Saturday, June 25, 2011

Time To Kill The Welfare State and Embrace Capitalism

Robert Tracinski writes an excellent article about the miserable failure of the welfare state or socialism/communism. Government run economies DO NOT WORK. Let's learn the lesson and embrace what does work - CAPITALISM. Below is Mr. Tracinski's article.

A while back, Peggy Noonan wrote that "unsustainable" is the "word of the decade." She's onto something. From the debates over Social Security and Medicare reform, to the Greek debacle in Europe, to the pensions of state government employees, to the higher-education bubble, we are saddled with institutions that are economically unsustainable. They are doomed to collapse by the ruthless certainty of arithmetic.

What do all of these things have in common? They are manifestations of the modern welfare state--and that is what is unsustainable.

I could rehearse the statistics. Social Security is projected to completely use up its trust fund in 2036 and Medicare in 2024, but both systems are already going into the red because there are no actual assets in those trust funds. As Social Security and Medicare begin to pay out more than they take in from payroll taxes, they are swallowing up the entire federal budget and guaranteeing a steady increase in our already dangerous debt. For some state governments, like California, insolvency is looming. For others, it has already arrived; Illinois hasn't paid its bills for years. And where we're all headed is demonstrated by Greece, where government debt now equals more than 175% of the country's annual economic output, well above the threshold (roughly 100%) where debt starts to become impossible to service.

Everyone has already had plenty of time to absorb these statistics. What most people haven't absorbed yet is the basic economic unsustainability of the welfare state.

The welfare state is taken for granted as the "normal" state of affairs, as if it has always existed. At least, it is assumed that the welfare state has been around for so many decades that the current crisis is just a temporary aberration, a rough patch that we can get through with only minor reforms. But the actual economic history does not bear this out. The welfare state "as we know it"--that is, at its current size--is a product of recent decades. In all of its branches, it has vastly increased just in the past 30 to 40 years. So the current crisis is not some temporary aberration. It is cause and effect. It is a direct consequence of the modern welfare state

Let's take a look at the major branches of the welfare state, particularly the ones that are in crisis. They are: education, government employment, health care, and retirement.

The first two are interconnected. State governments are in crisis, not because of firefighters and policeman, but mostly because of salaries and pensions for public school teachers. Government spending on all levels for public education has more than doubled since 1970, after adjusting for inflation, with no improvement in the system's results.

Something similar has been happening in higher education, mostly through the indirect mechanism of student loans...READ "The Half-Life of the Welfare State" by Robert Tracinski at RealClearMarkets.

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