Niall Ferguson: Rule Of Law Hurting The West
Author Niall Ferguson tells CNN laws are becoming more cumbersome and hurting Western economies.
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, or they’re going to have to radically reform entitlements, and reduce the amount that they spend on things like Medicare and Medicaid. It’s a fairly straightforward choice, but it’s very hard to make it, politically, until you are under such immense pressure that the alternative, kicking the can down the road, in the European fashion, simply disappears.
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, even as they are becoming less burdensome in emerging markets.
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. And I think that's one of the things that I am trying to focus on: 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.