So is anyone still in favour of small government?

One of the greatest political lies you will often hear, is that with the fall of the Berlin Wall the Right had won the economic argument. Socialism was dead, long live capitalism and the free market!

Nothing could be further from the truth. Eight years into the New Labour dream, the UK can proudly declare that capitalism is dead, long live socialism!

Fraser Nelson has nailed the socialist dream in this week's Spectator.

"First raise tax and employ as much of the electorate as possible. Next, offer generous welfare and bribe the middle classes with childcare. Soon, a critical mass of voters becomes part of the government project, and votes for its expansion. Eventually the right-wing opposition grows tired of losing elections, and starts pledging to outspend the government, if elected. Then victory is complete."

Nelson exposes some truly shocking statistics.

The State now has three divisions;
i) direct employees (6.8 million or 18% of the electorate)
ii) welfare dependants (4.5 million or 11% of the electorate)
iii) pensioners (10.5 million or 26% of the electorate)

A total of 21.8 million people or 55% of the voting population is now dependant on the government for some kind of assistance.

It is now almost impossible for any political party to pick up votes by proposing to cut down on the size of the State. A classic Catch 22 has now been reached.

The UK spends more of its citizen's income than even Germany (the UK now takes 42% of national income versus 36% when New Labour were first elected - a colossal increase in spending). So far, this has not led to huge tax rises because the underlying economy has been reasonably healthy. However, the lower productivity of all these new government workers (784,000 of them) is finally causing the economy to slow down.

What will cause things to change?

Right now, those calling for small government and less spending are silent. Jobs are plentiful for those who want to work, and for those who don't welfare is easy to obtain. The state schools and hospitals are a joke but the middle class can afford private health and schooling because credit is so cheap. When the economy slips further, when the US starts to slow down and when the credit bubble finally bursts, government spending will way exceed revenue. The electorate will not accept 60% tax rates again and spending will finally have to be reined back in.

But turkeys will still not vote for Xmas. Some on the right of the blogosphere are calling for voting restrictions for those who depend on the state for a living. Draconian indeed, but it may be the only way round this particular Catch 22.