Throughout the years in which the US was punishing countries that departed from fiscal prudence, it was borrowing on a colossal scale to finance tax cuts and fund its over-stretched military commitments. Now, with federal finances critically dependent on continuing large inflows of foreign capital, it will be the countries that spurned the American model of capitalism that will shape America's economic future.

Many people today hold to a Gnostic view of things without realizing the fact. Believing that human beings can be fully understood in the terms of scientific materialism, they reject any idea of free will. But they cannot give up hope of being masters of their destiny. So they have come to believe that science will somehow enable the human mind to escape the limitations that shape its natural condition. Throughout much of the world, and particularly in western countries, the Gnostic faith that knowledge can give humans a freedom no other creature can possess has become the predominant religion.

Before Christianity suicide was not in any way troubling. Our lives were our own, and when we tired of them we were at liberty to end them. One might think that as Christianity has declined, this freedom would be reclaimed. Instead secular creeds have sprung up, in which each person’s life belongs to everyone else. To hand back the gift of life because it does not please is still condemned as a kind of blasphemy, though the offended deity is now humanity instead of God.

The idea that consciousness is a mystery is a prejudice inherited from monotheism. The early seventeenth-century French philosopher René Descartes believed that animals other than humans are insensate machines. Obviously, this was a restatement in rationalist terms of the Christian belief that only humans have souls. Even if mind and matter were categorically distinct, that would not mean humans alone have minds. It was reported that in order to test his theories, Descartes used to throw animals out of the window and observe their reactions. Looking at behaviour of this kind, one might reasonably conclude that humans are the senseless machines.

The idea of evil as it appears in modern secular thought is an inheritance from Christianity. To be sure, rationalists have repudiated the idea; but it is not long before they find they cannot do without it. What has been understood as evil in the past, they insist, is error – a product of ignorance that human beings can overcome. Here they are repeating a Zoroastrian theme, which was absorbed into later versions of monotheism: the belief that ‘as the “lord of creation” man is at the forefront of the contest between the powers of Truth and Untruth.’ But how to account for the fact that humankind is deaf to the voice of reason? At this point rationalists invoke sinister interests – wicked priests, profiteers from superstition, malignant enemies of enlightenment, secular incarnations of the forces of evil. As so often is the case, secular thinking follows a pattern dictated by religion while suppressing religion’s most valuable insights. Modern rationalists reject the idea of evil while being obsessed by it. Seeing themselves as embattled warriors in a struggle against darkness, it has not occurred to them to ask why humankind is so fond of the dark. They are left with the same problem of evil that faces religion. The difference is that religious believers know they face an insoluble difficulty, while secular believers do not. Aware of the evil in themselves, traditional believers know it cannot be expelled from the world by human action. Lacking this saving insight, secular believers dream of creating a higher species. They have not noticed the fatal flaw in their schemes: any such species will be created by actually existing human beings.

The irony of the post-Cold War period is that the fall of communism was followed by the rise of another utopian ideology. In American and Britain, and to a lesser extent other Western countries, a type of market fundamentalism became the guiding philosophy. The collapse of American power that is underway is the predictable upshot.

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Tyranny offers relief from the burden of sanity and a licence to enact forbidden impulses of hatred and violence. By acting on these impulses and releasing them in their subjects tyrants give people a kind of happiness, which as individuals they may be incapable of achieving.

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Hayek’s blind spot with regard to politics was clear in the early 1980s when the first Thatcher government, in an attempt to reduce inflation and bring the public finances closer to a balanced budget, was raising interest rates and cutting public spending. As he had done during the 1930s, Hayek attacked these policies as not being severe enough. It would be better, he told me in a conversation we had around this time, if Thatcher imposed a more drastic contraction on the economy so that the wage-setting power of the trade unions could be broken. He appeared unfazed by unemployment, which was already higher (more than three million people) than at any time since the 1930s, and would rise much further if his recommendations were accepted.

In ancient Europe, Stoics asserted that a slave could be freer than a master who suffers from self-division. In China, Daoists imagined a type of sage who responded to the flow of events without weighing alternatives. Disciples of monotheistic faiths have believed something similar: freedom, they say, is obeying God’s will. What those who follow these traditions want most is not any kind of freedom of choice. Instead, what they long for is freedom from choice.

The US — its bankrupt mortgage institutions nationalised and its gigantic war machine effectively funded by foreign borrowing — is in steep decline. With its financial system in the worst mess since the 1930s, the west's ability to shape events is dwindling by the day. Sermonising about "law-based international relations" is laughable after Iraq, and at bottom not much more than nostalgia for a vanished hegemony.

With new technologies of surveillance, economies of scale overcome problems of cost. Since all their electronic communications can be accessed, it is no longer necessary to segregate the inmates from one another. As there is no outside world, escape becomes unimaginable. Technological progress has brought into being a system of surveillance more far-reaching than any Bentham could have conceived. Enclosing the entire population in a virtual Panopticon might seem the ultimate invasion of freedom. But universal confinement need not be experienced as a privation. If they know nothing else, most are likely to accept it as normal. If the technology through which surveillance operates also provides continuous entertainment, they may soon find any other way of living intolerable.

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