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Europe’s Soon-to-Implode Welfare States
What’s the most depressing chart in the world?
If you believe in limited government and you’re looking back in time, this example or this exampleare good candidates.
But if we’re looking into the future, this chart from a new study by the European Central Bank is very sobering.
And it’s a depressing chart because it doesn’t matter whether you believe in big government or small government. That’s because this chart shows a dramatic shift in population demographics.
Simply stated, Europe’s welfare states are in deep trouble because over time there will be fewer and fewer workers to pay taxes and more and more old people expecting benefits.
Here’s what the ECB experts, Katalin Bodnár and Carolin Nerlich, wrote about their findings.
The euro area, like many other advanced economies, has entered an era of drastic demographic change. …Declining birth rates and rising life expectancy are causing the number of pensioners to increase relative to workers. In the next one and a half decades,
this trend will be amplified as the sizeable baby boom generation enters retirement and the cohort of workers shrinks. …The old-age dependency ratio is projected to reach almost 54% by 2070… If left unaddressed, population ageing will pose a burden on public finances in the euro area, given the relatively strong role of publicly financed pension and health care systems. Debt sustainability challenges might arise from mounting ageing-related public spending, which will be particularly a concern in high debt countries.
That last sentence in the above excerpt should win a prize for understatement of the year.
Many of Europe’s welfare states already are on the verge of crisis. And as demographics change over time (findings replicated in the European Commission’s Ageing Report), they will go from bad to worse.
Here’s a breakdown of how the “age dependency ratio” will change in various nations.
By the way, if you look at the right side of Chart 4, you’ll see Japan’s horrible numbers as well as a worrisome trend for the United States.
Most people focus on how demographic change will lead to more debt.
I think it’s more important to focus on the underlying problem of government spending.
This next chart combines both. The vertical axis shows the increase in age-related government spending while the horizontal axis shows debt levels.
The bottom line is that countries in the top-right quadrant are in deep trouble. Especially in the long run (though Italy could go belly-up very soon).
The ECB report does suggest ways to address this looming crisis.
To safeguard against the adverse economic and fiscal consequences of population ageing, there is a need to build-up fiscal buffers during good economic times, to improve the quality of public finance and to implement growth-enhancing structural reforms. …Further pension reforms are needed that encourage workers to postpone their retirement.
Don’t hold your breath waiting for any of these things to happen. Building up “fiscal buffers” means running surpluses today to offset deficits tomorrow. But European nations are running big deficits because of excessive spending today, so there will be no maneuvering room in the future.
P.S. Here’s some comedy (and more comedy) about Europe’s fiscal mess.
P.P.S. It is possible to reduce large debt burdens, so long as governments simply restrain spending.
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Free-market economics meets free-market policies at The Heritage Foundation’s Tenth Anniversary dinner in 1983. Nobel Laureate Milton Friedman and his wife Rose with President Ronald Reagan and Heritage President Ed Feulner.
Since the passing of Milton Friedman who was my favorite economist, I have been reading the works of Daniel Mitchell and he quotes Milton Friedman a lot, and you can reach Dan’s website here.
Mitchell’s career as an economist began in the United States Senate, working for Oregon Senator Bob Packwood and the Senate Finance Committee. He also served on the transition team of President-Elect Bush and Vice President-Elect Quayle in 1988. In 1990, he began work at the Heritage Foundation. At Heritage, Mitchell worked on tax policy issues and began advocating for income tax reform.[1]
In 2007, Mitchell left the Heritage Foundation, and joined the Cato Institute as a Senior Fellow. Mitchell continues to work in tax policy, and deals with issues such as the flat tax and international tax competition.[2]
In addition to his Cato Institute responsibilities, Mitchell co-founded the Center for Freedom and Prosperity, an organization formed to protect international tax competition.[1]
February 22, 2021
President Biden c/o The White House 1600 Pennsylvania Avenue NW Washington, DC 20500
Dear Mr. President,
The federal government debt is growing so much that it is endangering us because if things keep going like they are now we will not have any money left for the national defense because we are so far in debt as a nation. We have been spending so much on our welfare state through food stamps and other programs that I am worrying that many of our citizens are becoming more dependent on government and in many cases they are losing their incentive to work hard because of the welfare trap the government has put in place. Other nations in Europe have gone down this road and we see what mess this has gotten them in. People really are losing their faith in big government and they want more liberty back. It seems to me we have to get back to the founding principles that made our country great. We also need to realize that a big government will encourage waste and corruption. The recent scandals in our government have proved my point. In fact, the jokes you made at Ohio State about possibly auditing them are not so funny now that reality shows how the IRS was acting more like a monster out of control. Also raising taxes on the job creators is a very bad idea too. The Laffer Curve clearly demonstrates that when the tax rates are raised many individuals will move their investments to places where they will not get taxed as much.
I have written about 66 heroes of mine in the House of Representatives that voted “no” on the Obama/Biden debt ceiling increase request in 2011. I believe we must have representatives that will vote to restore our freedom and that means voting to cut spending and lower taxes like the Patriots of long ago wanted. Today the Tea Party represented my views the most closely. Lord knows I have written a lot about that in the past. . I have praised over and over and over the 66 House Republicans that voted no on that before. If they did not raise the debt ceiling then we would have a balanced budget instantly. I agree that the Tea Party has made a difference and I have personally posted 49 posts on my blog on different Tea Party heroes of mine.
I have written and emailed Senator Pryor over, and over again with spending cut suggestions but he has ignored all of these good ideas in favor of keeping the printing presses going as we plunge our future generations further in debt. I am convinced if he does not change his liberal voting record that he will no longer be our senator in 2014.
I have written hundreds of letters and emails to President Obama in the past, and I must say that I have been impressed that he has had the White House staff answer so many of my letters. The White House answered concerning Social Security (two times), Green Technologies, welfare, small businesses, Obamacare (twice), federal overspending, expanding unemployment benefits to 99 weeks, gun control, national debt, abortion, jumpstarting the economy, and various other issues. However, the Obama/Biden policies have not changed, and by the way the White House after answering over 50 of my letters before November of 2012 has not answered one since. The Obama/Biden administration was committed to cutting nothing from the budget that I can tell. I am hoping your administration, President Biden, will be more open minded and look at the facts.
I have praised over and over and over the 66 House Republicans that voted no on that before. If they did not raise the debt ceiling then we would have a balanced budget instantly. I agree that the Tea Party has made a difference and I have personally posted 49 posts on my blog on different Tea Party heroes of mine.
THIS BRINGS ME TO ONE OF MY BIGGEST ECONOMIC HEROES AND IT IS THE LATE MILTON FRIEDMAN. Friedman had such revolutionary policies such as eliminating welfare and instituting the negative income tax and putting in school vouchers.
The problem in Washington is not lack of revenue but our lack of spending restraint. This video below makes that point.
I have written about the tremendous increase in the food stamp program the last 9 years before and that means that both President Obama and Bush were guilty of not trying to slow down it’s growth. Furthermore, Republicans have been some of the biggest supporters of the food stamp program. Milton Friedman had a good solution to help end the welfare state and wish more people would pay attention to it. Growing government also encourages waste and hurt growth but more importantly it causes people to become dependent on the government as this article and cartoon below show.
A Depressing Look at the Modern American Voter
June 4, 2013 by Dan Mitchell
My great fear is that the “social capital” of self reliance in America will slowly disappear and that the United States will turn into a European-style welfare state.
That’s the message in the famous “riding in the wagon” cartoons that went viral and became the most-viewed post on this blog.
Well, this Glenn McCoy cartoon has a similar theme.
The only thing I would change is that the rat would become a “pro-government voter” or “left-wing voter” instead of an “Obama voter.” Just like I wasn’t satisfied with an otherwise very good Chuck Asay cartoon showing the struggle between producers and moochers.
That’s for two reasons. First, I’m not partisan. My goal is to spread a message of liberty, not encourage people to vote for or against any candidate.
Second, I’ve been very critical of Obama, but I was also very critical of Bush. Indeed, Bush was a bigger spender than Obama! And Clinton was quite good, so party labels often don’t matter.
But I’m getting wonky. Enjoy the cartoon and feel free to share it widely.
Eight Reasons Why Big Government Hurts Economic Growth
Uploaded on Aug 17, 2009
This Center for Freedom and Prosperity Foundation video analyzes how excessive government spending undermines economic performance. While acknowledging that a very modest level of government spending on things such as “public goods” can facilitate growth, the video outlines eight different ways that that big government hinders prosperity. This video focuses on theory and will be augmented by a second video looking at the empirical evidence favoring smaller government.
Thank you so much for your time. I know how valuable it is. I also appreciate the fine family that you have and your commitment as a father and a husband.
Sincerely,
Everette Hatcher III, 13900 Cottontail Lane, Alexander, AR 72002, ph 501-920-5733,
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