07/23/10 Vancouver, British Columbia – “You can take your loans and shove them,” the Hungarian economic minister, György Matolcsy, did not say. But that’s what he was thinking. Watch out. The Hungarians are trendsetters. They ran a budget deficit of 9% of GDP back in 2006. They got a $20 billion bailout in 2008 and have been living with austerity measures ever since. The current budget is only in deficit by 3.8% of GDP – barely a third of the US level.
After a regime change in April, they’ve had enough. “We told the IMF/EU that further austerity was out of the question,” said Matolcsy.
Les Echos reported this week that 64% of French workers were retired by age 60. People working for favored state enterprises – such as the SNCF, which runs the train system…or for the “fonction publique,” which keeps people from getting anywhere – may retire earlier. They get extra credit for years worked in hardship overseas destinations – such as Tahiti, for example. And a French politician can get a pension after only 6 years in government. In the old days it was a lucky man who retired before his beard grows white. Now, if he plays his cards right, he could begin collecting a pension before his beard starts to grow at all.
This information comes in the context of a great debate, “a parliamentary battle.” The French government has proposed a law raising the retirement age to 62. The socialists have proposed 150 amendments. Over at The Financial Times, meanwhile, the editors have devoted this week to their own great debate on the subject. “To tighten, or not to tighten – that is the question,” writes Martin Wolf.
The rumbles in Paris and London are just two of many mock skirmishes going on. Neither side wants to aim too carefully at the real problem; they fear they might hit themselves!
You’ll recall, the G20 – the USA dissenting – urged member states to cut public expenses. They pledged to cut public deficits in half by 2013 and to stabilize debt by 2016. But Hungary has already broken ranks.
The big spenders insist that more spending is needed to protect the system. The cutters say more cuts are the thing that will preserve it. Neither has any doubt that the system is worth saving. That, precisely, is the target of today’s back page artillery.
Otto von Bismarck would hardly believe what a smashing success his innovation has become. Practically every advanced government picked it up in one form or other. The little guy liked it because he thought it gave him something for nothing. And the welfare state proved him right. The expenses of the first generations in the system were easily supported by the larger, richer generations that came after. Leaders liked it too, because it made the voters more dependent and controllable: the masses wouldn’t revolt as long as their pension checks kept coming.
Ernest Ackerman must have smiled broadly when he got the first US Social Security check for 17 cents in 1937. Since then, the checks got bigger and came earlier. More benefits were added – education, health care, parks, libraries, unemployment compensation… Ordinary people began to spend more time in universities than they did in bars. Health care services included evermore complicated and expensive procedures. Thousands were employed to regulate, control, protect and administer the public weal. Millions more were able to malinger and leech. One got a subsidy for his farm. Another was ‘disabled’ at work. And still another had his bank bailed out.
The first problem is obvious; the costs got out of hand. The United States has one of the least extensive social welfare systems. (It makes up for it with military spending.) Yet, its basic figures are not much different from those of most European states. The US has a current deficit equal to about 12% of GDP and has debt approaching 100% of GDP. If you include state and local debt, as well as the under-funded liabilities of its pension and health care plans, the total rises to more than 500%. In other words, future generations will have to devote 5 years’ worth of total US output in order to pay for benefits awarded by a previous generation of politicians.
Over time, too, the ‘benefits’ tend to become more and more bogus. Providers and recipients connive in a kind of symbiotic zombie-ism. Perpetual students take pathetic and preposterous classes from permanent professors. Morbid patients, funded by the state, become the health care industry’s best customers. And early retirees clog the highways with their camping cars, when they should be at work. Chiselers, grifters, stuffed-shirts and time-wasters – the welfare state attracts them like a rich old widow attracts gigolos.
The masses are beginning to see this as a losing proposition; the swindle no longer works in their favor. New generations are often smaller. They may not be richer either. Staggered by debt and deadbeats, the next generation will have a hard enough time taking care of itself, let alone paying the accumulated expenses of the ones that came before.
Today, a taxpayer pays a euro to his government. With all the waste and corruption, he’s lucky if he gets 50 centimes’ worth of real services. Officials try to disguise these facts by borrowing, hiding the ‘social charges,’ and printing money. But word gets around: the welfare state no longer pays.
Bill Bonner
for The Daily Reckoning
Bill Bonner
Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning. Dice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill’s daily reckonings from more than a decade: 1999-2010.
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Well again, this reckoning misses the point: today, you NEED a specific masters degree to gain entree to any of the professions. Where did Abe Lincoln go to law school? He didn’t. He had perhaps two years of formal education. Where did Frank Lloyd Wright go to architecture school? He want to the Univ. of Wisconsin for maybe a year. Today, those guys would have been required to go to school for a total of 20 years each, and to pay for their post high school education by going way into debt or getting help from rich parents.
Medical care costs have gone up because there are more available treatments and folks today are living longer. But what about the requirement in the stimulus bill that all medical providers implement electronic health records by 2014? And the health records shall include everyones body mass index. Perhaps they are going to ration healthcare. No treatment for you fat guy. But the Obama bunch will be long gone by 2014.
The title is “The State the Welfare State is in,” and Bill handled the topic well. The high cost of, and the need for, education was never intended to be addressed.
I have gotten a much better education in economics by reading the thoughts of people on line than I ever did through years of public schooling and 4 years of expensive college. Bill Bonner is one of my favorite professors and he has never charged me a cent and I have learned a lot from him. Thank you Professor Bonner!
As for the subject of this article: it is spot on. About the only thing I can think to add would be in regards to the early retirees clogging the highways with their campers. How do they intend to collect payment for their debts from we the younger generation? You want money from me? Well come and get it if you can! Good luck. And when your camper comes to the end of the road and you are in a hospital bed somewhere, don’t expect me to come riding to your rescue to save you from the horrors of Obama-care and the culture of death (abo rtion, euthanasia) that your generation has given us.
Oh my! my above “comment” sounded so angry! I like happy endings so here goes: I have children and I am committed to raising them with good values and good education. I seek to protect them from harm. I pledge to work to leave them not debt and decay, but an inheritance of hope built on a foundation of opportunity. There: happy. I could write speeches for our dear leader! The difference between the dear leader and me is that I will follow through on my happy talk
Older Hungarians in their upper 70-s still recall the gold medal winning hyper inflation of 1945-46. In early July, 1946 1 kilo of bread cost 5 billion 860 million Pengo-s, the Hungarian currency at that time. The price of 1 kilo of bread was not an outlandish monthly pocket money to a 12 years old boy (me). I was a multi billionaire at 12!!! But there is more: at the end of the inflationary run the value of money dropped to 1/3 of its previous day’s value. The inflation was artificially fuelled by the ruling Communist economy “czar”-s. The problems of the Hungarian economy between 2002 and 2010 have been caused by the corrupt and inept neo-communist majority. Non-communist Hungarians are allergic to inflation!
All through out my adult life, I have seen the big corporations and the mega wealthy get tax cut after tax cut. We are told by the talking heads that these cuts will result in more jobs and a more prosperous economy. Here we are 25 years post Reganomics, by where are those jobs? And where is that promised prosperity? The Welfare state steps in where capitalism has failed us. If the big corporations want government to shrink and get out of their way, they need to pony up and invest some of that huge wad of cash that they are sitting on. Investing in American, would ignite the economy, put people back to work and allow the government to reduce the deficit!
I can assure: if you raise taxes – particularly on businesses – you WILL harm employment.
THis raises the cost of business and payroll is invariably one of – if not THE greatest expenses for a business.
If a business must cut costs, it just cannot overlook cutting employment.
The job’s you’re wondering about are many the REMAINING jobs. So many of the existing jobs today were created in post tax cut employment booms of the 80′s and yes, after GW Bushes cuts.
Tax cuts are GOOD for the economy. They invariably RAISE tax revenue (which is supposed to be a good thing, right?) and they lower the cost of living and the cost of doing business. (REALLY good things!)
Read the Title: my point probably not explained so well is somewhat augmented by Bloomer. It is the ‘capitalists’ who are responsible for the welfare state. Those who once got rich have become greedy and even more so, cowards. They become risk averse and rig the game to reduce competition. So they start professional associations that push for education requirements. They come to the feds for bail outs. Meanwhile, it is increased life expectancy which has increased the cost of medical care and retirement.
What about the core problem of paying interest on money created out of thin air? How much productive investment could have been done with the 186 Billion dollars spent on interest in the US last year alone? How to pay for entitlements? Try interest free money for a start, then lower the expectations. Otherwise, watch the peasants rise up.
I think that our currently raging “credentials bidding war for jobs” was an unforeseen and unintended consequence caused by the combination of mass post-secondary public-funded education, with the persistence of the old aristocratic model of post-secondary education, dominated by the professional associations–the last vestiges of the medieval guilds, and still powerful today.
However our credentials bidding war arose, however, its long-run effect can only be to render professional employment harder to obtain by those who lack capital (e.g. that provided by affluent parents) to invest in the purchase of their credentials.
One school of thought would be that this situation simply must correct before too long. Unfortunately, when I look at hierarchical, bureaucratic imperial civilizations such as that of old China, I see clearly that the absurdly huge diversion of social wealth and individual talents into the amassing of credentials can endure for a very, very long period of time.
So keep borrowing and studying, all you little busy wannabe mandarins, even if you fully understand that it all makes no sense!
Quoth Mogambo, “hahahaha!”