of GDP.  This will be tough: at present, 20 of the 26 possible participants are in breach of this 3 per cent rule.

And if the first problem is caused by trying to keep to the new rules, the second problem will be caused by actually keeping to them.

The countries with large public debts can only generate the revenue to pay off those debts by growing their economies.  However, an economic strategy of keeping public borrowing low risks doing the opposite.  The austerity policies being followed in many European countries at present reduce the role of the government in the economy and thus suppress demand and with it shrink the overall size of the economy.

The reasons is that when the public sector shrinks, its spending power is also reduced, and so the companies in the private sector that supply the public sector lose their customers and so go out of business themselves.  A smaller private sector generates fewer tax revenues, and smaller tax receipts mean cuts in the public sector, which means less demand for the private sector, and round we go in a downwards spiral.  Austerity is not necessarily the route to growth.

However, if those people in the public sector are being kept in their jobs simply by virtue of borrowing, we have a different unsustainable economic strategy.  That is how we arrived in this position in the first place.  The way out is a judicious mix of both borrowing and cuts, the exact mix depending on circumstances, and neither being relied upon as the sole source of economic salvation.

The danger is that that is not what’s planned for the new treaty.  The emphasis is very heavily on cuts rather than borrowing; the bias is towards deflation and the scope for governments to act to counterbalance the economic cycle will be reduced.  The prospect is one of economic stagnation rather than growth.

Will the electorates of countries in depression accept continued austerity in order to meet the terms of the EU treaty?  Will lenders to the governments of those countries continue to lend if they see the debt/GDP ratio continuing to rise, not because debt is rising but because GDP is falling?  These are not the broad, sunlit uplands that Europe was once offered.  Is it worth saving the euro for this?

The euro is worth saving

Efforts to save the euro are worth preserving with, for two reasons.  First, because the immediate consequences of failure are so serious.  That realisation should concentrate the minds of the politicians who have to reach the necessary agreements and sell them to the voters.  If that realisation has not yet reached the opposition politicians in each country, then it needs to, and fast.  Playing party politics with such economic fundamentals is incredibly dangerous.

The second reason is the reason why the euro was a good idea in the first place.  A common currency can create a better economic environment for governments, businesses and consumers, but maintaining that currency will not happen on its own.  It is not enough to proceed on the old, familiar basis of national currencies, pretending that nothing more profound has taken place than merely reprinting the banknotes.  No, membership of the euro is much more significant and far-reaching than that.

The reforms it requires, demanding order and sustainability in the public finances, requiring a realistic assessment of how much a country can afford to spend and how much it has to save, are desirable reforms in any case.  Membership of the euro offers a better economic future, but like all better economic futures, it needs work.  Can the countries and the people of Europe prepare for that future?

David Cameron (picture The Prime Minister's Office)

The fallout from last night’s European Council summit in Brussels is still falling out, but I think it is possible now to identify the main lines of what was and was not achieved.  The news reports portray the outcome as Britain versus the rest of the EU, and I am not sure they are wrong.

What the other member states have achieved is the outline of an agreement as to how the eurozone will be governed in future.  (A summary on EUobserver here.)  This blog has remarked repeatedly that the crisis in the eurozone is political and not economic, so an agreement of this sort is a necessary part of the solution.  Whether this particular agreement is itself good enough is something that needs further thought and information before a conclusion can be reached.

What they have not achieved is the right to implement this agreement by amending the Lisbon treaty.  David Cameron refused to allow that.  A man who was one of Lisbon’s last critics is now recast as one of its last defenders.  Those countries that wanted a new treaty have been forced instead to start from scratch, outside the existing EU institutions.  This might well weaken the standard of democracy and accountability that the EU has achieved up until now, which is a reason for not being too delighted about what has been agreed.  It will also weaken the influence of the UK over the new treaty: it is part of the existing institutions but will not be part of any new ones.

So why did David Cameron say no?  His ostensible reason was to protect the British financial services industry.  (Read a summary of what the UK government wanted here.)  He asked for changes to the way in which the single market deals with certain financial services matters, and when he did not get them, he vetoed the new treaty.  Now, opinions will differ over how dramatic those changes he requested would have been – the French clearly thought they were more significant than the British did – but what is beyond doubt is that vetoing the new treaty has not brought those changes into being.  If the British government wanted unanimous decision-making on, for example, the “maximum harmonisation provisions that prevent member states imposing additional requirements”, it has not got them.

These are odd demands to make given that Britain is not in practice outvoted on these matters under QMV anyway, so a switch to unanimity would make little difference to regulation in the end.  Even odder, vetoing something important to the other member states now – a treaty to safeguard the euro – makes it less likely that they will be sympathetic to Britain in future.  Unanimity was needed to prevent the others from ganging up on Britain; the others are only minded to gang up on Britain because of the demand for unanimity.

This cannot be the only reason and, in fact, I am sure it is not.  David Cameron’s main motivation was to show his backbenchers that he is a eurosceptic and to stop them from trying to overthrow him.  A new treaty brought home from Brussels for ratification in the House of Commons would have been in grave danger of defeat.  This would have been true even if, as he would have insisted if such a treaty had gone ahead, the new treaty did not change the legal position of the UK within the EU.  It might well have been true even if the treaty had improved that position, for example by adopting his demands on financial services legislation.

The state of British politics now is such a stranger to rational debate and facts about the EU that almost anything could happen.  If there is a reason for pro-Europeans in Britain to take any satisfaction from what has just happened, it is that the wilder possibilities of Britain leaving the EU have been avoided.  (And failure to ratify a new treaty might have killed the euro, too.)  Instead, rather than a risk of total destruction to Britain’s EU membership, we have to settle merely for the certainty of some more damage.  Maybe that’s preferable: again, it will take some time and some more information to be able to decide.

In the short-term, though, what we can be sure of is that Britain’s position in the EU is weakened but David Cameron’s position in the Tory party is strengthened.  That’s what he has achieved.

Saint Martin's Island, on the coast of Bangladesh (picture Niaz Morshed)

The Spectator last week questioned the reports that sea levels around the world are rising.  (Read the article, by Nils-Axel Mörner, here.)  Higher sea levels are generally expected to be one of the consequences of global warming, so if sea levels do not rise (or, rather, do not rise in a pattern different to the one they have followed up until now – they rise and fall, and are never still) that casts doubt on whether global warming is really happening.

Publication of this article drew a furious reaction from critics, pointing to its scientific errors and highlighting its lack of credibility.  (For example, George Monbiot here.)    This website is not competent to judge on the arguments about sea levels as such: our focus is on the policy framework that would be needed to do something about it.  If countries are following policies that suit themselves but harm others, then we’re interested.

And we are interested here.  First, if George Monbiot is right, then the problems of climate change cannot be dealt with properly by existing political institutions.  (We explain why not here.)

But what if Nils-Axel Mörner is right, and sea levels are not rising?  When then?  Well, look at the reasons he advances:

In Bangladesh, for example, increased salinity in the rivers (which has affected drinking water) has in fact been caused by dams in the Ganges, which have decreased the outflow of fresh water.

OK, but where are those dams?  There are several within the Ganges river basin, for example Tehri Dam in Uttarakhand, Bansagar Dam in Madhya Pradesh, and Farakka Dam in West Bengal.  What Uttarakhand, Madhya Pradesh and West Bengal have in common is that they are states not in Bangladesh but in India.  (Read about this website’s interest in river basins here.)

So, if there is evidence that sea levels are not rising in Bangladesh – showing that countries have not been pursuing policies that are selfish environmentally – it is because of dam construction in India, a policy that is selfish environmentally.  Whichever way you look at it, self-consciously national environmental policies are part of the problem and not part of the solution.

The traditional analysis of capitalism is that, like democracy, each country has its own variant.  There are obvious features and principles in common, but German capitalism is different from French capitalism is different from Japanese capitalism and so on.  An argument against international economic integration is that these different national versions of capitalism do not fit neatly together.  Compare Greece and Germany, critics say.

Eds, Miliband and Balls, Labour leader and shadow chancellor respectively

But what is economic integration doing to the notion of a national form of capitalism?

The economic ecosystem of wages, profits, dividends and investments is no longer contained within national borders.  Companies operate, and are owned, in more than one country.

That means that the ability of a national government to apply a stimulus to its own economy is weakened because much of the demand thus created will go abroad and not stay at home.  An attempt to cling to a national conception of capitalism therefore has an inherent deflationary bias.  Fine, if you share that deflationary instinct, not so fine if you don’t.

Even the people who oppose the euro – perhaps especially the people who oppose the euro – who nevertheless want a renewed economic stimulus applied to the economy (and I am thinking of the Labour party here) need to back a European approach to macroeconomics and not a series of national approaches.  Can the Eds, Balls and Miliband, argue for such a combined approach, or will their resistance to the euro reveal itself as resistance to the EU as such?

He and his colleagues within the Votewatch project track voting patterns in the European Parliament, including the way in which different groups vote together in support of the legislative proposals.  This analysis reveals who is on the winning side when contested votes take place.  Quite a large proportion of the votes are uncontroversial and unanimous: it is the contested ones that reveal the true party political colour of European policies.

The first conclusion from this presentation is that the policies of the European Union are rather moderate and centrist.  The EP has a co-decision power over most of them, and the chart below reveals which party groups are on the winning side in votes the most often.

It shows that the Liberals (ALDE), the Christian Democrats (EPP) and the Social Democrats (S&D) are the most frequent supporters of proposals, with the more extreme parties of right and left less often in favour of the final outcome.  (The uncontroversial votes mentioned above make up about 30 per cent of the total, apparently, which is why even the most extreme parties still support as many as half the votes.)

But while the three largest groups vote in favour of the most legislation, it is not the case they do so cohesively.  In fact, the shifting patterns of support between those three groups tell an interesting story about the nature of EU policy, revealed by another level of detail in Professor Hix’s analysis.

The chart above shows the policy areas where the centre-right, broadly defined, outvotes the centre-left.  These include the major issues of the economy and competitiveness.  The centre-left, on the other hand, wins on the issues of the environment and gender equality, as shown in the chart below.

What this data depicts is a contest over policy against a background of broad consensus between the largest parties over its direction.  Naturally, if one is a supporter of the far left or the far right, one might well conclude that the EU is adopting the wrong direction, but even the criticism coming from those quarters needs to be tempered by the facts.  Is the EU a neo-liberal project?  If so, it is a form of neo-liberalism supported by social democrats and greens.  Is it a socialist plot?  Only if your definition of socialist includes the mainstream centre-right.

I suppose it is the apparent complexity of the EU system, and the fact that it keeps changing which means that what people once thought was true might not be true any longer, that permits these myths about the party political colour of the EU to spread. More clarity might bring a better debate.  We can hope so.

This blog has already observed that the eurozone crisis is a crisis of politics and not one of economics: taken together, the public finances of the eurozone are not unmanageable.  The crisis arises because those finances are not being taken together, so the solution must be in part an institutional one.

The economic problems facing Europe have not come from nowhere: they have deep roots.  They have been widely discussed in the past (including on this website five years ago – read the article here) but almost nothing has been done to address them.  The heart of the problems is demography.

The population of the European Union is not getting larger but is getting older.  A fall in the birth rate and an increase in life expectancy see the average age of a European citizen increase, as will the proportion who are retired and no longer working.  The proportion of the population that is working will therefore decline, so it is on fewer shoulders that the burden of maintaining the European standard of living will fall.  The figures for the UK and Italy are set out below (as percentages), as they are the extreme examples of the trend – the other EU member states fall somewhere between these two.

This chart reveals the effect of two factors, one that cannot be changed and one that might be.  The effect of the ageing population, before which we are essentially helpless, is shown in the bottom row of the chart: this is the proportion of the population aged below 18 and above 65, and it will increase.  The middle row is the proportion of the population between these ages that is nevertheless not in work: labour market policies might be able to reduce this percentage a little and increase the numbers in the top row, the proportion of people who are actually working.  (An increase in the retirement age would also help somewhat.)

In the UK, it can be seen that the working age population (the top two rows together) is forecast to decline by 9 per cent and the actual working population by 15 per cent (if policies do not change).  In Italy, the forecast decline is even steeper: 17 per cent (working age) and 27 per cent (working).

If, despite the smaller proportion of the population actually working, we want to sustain the same standard of welfare provision for the people who are not working, the burden on those people in work will have to go up.  The size of the fall in the working population corresponds to an increase of between 10 and 18 per cent in the UK and by between 20 and 37 per cent in Italy.  The more people are working, the smaller this increase, so you can see the relevance of labour market reforms to increase the number of people who are productive.  (And this assumes that older people do not make more expensive claims on health and social services than younger people, which we know in fact is not true: if anything, those predictions are underestimates.)

This is the background to any discussion of the public sector strikes over pensions.  The proportion of income that anyone in work has to put aside for the benefit of people who are not working, whether by saving for their own retirement or by providing for other people at the present time, is going to have to rise.  We cannot go on as we have been.

But how to decide what to do?  There are decisions to take about how to allocate the increased burden: how much on the rich, and how much on the poor?  (Some of these questions are discussed on the blog here.)  As with the eurozone crisis, these economic problems have been allowed to get so severe in part because we lack the political institutions necessary to deal with them.  It is an economic issue, but also a political one, if we want to avoid economic decline.

(Data in the chart is derived from Economist, “World in figures”, and McMorrow and Roeger “Economic consequences of ageing populations”, quoted in Niall Ferguson, “The Cash Nexus”, Penguin, 2001)