Government is dead; long live iDemocracy

Accept we’re bust, slash back the state, and let the people decide, says MP Douglas Carswell. Here he talks to Merryn Somerset Webb on how the people can rein in the excesses of the state.

Earlier this week there was a conversation on Twitter (where you should be following me: @merrynsw) about bloggers. Where have they all gone? It used to be you couldn't move for the hordes of people chucking out opinions on everything from debt to GDP ratios and cyclically adjusted price/earnings ratios. No more. Many of the blogs have disappeared or become almost entirely inactive and very few have popped up to replace them.

Why? Theories abound. Perhaps bloggers have found proper jobs. Perhaps the professionally financed news organisations have got better at web stuff and displaced them. Perhaps they got fed up with being wrong all the time and went back to watching daytime TV. Or perhaps, as Joshua Brown of the blog Reformed Broker suggests, everything "that can possibly be said has been said" and they just got bored.

I suspect the answer has a big part of the latter in it. Who really has anything new to add to the increasingly stupid austerity versus pretend growth debate? And who hasn't already given enough opinions on the future of Europe and the virtues (or not) of quantitative easing? What more is there to say? The bad news, if you listen to most politicians or economists, is that you will come away all but certain that the answer is nothing.

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The good news is that there are outliers which is why I took myself to Portcullis House last week and jumped the security queue to interview Douglas Carswell. Carswell has recently published a book called The End of Politics and the Birth of iDemocracy, which another one-time MoneyWeek interviewee, Matt Ridley, has called "radical, clear-sighted and subversive" as well as "an illuminating glimpse of how the West must and still can escape death by top-down bureaucratic suffocation". Gosh.

So what prompted the book and what's it all about? Carswell wrote it, he tells me, simply because a few years ago he "came to realise that the Western model of government is finished, it's bust, it's bankrupt". The financial crisis wasn't caused by "people buying a shack in Alabama they couldn't afford" nor by the bad construction of the likes of the euro.

The ongoing financial and political crisis is more a "symptom of a more profound malaise" one stemming from the fact that the West is in steady economic decline relative to the emerging world, but is nonetheless insisting on running a fast-expanding welfare state "on the back of a diminishing wealth-creating base".

We are "broke financially because we have failed politically". We run our governments and all discussions about them within a narrow framework guided by the idea that it makes sense for the state to spend something in the region of 40%-50% year, when it isn't sustainable.

We've covered this problem up for the last 20 to 30 years with various "manipulations of money and credit", but that option is now deserting us too. So we have to change "the framework of the debate before it is too late" the future isn't about what politicians and electorates think they want, it's about what is actually possible.

"No politicians have stood in Greece in the last ten to 15 years promising to slash the Greek state, but the Greek state is being slashed. If you fall sick in Greece you can do one of three things. You can pay, you can look for charity, or you can move. In the end the laws of maths prevail over the laws of politicians. We need to start to understand this."

The way to do this is to start by looking at what allowed the state to come up with the cash to get so big in the first place. That rests on three pillars.

The first is progressive, or "unequal" taxation. This basically means taxing different groups in different ways so that "while you have hissing in part of the flock having their feathers plucked you never have a whole flock of angry geese at once". Look at our taxation system and you'll see that is how it works.

In any doubt? Here's a list of some of the various rates of tax on capital and income different groups in Britain pay on different things: 1%, 3%, 4%, 5%, 7%, 10%, 18%, 20%, 28%, 32%, 32.5%, 40%, 42%, 42.5%, 60%, 62%. As far as our governments are concerned, the more complicated and unequal they make tax rates, the more money they're likely to raise.

The second pillar is permanent government borrowing (we never pay it back). And the third is the manipulation of money deliberately to produce inflation in order to allow a "substantial transfer of wealth from private citizens to the public sector Mugabe in slow motion." Unequal taxation means getting your neighbour to pay the bill; borrowing is getting your grandchildren to pay the bill; inflation is getting the ignorant to pay the bill.

I can't find anything to disagree with here. But knowing where we are and knowing how we can fix it are two entirely different things particularly given Carswell's colleagues' failure to recognise the basics of the problem. Carswell is an optimist. As far as he sees it the size of the state will have to shrink all three of the pillars holding it up are crumbling so there is no other possibility.

Modern taxpayers and their incomes are mobile and not just at the high end: "when so much is just a mouse click away it is no longer just the very rich geese that can take flight". At the same time, we've mostly reached our debt limits and "the digital revolution will soon allow us to escape the tyranny of monopoly money" (ie, stop us being forced to operate in a depreciating currency controlled by governments).

Once you can organise payments without using banks as the middle men something the internet should allow says Carswell, "you can very easily see that people will move into a world of private or competing currencies". Once payments can be made (as in parts of Africa already) using mobile-phone credits and other e-currencies, "when does official money stop and private money start"?

I like the sound of that, so I ask Carswell what he would do if he was a benevolent dictator with a 50-year term. For starters, he says he wouldn't need 50 years it just isn't that complicated.

This is interesting I always ask this question and most interviewees say 50 years might not be enough. So just how simple is changing the world?

First, Carswell would take us out of the EU (it's expensive and pointless). Then he would pass legislation allowing taxpayers to pay their taxes in any currency they liked this would reduce the ability of the state to use its "inflation tax". Then he would "reform banking quite profoundly" (Iexplain his ideas for this on the blog), and finally slash the size of the state.

How? Right now, says Carswell, the state commissions around £30,000 of public services per household. Some of that makes sense. If the government is financing an army, for example, it has to be done collectively there isn't much choice but to use the old model where we give money to the state "and the state wastes it". But the rest can surely be "self commissioned".

So take education. We can pass a law that says every August, parents can request and receive their child's share of local authority spending to take them to the school of their choice. You could do the same in health allow people their share (excluding A&E, which must be centrally provided) to spend at the insurer of their choice.

I must have looked mildly doubtful at this because Carswell pauses to point out that thanks to the internet he effectively runs his own radio station (deciding what he listens to and when), so "for goodness sake, why can't I decide whether and where my three-year-old should study Spanish or French"?

Why indeed. I wonder if there are also services that government provides that it shouldn't provide at all. "Yes, there are things that we have just got to get rid of." "Such as?" "Why do we have a Department for International Development?" he says. And what of the Department for Business, Innovation and Skills? We don't need it, "shut down the department". The same goes for the Department of Energy and Climate Change. "We don't need it."

I point out that these aren't the kind of shut downs that would be particularly popular with his fellow MPs. Too bad, says Carswell: "turkeys don't vote for Christmas but Christmas comes anyway". The laws of maths are unrelenting: the state might not want to stop spending, but if it doesn't it will go bust at which point the spending will stop anyway.

I ask Carswell if he thinks he has anything in common with the likes of George Osborne. "Not much," he says, "not much." But the problem with being a minister is that "the urgent squeezes out the performance". That makes it all but impossible to look to the long term. Yet if ministers can't focus enough to sort anything out, how can the iDemocracy utopia of Carswell's book happen?

The public will make it happen, he says. We don't leave politics to the "whips, lobbyists, pundits and think-tankers anymore". There is now a "digital demos" that is huge, active online and able to apply political pressure directly. The result? Just as people can now choose what is on their MP3 player, they are soon going to want a role in programming the legislative agenda. "Old-school politics is dead."

Who is Douglas Carswell?

The son of two doctors, Douglas Carswell grew up in former British colonies in east Africa. He moved to England to study history at East Anglia University, where he graduated in 1993. He then went on to study British imperial history at King's College London before graduating in 1996.

His first job out of university was a two-year spell as the corporate development manager at an Italian TV broadcaster. He then moved to Invesco, a Bermuda-registered investment management company, where he served as the chief projects manager from 1999 to 2003.

During that time he unsuccessfully tried to oust Tony Blair from his Sedgefield seat in the 2001 general election. He had more luck in 2005, however, when he narrowly defeated the incumbent Labour MP for Harwich, Ivan Henderson, by 920 votes.

Now 41, Carswell has established himself has a eurosceptic and a Tory moderniser, with several books published. He was also dragged into the expenses scandal when it emerged that he had claimed £655 for a love seat' and flipped his second home.

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.