This time it's different

It’s usually right to dismiss claims of politicians or investors that “It’s different this time.” But the ageing of Britain and the “rich” world presents governments with unprecedented problems.

That is the central point made by our cover story, and by Nick Carn’s panoramic survey of economic threats. It might be tempting to regard the 2008 financial crisis as a contained difficulty from which we are now escaping, and budget deficits as something that a term or two of government could sort out. Indeed, that is just what many leaders, even those in the embattled eurozone, encourage voters to think.

But that would be a failure of basic arithmetic. Demographic changes will bring financial burdens on a scale that dwarfs the present budget deficits, if policies are not changed. Even Britain and the United States, whose people are comparatively young by the standards of the developed world, will not be able to meet voters’ current expectations of pensions and healthcare; Japan and much of the rest of Europe are in a worse predicament.

This is the political challenge of a generation, to use the words of one Labour frontbencher. It means redrawing a bargain between state and people that has persisted almost since the second world war, and doing it in a way that tries to shield the poorest. In Britain, it will mean painfully transferring wealth and benefits away from an older generation which has benefited from free healthcare, education, rising property prices and good pensions. That is the most prominent conclusion in the argument by Paul Johnson of the Institute for Fiscal Studies and by many other directors of think tanks and politicians, in a wide-ranging package of suggestions on where Britain should make cuts.

A second conclusion is the need to reform welfare. David Goodhart argues that public tolerance of welfare abuses has plunged, particularly among the young, in what he calls a “quiet Conservative revolution.”

For politicians of all parties, changes of this magnitude, targeting these groups, which include many vulnerable people, have been taboo (Rachel Sylvester). The question is now whether democracy can deliver discomfort on this scale. Jean-Claude Juncker, prime minister of Luxembourg, famously remarked in 2007 that “We all know what to do, but we don’t know how to get re-elected once we’ve done it,” and even though he has rebutted this by his own example—he has now held his position for 17 years—his point stands. Ramachandra Guha writes of the strains threatening the world’s biggest democracy, and Wolfgang Münchau, argues that no country can get out of the euro without suspending democracy (as Greece and Italy, in appointing technocrats, have done).

It will be no comfort to eurozone countries to say they are serving as a laboratory for whether the rich world can rise to the challenge of a generation.