The Welfare-Warfare Anchor Is Taking Us Down

The welfare state depends on government largess that is doled out to the citizenry. But the government doesn't have an independent pool of wealth at its disposal. The way it gets the welfare largess to dole out is by collecting it from the citizenry through taxation.

Thursday, June 23, 2011
The Welfare-Warfare Anchor Is Taking Us Down
by Jacob G. Hornberger

It's really fascinating to see how American statists are addressing the financial problems in Greece. They're blaming Greece's problems on the credit bubble, the banksters, greedy people, government mismanagement and corruption, or some combination thereof. So far, it doesn't seem like they're blaming the crisis on illegal aliens but I wouldn't be surprised if they did.

The statists simply cannot bring themselves to confront reality: What has failed in Greece is the welfare state itself. They are having a hard time accepting what we libertarians have been saying for decades ­ that socialism was doomed to fail at some point in the future.

Let's assume that everyone in Greece was desperately poor -- that there was no capital base whatsoever -- that everyone in society was on the verge of starvation.

Would establishing a welfare state be the answer to Greece's problems? Statists would undoubtedly exclaim, "Yes! The welfare state is the key to ending poverty!"

But careful analysis shows how ridiculous that is.

The welfare state depends on government largess that is doled out to the citizenry. But the government doesn't have an independent pool of wealth at its disposal. The way it gets the welfare largess to dole out is by collecting it from the citizenry through taxation.

Do you see the problem? If there is no wealth in Greece -- that is, if everyone is poor -- then the government can't get the money through taxation to redistribute to the citizenry in the form of welfare largess.

Now, let's assume that over time, a large amount of wealth is accumulated within Greek society through private economic activity. Let's say that the wealth totals $10 million dollars.

At that point, the statists go ape. They see the $10 million and recognize that it's now a source for welfare largess. They get the government to tax the entire $10 million and dole it out in the form of welfare. The welfare recipients are ecstatic. The statists are praised and honored for their goodness and compassion.

But do you see the problem? After the distribution of the welfare largess, there is now no longer any welfare money to distribute because now everyone is poor again. Marginal businesses close down, putting people out of work. Businessmen are reluctant to stay in business given that their profits and savings are going to be taken from them in the future.

That scenario pretty much explains what happened in the socialist paradise of Cuba. Lots of private wealth had been built up, and then Castro comes into power and confiscates it all, for the sake of the poor. Welfare state programs are enacted, including guaranteed retirement, health care, and education. At the same time, successful businesses are taken over by the government, which runs them into the ground. Successful businessmen flee the country. Today, virtually most everyone in Cuba is on the verge of starvation.

In principle, the situation is no different in Greece. Sure, there is still plenty of private wealth built up in the country. But Greek officials know that if they were to confiscate it all to pay the welfare-state expenses and the massive debt that has been accumulated, they end up with what happened in Cuba ­ no one to tax next year because businesses have closed and businessmen have fled. In other words, they know that if they kill the golden goose, there will be no more eggs in the future.

The other problem is the mindset of welfare dependency that the welfare state has inculcated within the Greek people. After decades on the dole, they are filled with anger and outrage over the possibility that it might have to be cut or even abolished.

Many of them simply block out of their minds that the way that the government pays its dole is by collecting the money from the citizenry through taxes. I wonder how Greek citizens would respond if the government announced that it was going to give every citizen $100,000 while, at the same time, announcing a per-citizen tax of $100,000.

Others recognize the problem but want "the rich" to pay the taxes that fund the dole. The problem is that the amount of wealth "the rich" have is no longer enough to indefinitely sustain the ever-burgeoning welfare state. And if the state takes everything from them, then, again, there is nothing left to confiscate and redistribute next year.

Of course, still others recognize that problem, which is why they want foreign states to tax their citizens and send the money to the Greek government so that it can continue paying its welfare dole and debt payments. Not surprisingly, the already over-taxed foreign citizens aren't too excited about that idea, especially given that the likelihood that it will go on indefinitely.

What was different about Castro was that he imposed a complete welfare state all at once. European countries and the United States have done it gradually. In the 1930s, American statists saw the tremendous amount of private wealth that had been accumulated in the United States over a century of no income tax and no welfare -- more than a 100 years of unlimited accumulation of income, wealth, and capital, sound money (i.e., gold coins and silver coins), and rising standards of living. American statists saw that giant pool of wealth as an opportunity to establish a welfare state, beginning with the crown jewel known as Social Security.

Not surprisingly, in the beginning stages of the welfare state, both in Europe and the United States, it all seemed like a costless enterprise. Only the rich had their money taken from them. But as each decade passed, the welfare dole soared as did the taxes on not just the rich but also on the middle class and even the poor. When the amount of taxes collected could no longer keep up with the welfare expenses, government officials borrowed to make up the difference.

Thus, the result in Greece is a massive welfare dole that people are demanding be continued as well as a massive debt that must be paid, a debt that was incurred to make welfare payments in the past.

In principle, the situation is no different here in the United States. Sure, we have a larger pool of wealth to tax than Greece does but don't forget that while both nations have an ever-burgeoning welfare state and an ever-burgeoning debt, we have something they don't: a massive warfare state, one whose foreign empire is occupying two countries, waging war in five or six countries, maintaining 700-1000 military bases in some 130 countries, and claiming that America is at war perpetually into the future.

Yet, the warfare dole is really no different from the welfare dole in that it too depends on the collection of taxes on the private sector.

The financial crisis in Greece might well be the initials sign of a worldwide collapse of the welfare state­a final collapse of socialism, a phenomenon that long ago libertarians predicted would happen at some point in the future.

Over the decades, the statists have responded with: Who cares about the long term given that we'll all be dead? Well, the statists who said that might be dead but their grandchildren and great-children are quite alive to witness what might well be the long-term's final throes of the welfare state.

The reason for the collapse will be easy to see, at least for those who want to see it: The dole-receiving sector, both welfare and warfare, ultimately grows so large that the weight of it breaks the back of the tax-paying sector.

Is there a solution for what ails the body politic? Of course. That solution is libertarianism -- the repeal of all welfare-state programs and the dismantling of all warfare/empire programs.

Unfortunately, however, so far the dole recipient sector -- both welfare and warfare -- has been successful in preventing libertarianism from being adopted. They'd rather hang on to their welfare-state, warfare-state anchor even if it drags everyone to the bottom of the ocean.

http://www.fff.org/blog/jghblog2011-06-23.asp