Free Markets, Free People

The Privateer

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