Tag Archives: european welfare states

Europe in trouble because of too much spending

July 24, 2012 – 3:39 pm

Dan Mitchell Discussing Fake Austerity in Europe on Fox Business

Published on May 9, 2012 by

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The mess in Europe has been rather frustrating, largely because almost everybody is on the wrong side.

Some folks say they want “austerity,” but that’s largely a code word for higher taxes. They’re fighting against the people who say they want “growth,” but that’s generally a code word for more Keynesian spending.

So you can understand how this debate between higher taxes and higher spending is like nails on a chalkboard for someone who wants smaller government.

And then, to get me even more irritated, lots of people support bailouts because they supposedly are needed to save the euro currency.

When I ask these people why a default in, say, Greece threatens the euro, they look at me as if it’s the year 1491 and I’ve declared the earth isn’t flat.

So I’m delighted that the Wall Street Journal has published some wise observations by a leading French economist (an intellectual heir to Bastiat!), who shares my disdain for the current discussion. Here are some excerpts from Prof. Salin’s column, starting with his common-sense hypothesis.

…there is no “euro crisis.” The single currency doesn’t have to be “saved” or else explode. The present crisis is not a European monetary problem at all, but rather a debt problem in some countries—Greece, Spain and some others—that happen to be members of the euro zone. Specifically, these are public-debt problems, stemming from bad budget management by their governments. But there is no logical link between these countries’ fiscal situations and the functioning of the euro system.

Salin then looks at how the artificial link was created between the euro currency and the fiscal crisis, and he makes a very good analogy (and I think it’s good because I’ve made the same point) to a potential state-level bankruptcy in America.

The public-debt problem becomes a euro problem only insofar as governments arbitrarily decide that there must be some “European solidarity” inside the euro zone. But how does mutual participation in the same currency logically imply that spendthrift governments should get help from the others? When a state in the U.S. has a debt problem, one never hears that there is a “dollar crisis.” There is simply a problem of budget management in that state.

He then says a euro crisis is being created, but only because the European Central Bank has surrendered its independence and is conducting backdoor bailouts.

Because European politicians have decided to create an artificial link between national budget problems and the functioning of the euro system, they have now effectively created a “euro crisis.” To help out badly managed governments, the European Central Bank is now buying public bonds issued by these governments or supplying liquidity to support their failing banks. In so doing, the ECB is violating its own principles and introducing harmful distortions.

Last but not least, Salin warns that politicians are using the crisis as an excuse for more bad policy – sort of the European version of Mitchell’s Law, with one bad policy (excessive spending) being the precursor of additional bad policy (centralization).

Politicians now argue that “saving the euro” will require not only propping up Europe’s irresponsible governments, but also centralizing decision-making. This is now the dominant opinion of politicians in Europe, France in particular. There are a few reasons why politicians in Paris might take that view. They might see themselves being in a similar situation as Greece in the near future, so all the schemes to “save the euro” could also be helpful to them shortly. They might also be looking to shift public attention away from France’s internal problems and toward the rest of Europe instead. It’s easier to complain about what one’s neighbors are doing than to tackle problems at home. France needs drastic tax cuts and far-reaching deregulation and labor-market liberalization. Much simpler to get the media worked up about the next “euro crisis” meeting with Angela Merkel.

This is a bit of a dry topic, but it has enormous implications since Europe already is a mess and the fiscal crisis sooner or later will spread to the supposedly prudent nations such as Germany and the Netherlands. And, thanks to entitlement programs, the United States isn’t that far behind.

So may as well enjoy some humor before the world falls apart, including this cartoon about bailouts to Europe from America, the parody video about Germany and downgrades, this cartoon about Greece deciding to stay in the euro, this “how the Greeks see Europe” map, and this cartoon about Obama’s approach to the European model.

P.S. Here’s a video narrated by a former Cato intern about the five lessons America should learn from the European fiscal crisis.

By Everette Hatcher III | Posted in Cato Institute, spending out of control | Also tagged , , , | Comments (0)

In England the welfare state has eroded respect for property rights

August 17, 2011 – 3:39 pm

If the riots in Britain have taught us anything, it is that when government fails in its most basic function — protecting persons and property — civil society ends, and warfare begins. The rise of the welfare state has eroded respect for private property rights and fostered a socialist mentality that dulls individual responsibility.

The welfare state in the USA is almost as big as it is in Europe. Therefore, we may be in for some riots here soon. Take a look at the Founding Fathers had to say about the purpose of government and then compare to what it is doing today.

The Welfare State’s Road to Riots

by James A. Dorn

This article appeared on Orange County Register on August 17, 2011.

The U.S. is quickly catching up with European welfare states. Entitlement spending has skyrocketed since the Great Society programs of the mid-1960s, especially Medicare and Medicaid. Those two programs along with Social Security now account for more than 40 percent of federal spending, which itself has risen to 25 percent of GDP, or nearly $4 trillion. If all entitlement spending is included, payments to individuals account for 66 percent of federal spending.

The transformation from limited government (true liberalism) to the welfare state has no constitutional basis. The three branches of government have failed in their solemn duty to uphold the Framers’ Constitution, or what F. A. Hayek called “the constitution of liberty.”

The lesson from the British riots is that when government overextends itself, it will fail to do what it is supposed to do: protect persons and property.

It is not free enterprise and limited government that led to the riots in Britain; it is rather their demise. The U.S. should wake up and recognize the danger the welfare state poses to property — broadly understood as rights to life, liberty, and the pursuit of happiness.

The most fundamental question facing any society is the role and scope of government. The Framers of the Constitution accepted the idea that the primary role of government is to safeguard private property. In 1792, James Madison, the chief architect of the Constitution, wrote, “Government is instituted to protect property of every sort. … This being the end of government, that alone is a just government, which impartially secures to every man, whatever is his own.”

The Preamble to the Constitution states that the purpose of the charter is to “establish justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty.” To “establish justice” means to prevent the violation of an individual’s natural rights or property rights; it does not give the federal government an unlimited power to take private property and interfere with freedom of contract.

Madison and the other framers would not have enumerated — and therefore limited — the powers of the federal government in Article 1, section 8, if they thought a redistributive state was just. Nor would they have added a Bill of Rights.

James A. Dorn is vice president for academic affairs with the Washington, D.C.-based Cato Institute and editor of theCato Journal.

More by James A. Dorn

Amendments to the Constitution — notably the Thirteenth, Fourteenth, and Fifteenth — further strengthened property rights. But the Progressive Movement (1890s–1920s) began to erode the Framers’ Constitution. Today, the broad interpretation of the General Welfare Clause, the Commerce Clause, and other clauses have expanded the powers of the federal government far beyond that envisioned by the Framers. In doing so, the meaning of justice has been turned on its head: from its legitimate meaning of safeguarding property to its modern meaning of using taxes, regulation, and laws to redistribute income and wealth to achieve “social justice.”

The problem is that when government is seen as an instrument for “doing good” rather than a force for preventing harm, there is no end to government mischief. By its very nature government operates by coercion, not consent; and as Milton Friedman liked to remind us, when government spends other people’s money, it will naturally want to do more and more.

The lesson from the British riots is that when government overextends itself, it will fail to do what it is supposed to do: protect persons and property. If an anti-market and socialist mentality replace an ethos of liberty and responsibility, then the harmony that results from limited government and free markets will disappear — and hooligans will gain the upper hand.

The massive U.S. debt is a reflection of the rapid growth of entitlements and a do-good vision of government. Next year’s elections will be a referendum on the size and scope of government. If Americans return to the Madisonian principle of justice that underlies the Constitution — and is the foundation of morality — the future of peace and prosperity will be bright. If they adhere to the illiberal principle of “doing good with other people’s money,” the welfare state will grow and eventually put out the light of liberty.

By Everette Hatcher III | Posted in Cato Institute, spending out of control | Also tagged , , , | Comments (0)