Italy’s Fiscal and Demographic Death Spiral

July 5, 2016

An overly generous welfare state combined with demographic decline. There’s a recipe for national collapse.

International Liberty

European economic analysts are paying too much attention to the United Kingdom and too little attention to Italy.

Yes, the Brexit decision is important, and the United Kingdom is the world’s 5th-largest economy so it merits attention to see if there are any speed bumps as it escapes from the slowly sinking ship otherwise known as the European Union.

But one of the other passengers on that doomed ship is Italy, the world’s 8th-largest economy. And if the UK merits attention because of uncertainty on its way to a brighter future, then Italy should be getting five-alarm focus for its festering economic crisis as it descends into chaos.

Part of that crisis is quasi-permanent stagnation, as illustrated by this map showing changes in per-capita economic output since 1995.

To state that Italy is the slow student in the class is an understatement. There’s been a two-decade period with…

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Scholarly Evidence against the Welfare State

September 28, 2015

One of these days, we’re going to come to our economic senses. Soon, I hope.

International Liberty

I repeatedly try to convince people that the welfare state is bad for both taxpayers and poor people.

Sometimes I’ll add some more detailed economic analysis and explain that redistribution programs undermine growth by reducing labor supply (with Obamacare being the latest example).

And I’ve even explained that the welfare state has a negative impact on savings and wealth accumulation (these dramatic charts show Social Security debt in America compared to ever-growing nest eggs in Australia’s private pension system).

But if new research from the European Central Bank (ECB) is any indication, I should be giving more emphasis to this final point.

Culling from the abstract, here’s the key finding from the working paper by Pirmin Fessler and Martin Schürz.

…multilevel cross-country regressions show that the degree of welfare state spending across countries is negatively correlated with household net wealth. These findings suggest that social services provided by…

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Instead of Ending Poverty, Big Government Subsidizes Dependency

May 20, 2015

I wish more people would see this: while begun with the best of intentions, the welfare state only traps people in poverty, providing an anchor that weighs against bettering their own lot.

International Liberty

President Obama recently took part in a poverty panel at Georgetown University. By D.C. standards, it was ideologically balanced since there were three statists against one conservative (I’ve dealt with that kind of “balance” when dealing with the media, as you can see here and here).

You won’t be surprised to learn that the President basically regurgitated the standard inside-the-beltway argument that caring for the poor means you have to support bigger government and more redistribution.

Many observers were unimpressed. Here’s some of what Bill McGurn wrote for the Wall Street Journal.

The unifying progressive contention here is the assertion that America isn’t “investing” enough in the poor—by which is meant the government isn’t spending enough. …President Obama…went on to declare it will be next to impossible to find “common ground” on poverty until his critics accept his spending argument.

I think this argument is nonsense. We’re spending record…

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Thanks to progressivism, we’ve lost the “War on Poverty”

August 1, 2014
"Defeat"

“Defeat”

The War on Poverty was launched in 1964 under Lyndon Johnson with the best of intentions: through massive spending and extensive welfare programs, the government would eradicate poverty in America and make people self-sufficient. Like I said, a worthy goal.

It has also been an utter failure. In 1964 we declared war on poverty, and poverty won.

As the chart above shows, poverty was in deep, rapid decline in America after World War II without any government help, just the natural processes of a growing, prosperous economy. It looked well on its way to elimination, perhaps. Then, in the mid to late-60s, it leveled off and, save for an occasional bump up, has stayed right around fifteen percent.What happened?

In 1964, with the start of the War on Poverty, progressives and other economically illiterate do-gooders wound up trapping people in poverty, rather than helping them out of it. As Robert Rector at The Signal writes:

Johnson did not intend to put more Americans on the dole (1). Instead, he explicitly sought to reduce the future need for welfare by making lower-income Americans productive and self-sufficient.

By this standard, the War on Poverty has been a catastrophic failure. After spending more than $20 trillion on Johnson’s war, many Americans are less capable of self-support than when the war began. This lack of progress is, in a major part, due to the welfare system itself. Welfare breaks down the habits and norms that lead to self-reliance, especially those of marriage and work. It thereby generates a pattern of increasing inter-generational dependence. The welfare state is self-perpetuating: By undermining productive social norms, welfare creates a need for even greater assistance in the future. Reforms should focus on these programs’ incentive structure to point the way toward self-sufficiency. One step is communicating that the poverty rate is better understood as self-sufficiency rate—that is, we should measure how many Americans can take care of themselves and their families.

Emphasis added.

What was it Ronald Reagan said?

“The nine most terrifying words in the English language are ‘I’m from the government and I’m here to help.'”

One would think that, faced with all the mounds of evidence that government programs don’t lift people out of poverty, Progressives, who claim to be devoted to “progress,” would see the war on poverty has been a failure and that the programs should be reformed or discontinued and something else tried, something like less government intervention.

But, no. Few ever will be that honest, because to say government failed to reorder society as desired would be to admit that the central tenet of progressivism, a faith in the power of technocrats to manage a vastly complex society, was wrong.

Meanwhile, that core 15% remains trapped in poverty, addicted to government “crack” and walking a road paved with good intentions.

PS: Note the sharp climb back up to 15% at the end of that chart. It starts soon after the Democrats take over Congress in 2006 and undo the 1990s Clinton-Gingrich welfare reform, then accelerates under Obama. Coincidence? I think not.

RELATED: Cato economist Dan Mitchell has often written on the same topic. Here’s a post he wrote on the failures of the War on Poverty and another on the “redistribution trap.” That latter is must-reading.

Footnote:
(1) Many criticize that assertion, with some justification. See for example Kevin Williamson’s “The Dependency Agenda.”

(Crossposted at Sister Toldjah)


I’m not usually a fan of poetry, but…

December 28, 2011

This one made me laugh, both for its wit and for being so apt: Ode to the Welfare State.

So true, so true.

(Crossposted at Sister Toldjah)


What is Socialism?

May 26, 2011

That is, aside from a really bad idea?

Nick Gillespie of Reason.TV sat down with Kevin Williamson, National Review editor and author of the recent “Politically Incorrect Guide to Socialism,” to discuss why so many people favor a system that gave us the most monstrous dictators of history, and how it relates to the modern regulatory and welfare states.

I think you’ll find it interesting:

(Crossposted at Sister Toldjah)


Why work? Welfare addiction in handout hungry Britain

November 8, 2010

Here’s a brief news report from Russia Today on welfare dependence in Great Britain and the damage it causes by encouraging irresponsibility and a culture of relying on the state for one’s basic needs. The woman in the video isn’t a free, self-reliant citizen; instead she is a ward of the state, effectively infantilized. And nearly one in eight Britons are like her.

Remember how Reagan criticized the system for encouraging “welfare queens?” Well, it’s back to the future, if the (Social) Democrats get their way.

Via Dan Mitchell.

(Crossposted at Sister Toldjah)


The End of Europe as a world power?

May 13, 2010

Is Europe’s reign as dominant global power over after roughly 500 years? Richard Haass of the Financial Times looks at the state of the EU in the early 21st century and says it’s time to say goodbye (registration required):

Even before this economic crisis, Europe was weakened by a political crisis. Many Europeans have been preoccupied with revising European institutions, but repeated rejections of the Lisbon treaty demonstrate that a united Europe no longer captures the imagination of many of its residents. Lacklustre leadership of European organisations is both a cause and a result of this loss of momentum.

Behind this drift is the stark reality that Europeans have never quite committed to Europe, largely because of the continued pull of nationalism. If Europeans were serious about being a major power, they would trade the British and French United Nations Security Council seats for a European one. This is not about to happen.

Europe’s drift also manifests itself militarily. Few European states are willing to devote even 2 per cent of their budgets to defence; and what they spend their money on makes little sense. National politics and economics dictate expenditures, so there is much replication of what is not relevant and little investment in what is needed. The whole is less than the sum of its parts.

Afghanistan is a case in point. The European contribution there is substantial, with more than 30,000 soldiers from EU countries. But the involvement is uneven, with nearly a third of the troops coming from the UK. In many cases the roles are diluted by governmental “caveats” that limit missions, a lack of equipment and commitments of uncertain duration. European political culture has evolved in ways that make it harder to field militaries willing to bear the cost in blood; the US secretary of defence describes this as “the demilitarisation of Europe – where large swaths of the general public and political class are averse to military force and the risks that go with it”. All this limits Nato’s future role, as Nato mostly makes sense as an expeditionary force in an unstable world, not as a standing army on a stable continent.

Time and demographics will not improve the situation. Europe’s population has levelled off at about 500m and is rapidly ageing. By mid-century the percentage of Europe’s adults who are older than 65 is projected to double. Fewer will be of military age; a smaller number will be working to support the retired.

Or, as Mark Steyn likes to say, demography is destiny.

One thing to bear in mind was the Europe’s extensive (and enervating) social-welfare state was made possible because the United States largely bore the cost of keeping the Russians from eventually rolling on to the Atlantic after World War II. At the time, it was necessary: Britain was bankrupt and Western Europe was largely flattened by the war. But the moral hazard created by having someone pay for their defense beyond the point their economies could afford to pay their own way let them instead buy social peace (and votes) through large-scale government welfare. This in turn lead to fewer children being born, and hence fewer people of working age to support the increasing number of elderly retired folks (who retired at ever-younger ages), until they hit they point they’re at now, when the state can no longer afford those promised benefits.

It’s hard to say what could have been done differently, however, given the geopolitical realities of the Cold War.


UK election news

April 19, 2010

Britain has called a general election for a new Parliament, to be held on May 6th. Looking at today’s Telegraph, I came across what appears to be Prime Minister Gordon Brown’s main argument for giving Labour a new majority: “the Tories will screw things up worse than we have.

Gordon Brown says Conservative election victory would threaten economy

The Prime Minister told a London news conference David Cameron’s ”big society means big cuts in public services.

”It’s a risk for our mainstream public services that Britain cannot afford to take.”

Mr Brown was attempting to shift the election spotlight away from Liberal Democrat leader Nick Clegg’s recent poll successes and back on the substantive issues like the economy.

He said Labour was in the ”futures business” with bold and ambitious plans for the country, while the Tories were in the ”risk business”.

Given Labour’s track record of fiscal screw ups and their pursuit of “Green” policies that will leave Britain in the dark, it looks like the only real risk is leaving them in power.

Then again, the Conservatives under Cameron don’t seem all that different from Labour, these days. They’re certainly not Thatcherites.

What’s truly surprised me is the strength of Britain’s main third-party, the Liberal Democrats. Formed from a merger of the old Liberal Party and the Social Democrats, I don’t believe it’s ever been the official Opposition(1), the number two party in Parliament, let alone formed a government. But the polls show they’re currently in second place and perhaps have momentum. Could they wind up forming the government? Part of a coalition with Labour? The party is a strong believer in individual liberty in the tradition of John Stuart Mill, but their commitment to social liberalism with its inherent high taxes and extensive welfare state seem at odds with this.

And again I ask, given Labour’s track record, the Conservatives’ promise to not change too much, and the Lib-Dems’ official support of an expensive welfare state, is there really all that much daylight between the three? And, if there isn’t, will the dissatisfied vote for the fascist BNP in significant numbers?

(1)The article refers to the old Liberal-Social Democrat alliance polling ahead of Labour in the 1983 general election, in which the Conservatives won a crushing majority, but Britain’s “first past the post” system gave Labour the second-highest number of seats.