Free Markets, Free People

The death of the social democratic welfare state

Margret Thatcher boiled it down to its essence years ago – “the problem with socialism is you eventually run out of other people’s money”.

Janet Daley, writing the the UK’s Telegraph, hits a proverbial homerun with her macro look at the “situation” in which both the US and Europe find them selves.  It’s not a pretty picture, but quite accurate.   Per Daley, what we’re going through right now, at least on the European side of the pond, isn’t some esoteric debate about a crisis that will eventually be solved, it is the predictable endgame of the premise that a capitalist system can support an ever expanding social welfare state.  Per Daley, the  answer seems to be a pretty obvious “no”. 

Her reasoning for her conclusion is painful for those who want to believe that such a premise is actually attainable.  Let’s take a look:

The truly fundamental question that is at the heart of the disaster toward which we are racing is being debated only in America: is it possible for a free market economy to support a democratic socialist society? On this side of the Atlantic, the model of a national welfare system with comprehensive entitlements, which is paid for by the wealth created through capitalist endeavour, has been accepted (even by parties of the centre-Right) as the essence of post-war political enlightenment.

This was the heaven on earth for which liberal democracy had been striving: a system of wealth redistribution that was merciful but not Marxist, and a guarantee of lifelong economic and social security for everyone that did not involve totalitarian government. This was the ideal the European Union was designed to entrench. It was the dream of Blairism, which adopted it as a replacement for the state socialism of Old Labour. And it is the aspiration of President Obama and his liberal Democrats, who want the United States to become a European-style social democracy.

The left in this country can deny this all they wish, but Daley succinctly lays out the Democrat’s “ideal” in plain English.  Any attempt to deny that is simply counter-factual.  European-style social democracy has been the ideal of Democrats for years.   And the fight over entitlements makes the point.   The difference between the US and Europe is two-fold.   We thankfully began pursuing that ideal much later than did Europe and the basic difference in make up between Europe and the US is the primary reason:

But the US has a very different historical experience from European countries, with their accretions of national remorse and class guilt: it has a far stronger and more resilient belief in the moral value of liberty and the dangers of state power. This is a political as much as an economic crisis, but not for the reasons that Mr Obama believes. The ruckus that nearly paralysed the US economy last week, and led to the loss of its AAA rating from Standard & Poor’s, arose from a confrontation over the most basic principles of American life.

Contrary to what the Obama Democrats claimed, the face-off in Congress did not mean that the nation’s politics were “dysfunctional”. The politics of the US were functioning precisely as the Founding Fathers intended: the legislature was acting as a check on the power of the executive.

Precisely.  None other than Cokie Roberts noted the “problem” we have here that Europe doesn’t on one of the Sunday shows.  

 

That “problem” and a different but eroding view of the role of government.  And all though we’re on the precipice, that “problem” is  all that have kept us from sliding into the pit Europe has dug for itself over the decades. 

What is going on now is not the fault of the Tea Party, no matter how hard the spinners like David Axlerod and John Kerry attempt to make it so.  In fact, the Tea Party contingent actually represents that fundamental but eroding view of the role of government and the “problem” Cokie Roberts refers too.

The Tea Party faction within the Republican party was demanding that, before any further steps were taken, there must be a debate about where all this was going. They had seen the future toward which they were being pushed, and it didn’t work. They were convinced that the entitlement culture and benefits programmes which the Democrats were determined to preserve and extend with tax rises could only lead to the diminution of that robust economic freedom that had created the American historical miracle.

And, again contrary to prevailing wisdom, their view is not naive and parochial: it is corroborated by the European experience. By rights, it should be Europe that is immersed in this debate, but its leaders are so steeped in the sacred texts of social democracy that they cannot admit the force of the contradictions which they are now hopelessly trying to evade.

Facts are a stubborn thing.  They have a tendency to destroy beliefs and perceptions.  The belief and perception of the “premise” that a capitalist system could forever support an expanding social welfare state is in the throes of being dashed upon the rocks of economic reality.  That’s a harsh thing to see if it is your belief.  And we all know the various stages of grief.   Right now, the true believers are in the “denial” stage.  The only one’s dealing in reality are the Tea Partiers.  Like the canary in the coal mine, they’ve alerted us to a mortal danger that has been acted out in Europe and is now collapsing from within.  They’ve accurately pointed to our problem and how it will lead to the very same conclusion.  They’re demanding we stop pursuing that reckless and doomed “ideal” and return to our fundamental governing ideals – limited government, less costly government, less intrusive government.

And, of course, the true believers in the social welfare state, those who’ve gotten us into this mess and want to deny the problem and continue the pursuit of their destructive ideal are resisting with every fiber of their being and ironically, calling the Tea Partiers the radicals.

What the left can’t control though is the example of our future that Europe provides, like it or not:

No, it is not just the preposterousness of the euro project that is being exposed. (Let’s merge the currencies of lots of countries with wildly differing economic conditions and lock them all into the interest rate of the most successful. What could possibly go wrong?)

Also collapsing before our eyes is the lodestone of the Christian Socialist doctrine that has underpinned the EU’s political philosophy: the idea that a capitalist economy can support an ever-expanding socialist welfare state.

Phenomenally, while the problem becomes more and more undeniable, the solutions being considered are precisely the opposite of what is needed.

As the EU leadership is (almost) admitting now, the next step to ensure the survival of the world as we know it will involve moving toward a command economy, in which individual countries and their electorates will lose significant degrees of freedom and self-determination.

That’s right – those who, through the years, have managed to put us in this situation now think they need more control, intrusion and command, not less.  Those who’ve managed, through their policies and ideology, to wreck the best economies on earth, want more power.  They won’t let go of the belief, despite the reality.  Take for example the Democrats almost single focus on higher taxes.   They still believe they can have their cake (or your cake actually) and eat it too.

We have arrived at the endgame of what was an untenable doctrine: to pay for the kind of entitlements that populations have been led to expect by their politicians, the wealth-creating sector has to be taxed to a degree that makes it almost impossible for it to create the wealth that is needed to pay for the entitlements that populations have been led to expect, etc, etc.

The only way that state benefit programmes could be extended in the ways that are forecast for Europe’s ageing population would be by government seizing all the levers of the economy and producing as much (externally) worthless currency as was needed – in the manner of the old Soviet Union.

That is the problem. So profound is its challenge to the received wisdom of postwar Western democratic life that it is unutterable in the EU circles in which the crucial decisions are being made – or rather, not being made.

Daley speaks of the EU, but listen carefully to the left and the Democrats in this country.   They’re offering exactly the same “solutions” and this administration is attempting that solution by executive fiat through regulation.   Look at the health care grab as well.  We’re headed down exactly the same road Europe has traveled and the left in this country is telling everyone to ignore the road signs telling us so.

The Tea Party has figured that out as have many on the right.  But the left wants to go right on pretending it isn’t so:

We have been pretending – with ever more manic protestations – that this could go on for ever. Even when it became clear that European state pensions (and the US social security system) were gigantic Ponzi schemes in which the present beneficiaries were spending the money of the current generation of contributors, and that health provision was creating impossible demands on tax revenue, and that benefit dependency was becoming a substitute for wealth-creating employment, the lesson would not be learnt. We have been living on tick and wishful thinking.

Couldn’t agree more.  We ‘radicals’ who’ve been saying this for years have been proven to be factually correct.  It is an inconvenient truth the left doesn’t want to either accept or admit.   So the still hold on to the belief that if they could only make the ‘rich’ pay their fair share, they’d find utopia still achievable.  Reality, however, in the guise of the European experiment now imploding, already provides proof their theory has no basis in truth.

So what is the solution?  Well in the short term Daley prescribes some bitter but necessary medicine:

So what are the most important truths we should be addressing if we are to avert – or survive – the looming catastrophe? Raising retirement ages across Europe (not just in Greece) is imperative, as is raising thresholds for out-of-work benefit entitlements.

Lowering the tax burden for both wealth-creators and consumers is essential. In Britain, finding private sources of revenue for health care is a matter of urgency.

More importantly though:

The hardest obstacle to overcome will be the idea that anyone who challenges the prevailing consensus of the past 50 years is irrational and irresponsible. That is what is being said about the Tea Partiers. In fact, what is irrational and irresponsible is the assumption that we can go on as we are.

Dead on. Fundamental change.  Backing government out of our lives.  And we’re dead meat if we don’t heed and act on the fact that the social welfare state is a zombie (but doesn’t yet know it) and we need to finally and irrevocably kill it, never let it rise again, and return to the ways which made us great and are enshrined in our founding documents.

~McQ

Twitter: @McQandO

5 Responses to The death of the social democratic welfare state

  • We ‘radicals’ who’ve been saying this for years have been proven to be factually correct.

    Three contacts so far today have sent me the same basic message: “I wish I’d listened to you (2 | 5 | 10) years ago.”

  • Art Laffer on Fox News last week, announced that President Reagan made an economic mistake.  He waited until 1983 to cut taxes and that decision caused a double dip recession.   Effective 1 January, he cut corporate, capital gains and marginal tax rates while reforming the tax code.  In the first quarter of 1983, the economy expanded 5.3%.  In the 2nd, 3rd and 4th quarters, it grew at over 9%!  As they always do, revenues poured in and jobless rolls shrank to frictional levels.  Wealth, technology and innovation flourished.

    If Obama, instead of demonizing Congressional Republicans and Tea Party supporters, would simply say, “I made the same mistake that Reagan made, not providing adequate incentive for private investors to hire and spend.  Today, I will ask Congress to eliminate our corporate tax, make the Bush tax cuts permanent and reform the tax code.  When the nation reaches frictional unemployment, 4.5%, we will make moderate tax increases and use the revenue to reduce our debt.”

    At the same time pigs will fly.

    • I do not think that explicit taxation is the main problem. Though stable tax rates would help a businessman determine how much return he needed on a particular investment in business expansion, the main problem is the multitude of new offices, and … swarms of officers to harass our people, and eat out their substance.
      I think the main impediment to expansion and even continuing a small business is the hassle factor of regulation.

  • As the EU leadership is (almost) admitting now, the next step to ensure the survival of the world as we know it will involve moving toward a command economy, in which individual countries and their electorates will lose significant degrees of freedom and self-determination.

    Unfortunately, a lot of people seem to be cool with this.  “Hey, so long as I get my check (that I don’t have to work for), f*ck all that ‘freedom’ and ‘democracy’ crap!”

    What they don’t realize is that the check will get smaller and smaller, until they find themselves begging for razor blades and trying to drown their sorrows in Victory Gin, all the while trying to figure out what happened.

    I believe that, as the article suggests, we are on the cusp of replaying the rise and fall of the USSR, only on a world-wide scale.  It’s going to suck for a lot of people for a long time, and perhaps all of us.