The Math of the Welfare State gives us a Bleak Future of Alternatives

Posted by PITHOCRATES - December 4th, 2011

Week in Review

Europe’s troubles will be our troubles.  Just give it some time (see The Welfare State’s Day Of Reckoning Is Here by ROBERT J. SAMUELSON posted 12/2/2011 on Investors.com).

Government expansion was one of the 20th century’s great transformations. Wealthy nations adopted programs for education, health care, unemployment insurance, old-age assistance, public housing and income redistribution.

“Public spending for these activities had been almost nonexistent at the beginning of the 20th century,” writes economist Vito Tanzi in his book “Government versus Markets.”

The numbers — to those who don’t know them — are astonishing. In 1870, all government spending was 7.3% of national income in the U.S., 9.4% in Britain, 10% in Germany and 12.6% in France. By 2007, the figures were 36.6% in the U.S., 44.6% for Britain, 43.9% for Germany, 52.6% in France.

Military costs once dominated budgets; now, social spending does…

To flourish, the welfare state requires favorable economics and demographics: rapid economic growth to pay for social benefits; and young populations to support the old. Both economics and demographics have moved adversely.

The great expansion of Europe’s welfare states started in the 1950s and 1960s, when annual economic growth for its rich nations averaged 4.5% compared with a historical rate since 1820 of 2.1%, notes Eichengreen. This sort of growth, it was assumed, would continue indefinitely. Not so. From 1973 to 2000, growth settled back to 2.1%. More recently, it’s been lower.

Demographics shifted, too. In 2000, Italy’s 65-and-over population was already 18% of the total; in 2010, it was 21%, and the projection for 2050 is 34%. Figures for the European Union’s 27 countries are 16%, 18% and 29%…

In 1960, 26% of federal spending represented payments for individuals; in 2010, it was 66%. Economic growth in the 1950s and 1960s averaged about 4%; from 2000 to 2007, the average was 2.4%. Our elderly population was 13% in 2010; the 2050 estimate is 20%.

The high cost of the welfare state has required ever increasing taxes which has dampened economic growth.  The availability of birth control and abortion has reduced the population growth.  More and more seniors are being supported by fewer and fewer young workers.  Requiring ever higher taxes to support the welfare state.  Which further dampens economic growth.

It’s a vicious cycle.  And it won’t end until welfare nations go bankrupt.  Or until the pre-birth control and abortion generations die out.  A bleak future of alternatives.  But a future the math gives us.

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