Free Markets, Free People


Why the Ryan budget is doomed

Over at Zero Hedge there’s a long discussion of the Welfare State. 

We have long argued that at its core, modern society, at least on a mathematical basis – the one which ultimately trumps hopium every single time - is fatally flawed due to the existence, and implementation, of the concept of modern "welfare"…

Love the term “hopium”.  It describes well the addictive drug that underpins the Welfare State.  And we have “long argued” exactly the same thing Zero Hedge has and we’ve even produced the math – many times.

But has that changed anything?  Even those who embrace and tout the Welfare State admit that mathematically it leads to huge deficits and eventual insolvency yet they resist any attempt to change it to prevent those outcomes.  See their reaction yesterday and today to the Ryan budget (which, by the way, at least takes a meaningful swipe at “entitlements”). 

Zero Hedge then quotes “The Privateer”, a subscription letter that bills itself as “the private market letter for the individual capitalist”.  To anyone on the left, the words “individual” and “capitalist” make what I’m about to quote immediately suspect.

For those who’ve spent years studying this problem, nothing that I quote from The Privateer is going to be a surprise.  But I did like the way it was done.  A little different twist on the discussion than you’ll usually see:

The Great Delusion – “Welfare”

For the best part of the last two decades, it has been accepted as an indisputable fact even by the mainstream media that the two great pillars of the welfare state – medicare and social security – will break the government which offers them. Today, every nation in the world makes at least some pretense of providing “welfare” to its citizens. Since the “developed” (or “rich”) nations are those where these systems are most “developed”, these are the nations most at risk of crumbling under their burdens.

Welfare has many antonyms, but “hardship” is particularly apt in this context. Wikipedia’s entry on “welfare” ends like this: “… this term replaces “charity” as it was known for thousands of years, being the act of providing for those who temporarily or permanently could not provide for themselves.” As usual, the defining characteristic is missed. Charity is voluntary. “Welfare” as practised by government is compulsory. This makes the two terms opposites. It also brings about the opposite results. Charity is a voluntary act made by those who have a surplus to assist those who do not. “Welfare” is a system guaranteed to end up in hardship for everyone but particularly for those who are forced to be “charitable”.

The insoluble dilemma of a “welfare state” is twofold. First, it results in a situation in which the majority of people who vote are partially or wholly dependent on the state for their sustenance. In every “advanced” nation today, those who vote for a living outnumber those who work for one. It is true that not everybody, or even a majority of those eligible in many cases, bothers to vote at all. It is equally true that the “wards of the state” have much more incentive to vote than do those who are to provide for them.

The second dilemma is the issue of the unfunded liabilities. The US government divides its budget into discretionary and NON discretionary items. The bulwarks of the welfare state, social security and medicare, fall into the second category. They are considered untouchable. There are only two problems here. First, the unfunded liabilities of these two programs are somewhere in the order of $US 80 – 120 TRILLION. Second, any talk of sharply lower annual deficits (let alone talk of a return to a budget balance) are puerile without MAJOR surgery being performed on medicare and social security. They are gigantic millstones around the neck of the US economy as they are on the economies of all other nations.

In the hands of government – “welfare” becomes its antithesis – “hardship”. Today, this is being illustrated in real time in Greece. But no nation can afford a welfare state in the long run.

I noticed yesterday that one of the first complaints about the Ryan budget is that it leaves defense alone for the most part, but goes after both Social Security and Medicare with plans to reform them in such a way that they are no longer the unfunded liabilities they now are.

Defense spending isn’t our problem.  It is a budget item.  It has to be funded every year.  Don’t have the money?  Cut the budget (and they’ve done that to the tune of $487 billion over the next 10 years – and that’s before sequestration).

But that’s not the case with “non discretionary” spending is it?  That isn’t a budget item in the sense defense is.  It can’t be cut under current law, can it?  Those are important points often left out of the discussion about “what to do”, especially when the distraction of defense spending is introduced into such a conversation.

That, however, is not why I wanted to discuss this today.  I could emphasize almost every line from the quoted piece.  It has that much substance.  The are a number of points I want to amplify.

One … welfare, as The Privateer notes, is not charity.   In fact, welfare is the opposite of charity as piece says.  And when the state becomes a welfare state, it usually pushes much of charity out of the way.  The major point, of course, is charity is a voluntary act by people who have a “surplus” they’re willing to part with in order to help those who need help.  There is nothing voluntary about welfare.   And the involvement of the state leads to outcomes like this:

Mayor Michael Bloomberg’s food police have struck again!

Outlawed are food donations to homeless shelters because the city can’t assess their salt, fat and fiber content, reports CBS 2’s Marcia Kramer.

Glenn Richter arrived at a West Side synagogue on Monday to collect surplus bagels — fresh nutritious bagels — to donate to the poor. However, under a new edict from Bloomberg’s food police he can no longer donate the food to city homeless shelters.

It’s the “no bagels for you” edict.

“I can’t give you something that’s a supplement to the food you already have? Sorry that’s wrong,” Richter said.

Of course it is wrong.  That’s just the latest example.  There are, as everyone knows, untold numbers of similar nanny-state rules that have been enacted over the years simply because of the Welfare State mentality that pervades much of government.  In NYC, in this example, a kind of years long charity has essentially been outlawed by the Mayor because he has decided that the state should be the decision maker as to what citizens of the city’s welfare regime put in their mouths, not charitable givers.  Result – you get to pay more for “welfare”.

But you need to move back a couple of clicks and take a broader look at what the Privateer calls the “insoluble dilemma” of the welfare state – any Western welfare state.  By design:

[I]t results in a situation in which the majority of people who vote are partially or wholly dependent on the state for their sustenance.

And that then leads to insoluble dilemma one:

In every “advanced” nation today, those who vote for a living outnumber those who work for one. It is true that not everybody, or even a majority of those eligible in many cases, bothers to vote at all. It is equally true that the “wards of the state” have much more incentive to vote than do those who are to provide for them.

That, in a nutshell, is the dynamic that both feeds and dooms the welfare state.  The creation of a class of people incentivized to perpetuate the Welfare State because the Welfare State has made them dependent.

It naturally leads to insoluble dilemma two, which, of course, is the creation of untouchable but also huge and unfunded future liabilities that no politician – who panders for votes for a living — is willing to address for fear of losing those “who vote for a living”.

That describes precisely what we’re seeing today in this country as well as the countries of Europe.  The end is inevitable.  The will to do anything about it doesn’t exist.

If you don’t believe me, watch the critiques of the Ryan budget over the next few days.

~McQ

Twitter: @McQandO

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20 Responses to Why the Ryan budget is doomed

  • A point that needs emphasis—EVERYBODY knows the math. It is not in dispute, until you get to the press conference or TV studio. Even Deemocrats know it, and have so said. But they will slime the Ryan plan…or any other…and pretend all is well. ————————————————————————————————————————————————–
    A minor quibble; “Welfare” is a system guaranteed to end up in hardship for everyone but particularly for those who are forced to be “charitable”. That depends on the cratering of the system. And people like our Erp are cruel, because they expose those among us who really are helpless to a very harsh…even deadly…reality when the system fails.

    • @Ragspierre “because they expose those among us who really are helpless to a very harsh…even deadly…reality when the system fails.” Which is why he see no inherent problem in taking a gun to the house of anyone with wealth and taking their wealth to ensure the system never fails. He is, however, unable to do the look ahead, where promoting the dole and vote class will eventually overwhelm the wealth creating class and everyone will end up in essentially the same hell hole. Never fear however, he perceives through some magic that he and his won’t be affected by any such future.

    • @Ragspierre “because they expose those among us who really are helpless to a very harsh…even deadly…reality when the system fails.” Which is why he see no inherent problem in taking a gun to the house of anyone with wealth and taking their wealth to ensure the system never fails. He is, however, unable to do the look ahead, where promoting the dole and vote class will eventually overwhelm the wealth creating class and everyone will end up in essentially the same hell hole. Never fear though, he perceives through some magic that he and his won’t be affected by any such future and he’s not particularly worried if the sterile, inbred, ex-military right wing bigots ARE affected. They need to suck it up, watch and learn and stop thinking in the modes of the last century.

      • @looker “he perceives through some magic” Twitter? Facebook? Semaphore? It’s all Greek to our Scotty.

  • “It’s the “no bagels for you” edict”… Let them eat cake? Sorry… too easy a target!

    • @DocD Only if properly labeled. Course, hungry kids can’t really read labels…and we are assured there are kijillions of them in the U.S. If you are truly hungery, do you care about your fat intake? NO! Trust me, I have been truly hungry.

  • I would add that the welfare state imposes hardship on those that are forced to be ‘charitable’ AND those that grow dependent on it. The welfare lifestyle is not one to aspire to. The government is pretty miserable at it (see the bagel snafu). There is also the matter of the inevitable collapse of the welfare state as it becomes unaffordable. Those that have become dependent on the state will be economically crushed. You’re seeing the results of this in Greece in the form of violent protests. So the welfare state represents a bad end to both sides.

    • @tkc882 Ever seen the way welfare recipiants are treated by their bureaucratic benefactors? I have. Makes you wanna puke. Think about your worst experience at the DMV, than raise that to the fourth power.

  • Along the lines of the bagel problem. Here in my locale the EU is about to slap Stockholm city with a punishment because sulfur levels in the city air have exceeded whatever the straight-banana guideline is from Brussels. The reason why sulfur levels are over the limit? Because diesel cars were classed as “environmental” a few years ago due to their low CO2 emissions, attracting a tax rebate. Diesel cars now match regular cars in numbers on the narrow streets of Stockholm. So in order to save the planet from cooking under a fractional degree change of temperature from the increase in plant-food in the air… they’ve worsened the air with an actual pollutant and are going to get fined by the EU. Damned if you do, damned if you don’t. It is pretty much the story of modern western states who do nothing but “increase the contradictions” of their own stupid law making.

  • The Ryan plan is doomed because it seeks to address our problems in a rational, adult manner. You can argue the merits or lack thereof of the plan, but I’ll say it again- Ryan is one of the few men with any balls in DC, because he’s got a real plan and he puts it out there with his name and seeks to defend it. Contrast to Harry “No budget for over 1000 days” Reid and Team Obama “We don’t have a plan of our own, all we know is we don’t like yours”. How can Ryan compete against the countless ads of him throwing granny off the cliff? Of the shrieks that seniors will be forced to eat dog food – if they can even afford that much? Of the “Blame the rich” crowd currently squatting and raping consequence free in our public parks? As for that cretin Bloomberg, I read that and I am forced to agree with Ace of Spades assessment of the situation – we must not really have a problem with poverty in this country.

  • “Even those who embrace and tout the Welfare State admit that mathematically it leads to huge deficits and eventual insolvency yet they resist any attempt to change it to prevent those outcomes. ”

    As an empirical matter, this is just plain false. Many welfare states are *not* headed inevitably towards disaster. Canada, for example, got its finances in order under Jean Chretien and Paul Martin, yet still has a substantial welfare state. It may not be the kind of economy / society that people in the U.S. may choose to live in but that’s a different matter.

    Moreover, the fundamentally important aspect of the welfare state missing in this discussion is the insurance aspect of social programs. Even if we were all individual capitalists there would be a great advantage to having organizations of like minded individual capitalists that we could pool our retirement, disability, and (especially post-retirement) health care funding risks with. Problems of moral hazard and adverse selection may make it unlikely that private insurance companies will provide that sort of protection, but that doesn’t mean the protection is necessarily a bad idea.

    • @RobertKevinBell We could. Volutarilly. Duh. This brings up a certain carelessness in our common use of the term “socialism”. We generally mean “state socialism”. We “socialize” the impact of the verities of life when we combine in insurance, or in charities, and in other ways. Those are good, and we find they have utility…according to our “self-interest”. Duh, again.

    • @RobertKevinBell Our social security system alone was based on numbers that are no longer valid. The presumption of an ever growing youth population which is always available to support a retired population, and the premise that the oldster’s will die in accordance with their appointed time demonstrates the system won’t work when you start, as our society has, frigging with the basic assumptions by changing the demographics. Not to mention the tendency of government to loot it’s own retirement plan today covered by the IOU’s of tomorrow. I don’t think I’m particularly against a plan where McQ, Rags and I all agree to pay into a voluntary system that we three arrive on mutually and in good faith, but that’s hardly what is going on. What we have is a system where people with guns show up and confiscate your stuff if you fail to ‘voluntarily’ play your part.

      • @looker Or, as I’ve said for several decades….Social Security is neither.

  • Purely in the service of the truth (and battlespace preparation), could it be pushed through and be useful for every recipient of Social Security and Medicare get a line of text printed in red showing how much money it will cost others to pay them their benefits, and how much it will cost to borrow to pay them, once the money they have paid in is gone?

  • For a complete description of the Ryan plan, see http://www.cps-news.com/2012/03/20/headlines-on-day-one-of-release-of-ryan-budget-2-0/

    You seem to confuse your semantics with reality. For example, their are plenty of definitions of ‘charity’ that don’t necessarily imply ‘voluntarism’. http://www.merriam-webster.com/dictionary/charity

    I suppose that conservatives offered the same arguments against state sponsored welfare when it was first suggested as a solution for those who can’t fend for themselves. Possibly by warehousing the disabled, the old, the children of poverty and the infirm in camps specifically designated for those purposes, you could possibly reduce the cost of welfare and at the same time keep the sickly and dying out of sight—while the malingerers (which I gather you feel are quite numerous) will be force out of such squalid conditions, to once again join the ranks of productive Americans.

    • Ignorant of the need for Green Energy funding – does Carney mean ignorant of the payoffs that Baracka is still making for his bundlers?