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The Financial Mess in the US and Europe
· Wednesday, September 28, 2011
What's the common thread between Europe's financial mess, particularly among the PIIGS (Portugal, Ireland, Italy, Greece and Spain), and the financial mess in the U.S.? That question could be more easily answered if we asked instead: What's necessary to cure the financial mess in Europe and the U.S.? If European governments and the U.S. Congress ceased the practice of giving people what they have not earned, budgets would be more than balanced. For government to guarantee a person a right to goods and services he has not earned, it must diminish someone else's right to what he has earned, simply because governments have no resources of their very own.
The first order of business in reaching a solution to the financial mess in Europe and the U.S. must be the recognition that governments have been doing a class of unsustainable things, mostly giving people special privileges and things that they have not earned. It's a matter of not simply what's good or bad for the beneficiaries but what its effect is on society at large and the welfare of a nation.
Take the understandably humane motivation to provide health care services for the medically indigent. If one is concerned about the health needs of a person, why shouldn't the government also provide him with resources for nutrition? Good health is not just medical services and food but a decent place to live. Furthermore, good health is a matter of not just physical well-being but mental well-being as well, so why not have government-sponsored vacations? That's not such a far-fetched idea as one might imagine. Antonio Tajani, the European commissioner for industry and entrepreneurship, has declared vacationing to be a "human right."
Growing social spending in the name of health is just one example of a much larger process affecting the whole of our societies. There's a process that we might call contagion, in which spending automatically and unavoidably breeds more spending. For example, if government provides subsidies for wheat farmers, corn farmers will organize and protest that it's unfair not to grant them subsidies. What case can be made for government's not granting subsidies to all farmers? Then there's contagion across borders. If European farmers get subsidies, American farmers are going to demand subsidies to "even the playing field." How about government bailouts? There's contagion there as well. If Congress bails out General Motors, what's the justification for not also bailing out Chrysler and JPMorgan Chase, Bank of America, Fannie Mae, AIG, Citigroup and other failed enterprises? Bailouts are contagious both in the short and the long run. Bailouts create what's known as a moral hazard, in which people have reduced incentive to mend their ways.
The bottom line is that the sole tendency of the welfare state is for it to grow and consume more and more of a nation's income. According to "Measuring the Unfunded Obligations of European Countries" (January 2009), by the Dallas-based National Center for Policy Analysis, by 2050, the average EU country will need more than 60 percent of its gross domestic product to fulfill its obligations. According to the 2008 Social Security and Medicare trustees reports, the combined unfunded liability of just these two government programs has reached $101.7 trillion in today's dollars.
It turns out that if Congress taxed away our entire $14 trillion 2011 GDP and put it in the bank, it would just barely cover Social Security and Medicare liabilities. That observation suggests that we can't tax our way out of our fiscal mess. In order to avoid permanent stagnation or total economic collapse, governments must start the process of reducing welfare spending. I wouldn't recommend cold turkey for a heroin addict, neither would I recommend cold turkey for all those people who have been addicted and made dependent upon government handouts. We must find a compassionate way to wean people off government.
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Brian
"We must find a compassionate way to wean people off government." Yes, yes and I say again, YES!
Posted September 28, 2011 at 9:50:40 AM
Jim
I read this article in the Charlotte Observer. Mr Williams.....I wholeheartedly agree with you. Do you see any hope of positive change? Or is our country of "fat , dumb and happy" sheep doomed?
Posted September 28, 2011 at 9:56:20 AM
Duke of Earl
Dr. Williams,
Absolutely, spot on target. The notion that the government (or any government) can spend its way out of trouble is ludicrous.
Commissioner Tajani's comment is precisely the thought proccess that has the world in its present state of affairs. Maybe that is why France (or most of it) takes the month of August off each year. Socialism is wonderful under the bill(s) come due.
@ Jim, it could be. The problem isn't the "fat, dumb & happy" sheep; it is the politicians that buy the "fat, dumb & happy" sheep with promises half filled each election cycle.
@Brian, some compassion, absolutely. But mostly just cold turkey. That is the only method that will get the message across to the "fat, dumb & happy" sheep.
Duke
P.S. Dr. Williams, I love the acronym for the troubled nations. It is a perfect fit.
P.P.S. Question for those who will comment further: What happens to governmental programs when the government eventually taxes 100% of all possible incomes and revenue sources? Who gets the benefits of the benevolent government then?
Posted September 28, 2011 at 11:51:20 AM
Idaho Al
Duke - Who gets the benefits of the benevolent government then?
To each according to his needs, etc..
Posted September 28, 2011 at 2:34:59 PM
Duke of Earl
@ Al,
My questions were somewhat facetious. Comrades Marx, Engels, Stalin and Lenin would be so happy. Perhaps that is why they never really appreciated what montrosities they established.
My point was that once 100% taxation occurred, there would never be ANY type of increase in the government "pot" to take any additional monies for benefits. Once everything is spoken for, nothing else can be added. Ergo, who will get the benefits? Who gets to choose the receipient pool? And, who decides what people will have to do without benefits?
Duke
Posted September 28, 2011 at 3:20:48 PM
Mike McGinn
@ Duke
You've touched on one of my favorite topics.
I love to ask my government friends, who think that government jobs are the greatest thing since sliced bread and squeeze ketchup, to imagine the following scenario.
Who pays the salary of a government worker? Why taxpayers of course. So imagine that the work force consists of 50% government workers and 50% private workers. This means each private worker will need to earn a double salary...enough for themselves and enough to pay the taxes that fund the government worker’s salary. Now imagine that 100% of the workforce is government. Who do you tax to pay their salaries?
The government is essentially a leech upon society. The smaller it is the better. If it gets too big, it will suck all the blood from its host.
Posted September 28, 2011 at 3:28:13 PM
Mike McGinn
@ Brian - I concur with Duke. In about 95% percent of the cases, a swift boot in the posterior is the best medicine for some of the people suckling at the teat of government. Only about 5% really need any compassionate weaning.
Posted September 28, 2011 at 3:32:08 PM
Peter
The other part of welfare most people don't ever hear about - the huge favors, subsidies and services the large international corporations receive for the relatively small ($20,000 -$50,000) cost of purchasing a congressman or two or thirty. Protecting factories and other assets on foreign soil, protecting the sea lanes, bribing, coercing or compromising third world dictators to offer up compliant cheap labor pools and favorable taxation, favorable tax treatment at home, targeted tax breaks, government bail-outs, loans and no-compete contracts, foreign and domestic price supports and subsidies, protected monopolies and cartels, all available only to huge corporations who have the price of admission to the club.
It's hard to say which form of welfare is more costly and more destructive - welfare queens or corporate queens - but either way they both cost you and me plenty. Do you think we could save a couple of tril a year by getting rid of both kinds?
Posted September 28, 2011 at 3:34:12 PM
pete
@ Duke of Earl
>"Who gets the benefits of the benevolent government then?"
Why, the government, of course! How can they lead if they don't have the benefit of special treatment.
@Idaho Al
>"To each according to his needs, etc."<
As in ms pelosi needs a bigger, faster taxpayer supplied jet to go from SFO to D.C. on monday so she can leave on Friday. (Monday and Friday count as "working days" even tho all she's doing is "commuting to and from work").
Posted September 28, 2011 at 3:45:12 PM
Larry
@ Mike McGinn
Love the blood sucking leech comment so much I now have it hanging on my wall at work with proper credit given.
Posted September 29, 2011 at 4:07:37 PM