Free Markets, Free People

political will


Social Welfare states, democracy and political will

Megan McArdle hits some points that pretty much doom Europe and, if it is not already too late, the US.  They are contradictions and conditions that make recovery from all this fiscal irresponsibility almost impossible.  It involves social welfare, democracies and why that combination simply can’t find the necessary ability heal itself. 

When I was a young and naive economics writer, I used to write about developing countries a fair amount.  Time and again they would make these bizarre and pointless moves, like suddenly and for no apparent reason defaulting on a bunch of debt.  They would engage in obviously, stupidly unsustainable fiscal practices that caused recurring crises.  They would divert critical investment funds into social spending which was going to become unsustainable when underinvestment reduced government revenue.  And the other journalists and I would cluck our tongues and say "Why can’t they do the right thing when it’s so . . . bleeding . . . obvious?"

Then we had our own financial crisis and it became suddenly, vividly clear: democratic governments cannot do even obvious right things if the public will not tolerate it.  Even dictators have interest groups whose support they must buy.

This has come home to me forcefully several times over the last few years, but never more than now.  The leaders of the eurozone have a dual mandate to keep the euro intact, and to not do the things which could keep the euro intact.  They cannot fiscally integrate to the extent necessary because, as I wrote for the Daily the other day, the Greeks do not want to act like Germans, and the Germans do not want to share their credit rating with anyone who won’t.

It is a bit like the Ohio vote on unions.  In a heavily union state, those who benefit the most vote to continue the situation where they benefit.  In democracies like Europe where people’s property are up for re-distribution, those who benefit from such redistribution are always going to vote to continue the status quo.  And, of course, politicians who benefit from the vote of that constituency are going to try to find every way they can to accommodate that constituency.

So even when it is “so … bleeding … obvious”, to most economic observers as to what action must be taken, nothing happens or, in some cases, it gets worse. 

At some point, though, the bill comes due.  We’ve talked about the laws of economics and how unyielding they are.   Oh you can screw around and play some games that allow you to defy them for a while, but like gravity, it all will finally come tumbling down. 

We’re there.   We’re at the falling down stage if things don’t change drastically.

But there is seemingly no stomach for drastic change.

And that leaves us to try to figure out what the world will look like after the collapse of the Western social welfare system is complete.  Because it is seeming like its not a matter of “if”, but “when”.

~McQ

Twitter: @McQandO