–Europe and the welfare-entitlement state

An alternative to popular faith

Today, the Wall Street Journal’s editors managed to pack one sentence with more misleading inferences than I thought possible. The sentence was: “Greece’s problems are familiar across Europe: a welfare-entitlement state that is unaffordable given the country’s anemic economic growth.

First, Greece’s economic problems are familiar across Europe, because most of Europe is in the European Union, an ill-conceived, economically doomed arrangement. These nations have essentially the same problem, and it has nothing to do with a welfare-entitlement state. It has to do with each EU nation’s inability to control its own money supply — a charter requirement for belonging to the EU. So when one nation encounters its individual economic crisis, it is prohibited from creating the money necessary to save and rebuild its economy.

The EU nations are on a “euro standard,” similar to a gold standard, in that the supply of their money is controlled by the EU. In this, the EU nations resemble California, Illinois, Cook County and Chicago, which are on a “dollar standard.” None can create the money needed to rebuild its economy.

Because a political entity on a “standard” cannot arbitrarily create money, it eventually will need to receive money from outside, either in the form of export payments, or payments from the owner of the money. For Greece, the owner is the EU. For California et al, the owner is the U.S. government.

For Greece to survive, it must receive money from the EU. It cannot survive on taxes alone, because taxing does not add money to the state. California, to survive, must receive money from the federal government.

The so called “welfare-entitlement” state merely is description of what every nation is and must be: A source of funds for the common good. Since all countries are “welfare-entitlement states, to greater or lesser degree, at what point does the state offer too much welfare?

–When the government pays for its army?
–When the government pays for roads, bridges, levees and docks?
–When the government pays for police and fire protection?
–When the government pays unemployment benefits? Food stamps? Medicaid? Housing?
–When the government pays for primary education? Secondary education? Advanced education?
–When the government pays to rebuild parts of a city that has flooded or hit by a hurricane or volcano?
–When the government provides FDIC insurance?
–When Social Security and Medicare benefits are provided to people over the age of 95? 55? 35? 10? All?
–When the government pays for vaccines? Inspects food? Supervises investments? Makes medical expenses tax deductible? Creates and enforces laws?

Where should a welfare entitlement state begin and end? I’d guess the WSJ editors, who criticize the “welfare-entitlement” state, have no idea. But, the term makes for a handy whipping boy, like “socialism” and “bailouts” and “big government” and “activist judges,” that everyone dislikes in general, but wants in the specific.

Finally, the “welfare-entitlement” state is not unaffordable because of the nation’s anemic economic growth. The government doesn’t pay its bills with Gross Domestic Product. Of course, some argue that increased GDP growth begets increased taxes, making government spending more affordable. But high taxes cause anemic economic growth, so in essence you have a circular argument and a self-fulfilling prophesy.

What makes EU governments’ spending unaffordable is the EU system, which prevents unilateral money creation. By contrast, no amount of U.S. spending is unaffordable for the U.S. government.

Rodger Malcolm Mitchell
http://www.rodgermitchell.com


No nation can tax itself into prosperity

14 thoughts on “–Europe and the welfare-entitlement state

  1. “Where does a welfare entitlement state begin and end?”

    It begins when government decides that it can do better than the private sector. At least that’s what we’re thought to believe. Perhaps though, the government already is involved but yet the private sector must work around it, missing signals of the economy, putting forth effort and outlays in areas where business might think things are worthy of focus, but in the end, all is lost since the government has already stealthily skewed the playing field. Eventually, business throws in the towel and the welfare entitlement is thought to “begin”.

    The welfare entitlement state started sometime after the civil war. It reached its pinnacle in the early 1900’s when the elite of this country took ownership of you because you can’t be trusted. It took control of your money. It makes you borrow your money from them. It makes you work for them. It makes you the recipient of this welfare state and worse, makes you want it.

    You have the power to own your country including a wealth with money that isn’t owed, taxed, or inflated which robs you of your future.

    Rodger, you’re on the right track. Free yourself and continue the trek toward Free Money.

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      1. “Which federal initiative, mentioned in this post, would you change, and how?”

        Is that even the right question?

        How about an analysis of why/how government now performs these functions? After all, how can one remove these government programs when no free market, private sector infrastructure no longer exists to pick up this effort?

        In my questions to people on why they think we must pay taxes or why we must borrow government owned money they complain that without such burdens we’d be subject to yet more government invasion to their livelihood. And because of this, they shudder to think that government can really spend on things it wants with no regard to a “budget”. This fear of endless government spending thus feeds their cognitive dissonance of not understanding that government neither has nor needs money.

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      2. Let’s take the first one…

        “When the government pays for its army?”

        If everyone (including all around the world) were somehow required to individually pay for an army, just how many wars do you think we would have? Isn’t it the endless supply of money allowed to a government which feeds the military industrial complex in countries around the world? Could the US have amassed such a nuclear arsenal if it had to pay for it via US tax dollars? The same for Caesar, Napoleon, Hitler, Churchill, etc., etc.? No. The endless supply of money (borrowed or not) enables this agression in the name of defense.

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      3. How about the next “state” functions (police, education, etc.)

        (Ignoring the bigger issue of why people prefer to not work instead of work for their paycheck.)

        Thanks to the hand-outs from the federal government and the increase in money and credit that raised property values and thus tax revenues, these “local” jobs (police, fire, teacher, garbageman, etc.) have ballooned into entitlement level programs all their own. What of the garbagemen in Seattle that have total annual compensation packages over $100K? Or teachers that have total annual compensation packages over $90K. Or firefighters that can retire at 50 and receive retirement checks equal to their checks when they were working?

        How did any of this become possible? How can any of this increase in compensation be positive for literally nothing in return? Isn’t the ability or need to wake up each day and kill something bigger than the day before the reason why a country and its people prosper and advance?

        Hasn’t the increase of money with no self-imposed limits of its purpose or value caused a misbalance in this work/value paradigm?

        Didn’t the source of all this start from a government that forgot it was supposed to be limited regardless of whether it has an unlimited source of funds?

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  2. Yes, it’s a perfectly legitimate question.

    Is your hypothesis: People want to pay taxes, because they think paying taxes helps prevent government intrusion?

    If everyone around the world were nice, we wouldn’t need armies. Until that happens, which of the government services, mentioned in the post, would you will willing to give up, so we no longer would be a welfare-entitlement state??

    Rodger Malcolm Mitchell

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    1. “People want to pay taxes, because they think paying taxes helps prevent government intrusion?”

      Yes. Blame Reagan for that. He was misinformed that if he cut taxes, revenue would be likewise cut and thus government would have to spend less and finally would be less intrusive into people’s lives. He was wrong. Government has an unlimited amount of money. But this correlation lives on in the minds of most people, D or R.

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  3. In answer to the question, “Which federal initiative, mentioned in this post, would you change, and how?” you would cut teachers’ firefighters’ and garbage collectors’ pay.

    Anything else?

    Rodger Malcolm Mitchell

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    1. “When the government provides FDIC insurance?”

      Having a government backstop on banks removes my need to watch where I loan my money (put money into savings.) The saying “safe as houses” is no longer true. If one really investigated where their cash accounts invested their money instead of relying on the government to bail them out then perhaps we wouldn’t have had the real estate melt-up and melt-down.

      Also, now that we understand that government has an unlimited supply of money that is not convertible into anything can there really be bank runs?

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    2. “When the government pays for primary education? Secondary education? Advanced education?”

      In my situation, there are these layers of educational bureaucracy:

      Federal
      State
      Eduction Community (patchwork of local individual school districts)
      School District
      Local School

      Does there really need to be that many? How about we wipe out the top four and let my local tax dollars go to pay my local school (primary and secondary schools.) Practice subsidiarity. The people closest to the problem fix the problem.

      As for advanced education we’ve got this all wrong. How many people have degrees from school where the degree does nothing in there current job? We’ve somehow agreed that people need to “signal” that they have a degree, any degree, and thus are worthy of a job at a company. That’s a waste of effort by the individual. The only reason this person is able to “signal” they have degree is through government assisted student loans. Remove that, and put the training back on the employer who will train their workforce to do the job they need. The company that realizes their workforce is an asset will invest further in them and will win in the marketplace. No more journalism majors working as computer technicians.

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  4. Anyway, TheInterest. I’m not letting you off the hook. Aside from reducing the number of local school levels and cutting teachers’ salaries, which not only is a bad idea, but would make no discernible difference in the federal deficit, which federal spending would you like to give up?

    And please, no tiny ideas. We’re talking trillions, here.

    Rodger Malcolm Mitchell

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  5. One first needs to ask if there really is a deficit? There is not. Since a government that can create a debt can likewise create the credit. So, making a discernible difference in federal debt isn’t needed. Or if you want to look at it another way, I could make more than a discernible difference by simply paying off $12 trillion in debt, TODAY! (But then who would the gangster banks run their market “protection” racket and loan sharking for?)

    But since you’re looking at specific programs than any program that uses the interstate commerce clause for its reason for existence should go away. That won’t be easy of course, but at least the federal government would stop getting in the way of people. This leaves one level of government, much closer to the individual, to deal with.

    Note: You’ll see that even after discussing deficits we still get caught up in the “end the program” game. And that’s what people who want to continue loaning us money want us to do. Argue about things that don’t matter so we don’t see what they are doing to us.

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  6. –When the government pays for police and fire protection?

    Actually, our absurd War on Drugs should be ended, and drugs regulated and taxed similarly to alcohol or tobacco. A century ago, Americans could legally buy alcohol, tobacco, opium and opiates (e.g., heroin), marijuana, and cocaine over the counter. (Amphetamines had not been invented yet.) http://en.wikipedia.org/wiki/Pure_Food_and_Drug_Act#Labeling_of_Habit-Forming_Drugs Now Americans cannot buy Sudafed without being treated like a criminal.

    The US could then abolish the DEA, ATF, and most of the federal prison system. States could do the same.

    So far this year, the War on Drugs has cost the US and the states nearly 28 billion dollars.

    http://www.drugsense.org/wodclock.htm

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