Monday, May 10, 2010

The Way of the Greeks

The welfare state's death spiral

Americans dislike the term "welfare state" and substitute the bland word "entitlements." Vocabulary doesn't alter the reality. Countries cannot overspend and overborrow forever. By delaying hard decisions about spending and taxes, governments maneuver themselves into a cul-de-sac. To be sure, Greece's plight is usually described as a European crisis -- especially for the euro, the common money used by 16 countries -- and this is true. But only to a point...

The welfare state's death spiral is this: Almost anything governments might do with their budgets threatens to make matters worse by slowing the economy or triggering a recession. By allowing deficits to balloon, they risk a financial crisis as investors one day -- no one knows when -- doubt governments' ability to service their debts and, as with Greece, refuse to lend except at exorbitant rates. Cutting welfare benefits or raising taxes all would, at least temporarily, weaken the economy. Perversely, that would make paying the remaining benefits harder.

We're headed the same way with entitlement spending increasing--including Obamacare--leading us over the cliff. But we know this already, even if liberals won't admit it.

From Protein Wisdom:
The selfish gamble implicit in the welfare state is that, though most people know on some level that spending in excess of revenue isn’t a very fiscally responsible long-term plan on which to build a stable society, many are willing to bet that resources won’t run out in the short term — which means these types of voters believe they will still get theirs so long as they continue to “vote in their own economic interests.”

Future generations? Not their problem.