The failure of the Welfare State

The situation in Greece is rapidly deteriorating. With its economy teetering on collapse and the reluctance of the rest of its EU “partners” to bail them out, the country is on a fast track to some seriously bad times. The rest of the EU may be compelled to bail Greece out to save the euro which continues to decline against the dollar. While this provides some short term relief for the dollar, the whole situation illustrates the failure of the welfare state. (story here)

Every advanced society, including the United States, has a welfare state. Though details differ, their purposes are similar: to support the unemployed, poor, disabled and aged. All welfare states face similar problems: burgeoning costs as populations age; an overreliance on debt financing; and pressures to reduce borrowing that create pressures to cut welfare spending. High debt and the welfare state are at odds. It’s an open question whether the collision will cause social and economic turmoil.

The rest of the European states also face the same conditions currently plaguing Greece. They are also massive welfare states that were somewhat safe in good economic times but will suffer significantly in bad times.

Almost every advanced country — the United States, Britain, Germany, Italy, France, Japan, Belgium and others — faces some combination of huge budget deficits, high debts, aging populations and political paralysis. It’s an unstable mix. Present deficits may aid economic recovery, but the persistence of those deficits threatens long-term prosperity. The same unpleasant choices now confronting Greece await most wealthy nations, even if they pretend otherwise.

The US made substantial gains in reducing the welfare rolls – surprisingly during the Clinton years. Unfortunately, we have allowed these gains to dissipate rather than strengthen when times were good. Providing an existence to people who are unwilling to contribute, no matter how well-intentioned, does no one any favors. It is not sustainable and even more difficult to address in a bad economy.

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