Free Markets, Free People

Welfare State In Crisis

The bailout of Greece may not work. Spain is teetering on the edge of serious financial doom. The Euro is taking a beating. And the banks of Europe are not looking too healthy overall. Meanwhile, here in the States, unfunded government debt, already expanding at an unprecedented rate, is set to explode. What do all of these things have in common? They are the direct result of expanding the welfare state without any means of actually paying for all of it.

In truth, there is never a way to pay for expanding the welfare state because, while wealth creation isn’t a zero-sum game, the population of wealth-creators is; after all, not just anyone can create electricity, telephones, heart medications, MicroSoft, Wal-Mart, or even pencils without some know-how, sweat and inspiration. If that were possible, then wealth creation could never be retarded, regardless of the impediments. Some wise, noble, and completely selfless individual would always emerge to drive the economy forward. Alas, self-interest trumps all, without which wealth-creation is for the horses.

No matter how ingenious the plan, or divine the motives, the only way for governments to fund the welfare state is to tax the wealth-creators. As even the most Marxist of intellectuals knows, if you want less of something, then tax it. This is why cigarettes are levied against in ridiculous proportions, and why carbon taxes are considered (by some) to be the savior of our planet. Well, taxing wealth-creation works exactly the same way: tax it more, and you will get less of it. Which leads to the inexorable conclusion that, as the governments of the world sink deeper into fiscal crisis, the looters will be coming en masse.

Does that mean that we are in for another Great Depression? Not necessarily. In fact, I predict that no such thing will occur. For starters, we have many institutions in place today that didn’t exist in the 1930’s such as the FDIC, Social Security, Medicare, the IMF, and the World Bank. Some of these things are arguably beneficial in that they smooth out the rough patches that economies inevitably encounter. The U.S. economy, for example, may not have realized the devastation it did if old people, like McQ, could have survived without taxing their families’ resources so much, or the FDIC had been in place to quell bank runs. Maybe. But more importantly, in this day and age our politics and law-making bodies (and those of every democratic society) are dominated by those whose own self-interest is firmly grounded in the ability to buy votes. That ability is highly dependent upon feeding the welfare state, since the vast majority of votes are bought from those who don’t create electricity or heart medications. This is why politicians of all stripes won’t take steps that would decrease the welfare state, because to do so will cost them votes — to the politician who promises more largesse at the expense of whatever hated rival is being villainized at the time. Accordingly, the odds are rather stacked against wealth-creators continuing to employ their skills in service of the very state that punishes them.

Instead of the Great Depression, Part Deux, I would predict that the elites (those, and their friends, who hold the power to dole out goodies for votes) will shuffle the deck just enough to ensure that they stay in favor, while allowing the overall health of the economy to softly fade into oblivion. They are like Dr. Kevorkian administering to capitalism. The ability to create wealth will slowly continue to be arrogated to the governors and “experts,” while the welfare state expands in decrescendo. Eventually, we will be left with something akin to the Ottoman Empire: all power and glory in name only, inside a rotting shell, harkening back to a time so dissimilar as to be unworthy of the title. What’s left will be hopeless, farcical and cruel, and will not have the slightest ability to nurture the welfare state that started it all. Perhaps the “Long Morose” would be a better title.

Irrespective of my gloomy predictions, there simply isn’t any question that, at some point, the beneficiaries of the great welfare state will have to take a bath. Most likely, that day will come when everyone jumps in the tub together. Until that time, prepare for the politically powerful to loot the wealth-creators out of existence in order to pay off the welfare beneficiaries. Eventually the only ones left to take that bath will be the filthy and the unwashed.

9 Responses to Welfare State In Crisis

  • There are serious arguments that the FDIC actually causes banking problems. Since your money is safe, you choose a bank on convenience or interest rate and never really consider if they are safe or not. If there was no FDIC banks would have to compete on financial safety rather than number of branches or the best interest rates.
    Just like if interest rates are low, you can afford more house, or if you know the Fed will bail you out, maybe you keep your exposure to sub-prime a little longer. Seems to me, the good intentions of making life into an easy smooth ride for everybody, with no tough choices, leads to the problems we have now.
    I think you could keep some safety net, as long as government had to balance a budget, and it was kept extremely transparent and local. I wonder if we are going to see an end to Big Government, and how people are going to adapt their mental models. I have a feeling the big tax increases will convert many a Big Government feel-good voter to small government leanings very soon.

  • I see it more as an attempt to a credit based economy.  Two years ago that included the real estate based Mortgage/Flipping/Debt Securitization frenzy in addition to government debt spending.
    Right now the government deficit spending has taken over that system.
    After decades of deficit spending expanded under Bush and astronomical under Obama we should be swimming in inflation.  The reason I believe we aren’t is that the credit/debt created money injection is covering over an unhealthy economy.  The most fundamental element of an economy, the cornerstone, is the exchange of goods.  Anything else simply facilitates that especially the stockmarket and credit markets.  And right now, we don’t make shit anymore.  There’s going to be a price paid for that when someone comes to collect those debts and we don’t have any source of wealth creation.

  • MichaelW[T]he beneficiaries of the great welfare state will have to take a bath. Most likely, that day will come when everyone jumps in the tub together. Until that time, prepare for the politically powerful to loot the wealth-creators out of existence in order to pay off the welfare beneficiaries.

    The sad fact is that this road is well-traveled, most recently that I can think of in Zimbabwe.  Chavez seems hell-bent on taking Venezuela down that road.  Cuba is an example quite close to home. 

    The welfare state relies on a few conditions:

    1.  Society must be wealthy enough to afford large-scale, institutionalized charity.  Capitalism must be the precursor to build up a reserve of wealth to get the rotten system going;

    2.  Society must be essentially decent enough such that institutionalized charity is seen as good and desirable.  I’ve often said that the nanny staters take advantage of the basic good nature, decency, and charity of the American people: “Give us more money so we can help those poor, poor people over there!”
    3.  Producers in society must be sufficiently numerous to keep things going, but not so numerous as to be able to put a stop to the system when it becomes onerous to them.

    4.  Society must be sufficiently ignorant / gullible as to believe that confiscation, even for charitable purposes, is good; that wealth is bad and thus punishable; and that one man has a right to legitimate claim on another man’s wealth and labor.

    Are we sunk?  I’m not sure.  Obviously, as MichaelW says, there’s a whole class of politicians (both parties), bureaucrats, and deadbeats who like and depend on the present system and would profit from more of it (in the short term, anyway, until the whole system collapses under its own weight).  On the other, as the Tea Parties demonstrate, there’s still some core of Americans who don’t trust the government to do anything efficiently; reject the idea of taxing us into oblivion, no matter how altruistic the programs those taxes are intended to fund; and resent being preyed upon by parasites*.  We’ve been down this road back in the ’90s when welfare reform was enacted.  Have we reached the tipping point where parasites outnumber producers?  November and its aftermath will go a long way to giving us the answer to that.  If we HAVE reached the tipping point, then I see only two three choices:

    1.  Peoples Democratic Republic of America, a large third-world nation built on the ruins of a once mighty, free country, or;

    2.  Dissolution as the still-prosperous parts of the country seperate themselves from the deadbeat portions;

    3.  Civil war.


    (*) On an unrelated note, I think that this drives much of the present anti-illegal immigrant fervor.  Contrary to what libs like to believe, Americans are generally not racist or xenophobic (a ridiculous notion in a country populated by people with family names like Obama, Biden, Reid, Pelosi, Chu, Boehner, McConnell, Jindal, Reyes, Inoue, etc, etc).  Rather, many Americans resent deadbeats and resent paying taxes to fund medical care, social programs, schools, etc. for people who are here illegally and hence take advantage of the system.

  • if old people, like McQ,

    I assume this was inserted merely to see if I actually read your post – no?

  • It seems to me that things like social security makes things like depression worse. With SS chceks coming in, the senior has no incentive not to take the check and spend it. If he was pulling from family resources, the family would have to sit down and determine how to best use them, and a more frugal life style likely would be the answer.

    Same for medicare, medicaid, etc. All of these are based upon looting the producers, and guiltless consumption by the looters. These systems are a perverse incentive to do the wrong thing.