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.