Mark Steyn Explains Why the Welfare State is Dying

Mark Steyn explains in a column here why the Welfare State is on life support.  The short version is not enough babies and too many people living off the State.

While President Obama was making his latest pitch for a brand new, even more unsustainable entitlement at the health care “summit,” thousands of Greeks took to the streets to riot. An enterprising cable network might have shown the two scenes on a continuous split screen – because they’re part of the same story. It’s just that Greece is a little further along in the plot: They’re at the point where the canoe is about to plunge over the falls. America is further upstream and can still pull for shore, but has decided instead that what it needs to do is catch up with the Greek canoe. Chapter One (the introduction of unsustainable entitlements) leads eventually to Chapter 20 (total societal collapse): The Greeks are at Chapter 17 or 18.

What’s happening in the developed world today isn’t so very hard to understand: The 20th century Bismarckian welfare state has run out of people to stick it to. In America, the feckless insatiable boobs in Washington, Sacramento, Albany and elsewhere are screwing over our kids and grandkids. In Europe, they’ve reached the next stage in social democratic evolution: There are no kids or grandkids to screw over. The United States has a fertility rate of around 2.1, or just over two kids per couple. Greece has a fertility rate of about 1.3: 10 grandparents have six kids have four grandkids – i.e., the family tree is upside down. Demographers call 1.3 “lowest-low” fertility – the point from which no society has ever recovered. And compared to Spain and Italy, Greece has the least worst fertility rate in Mediterranean Europe.

We are at a time of transition from a time when governments throughout the Western world established  ever more elaborate social welfare networks, to a time in the future, and probably the very near future, when these systems simply can no longer be funded:

Think of Greece as California: Every year an irresponsible and corrupt bureaucracy awards itself higher pay and better benefits paid for by an ever-shrinking wealth-generating class. And think of Germany as one of the less profligate, still just about functioning corners of America such as my own state of New Hampshire: Responsibility doesn’t pay. You’ll wind up bailing out anyway. The problem is there are never enough of “the rich” to fund the entitlement state, because in the end, it disincentivizes everything from wealth creation to self-reliance to the basic survival instinct, as represented by the fertility rate. In Greece, they’ve run out Greeks, so they’ll stick it to the Germans, like French farmers do. In Germany, the Germans have only been able to afford to subsidize French farming because they stick their defense tab to the Americans. And in America President Obama, Nancy Pelosi and Harry Reid are saying we need to paddle faster to catch up with the Greeks and Germans. What could go wrong?

The Welfare States depended upon ever rising populations to pay the benefits ladled out by the government.  Now we are witnessing what happens when shrinking populations destroy the tax base for the welfare state.  The election of Obama, rather than leading to New Deal II as some of his supporters hoped, may well be remembered by future historians as the Last Hurrah in this country of a Social Welfare view of government that is dying before our eyes.

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23 Responses to Mark Steyn Explains Why the Welfare State is Dying

  1. M.Z. says:

    How true is the premise? After most every major war in the 20th and 19th century, there has been a dearth of men in their peak earnings years. Toward the end of the Civil War, the Confederacy was conscripting 14-year-old boys even.

    Last I heard from Steyn, everything was the fault of Mexicans anyway.

  2. Colin Gormley says:

    @M.Z.

    Wars in general (even as horrific as the World Wars) are typically speed bumps in the overall demographic growth. Even when devastating wars introduce a gender imbalance, nature typically takes control and “reestablishes” the balance.

    What we are seeing in the Western welfare states is demographic suicide. Europe is WAY below the 2.1 avg needed to sustain population levels. Even here when Social Security was established the ratio of earning to retirees was about 9 to 1. Now it is about 3 to 1. Europe has this problem multiplied, with a much larger social welfare network relatively speaking.

    Mark Sten is on the mark with this. I’m curiious about the Mexican thing. Got a link?

  3. Donald R. McClarey says:

    In 1860 the population of the US was about 31,000,000. After the Civil War, and the subtraction of the death of 660,000 Union and Confederate troops, the population of the US had increased by 4,000,000, most of the increase caused by births rather than immigration. A country with an expanding population can take even a war like the Civil War in stride from a demographic standpoint. This is completely different as Colin pointed out from a society where the population over the next 50 years will be halved due to a lack of births. I think that the death of the Welfare State will be only one of the consequences from this type of unprecedented voluntary population shrinkage.

  4. restrainedradical says:

    Without the Mexicans, the US is below the replacement rate and in perpetual recession.

    It’s not as simple as Steyn explains it. A shrinking population also means fewer entitlements. Schools will run surpluses. The old-age entitlements are the problem. Means-testing solves the problem completely.

  5. Mike Petrik says:

    “Means testing solves the problem completely.” Not necessarily. First, it is not at all clear that Social Security and Medicare survive if they are means tested. Taxpayers will resent paying into a system that they cannot benefit from. It is quite radical to convert a shakey defined benefit system with a built in but largely hidden welfare component into a transparent welfare system. Moreover, one must always anticipate changes in behavior. Many people will reconsider the advantages of working and saving for retirement if they are penalized for doing so. Accordingly, more people will qualify and fewer will pay the taxes to cover the bill.

  6. Blackadder says:

    Last I heard from Steyn, everything was the fault of Mexicans anyway.

    I don’t recall Steyn talking much about immigration from Mexico as a problem. He seems to write about a column a day, so I’m sure the subject has come up. But I would be surprised if he didn’t spend several orders of magnitude less time on the subject than he did on demography or Islamic immigration, etc.

  7. Blackadder says:

    “Means testing solves the problem completely.” Not necessarily. First, it is not at all clear that Social Security and Medicare survive if they are means tested. Taxpayers will resent paying into a system that they cannot benefit from.

    Means tested entitlements exist in lots of foreign countries without being imperiled. It’s not even the case that people know they are paying into a system they cannot benefit from, as people don’t really know at 40 where they will end up on the wealth spectrum. In that respect means tested entitlements would be more like unemployment insurance welfare.

    As for behavior changes, the evidence is that people don’t alter their behavior much based on consequences far in the future, so I think the disincentives here would be fairly minor. This is particularly true when you consider that the likely alternative is raising taxes, which does have some major disincentives.

  8. T. Shaw says:

    We need limited government, lower taxes, fewer regulations, decentralized economic decision-making, etc. You aren’t going to get more births kicking in for 20 years.

    Free lunch and something for nothing/Robin Hood economics is working everywhere they tried it. Like Cambodia, China, Cuba, Zimbabwe (yes, I skipped ahead to Z). Check out Iceland. The long-term, structural unemployment rates in the Euro countries run almost twice the US’. The Euro economic style is about to crumble as they run out of productive taxpayers. Don’t take my word. Watch what happens to Greece, Italy, Portugal, and Spain – really soon.

    Bastiat was a French economist. Here are a few quotes from an economist, not a theologian, philosopher, or alinskyite-ideologue that believes the US (must be destroyed!) is a racist nation and capitalism is unjust and must be replaced by central planning by virtuous geniuses cut from the same cloth as Robert Mugabe and Vlad Lenin.

    “The state is the great fictitious entity by which everyone seeks to live at the expense of everyone else.”
    The State in Selected Essays on Political Economy, par. 5.20

    “By virtue of exchange, one man’s prosperity is beneficial to all others.”
    Economic Harmonies, par. 4.110

    “The profit of the one is the profit of the other.”
    Economic Harmonies, par. 4.118

    “Competition is merely the absence of oppression”
    Economic Harmonies, par. 10.4

    Beware the teaparty tsunami this November.

  9. Mike Petrik says:

    BA,
    The survival I was referring to is political survival. The reason Dems have been ambivalent about means testing distributions is because they worry that the program’s popularity will be imperiled if it were converted to a naked welfare program.
    I do disagree about the effect on behavior. I don’t quite know what kind of means testing you have in mind, but the ability of people to adjust their affairs in order to ensure qualification should not be underestimated. And those adjustments would be counterproductive to solving the problem.

  10. restrainedradical says:

    There will be some perverse incentives whenever you’re taxing or subsidizing but under a well-designed plan it shouldn’t be a big problem. Medicaid doesn’t do too much hard. So long as not everyone is getting the benefits, you can always have the wealthy subsidize the poor and demographic trends won’t matter much.

  11. Tito Edwards says:

    Medicaid is a huge boondoggle.

  12. Ivan says:

    The other problem is that advances in healthcare and medicine have enabled people to live for much longer than before. Supposedly when Churchill quibbled his friend Beaverbrook about the cost of welfare and who was going to pay for it, he was assured that the question did not arise as most of the beneficiaries would be dead anyway.

  13. Blackadder says:

    The survival I was referring to is political survival.

    As was I. Australia, for example, means tests its Social Security program. Despite this the program remains politically sacrosanct. If we were talking about limiting benefits to the bottom 20% you might have a point. Limiting it to the bottom 80%, on the other hand, doesn’t create much of a risk.

    I do disagree about the effect on behavior. I don’t quite know what kind of means testing you have in mind, but the ability of people to adjust their affairs in order to ensure qualification should not be underestimated.

    Means testing entitlements would create an incentive for people to spend down to the limit, but I don’t think that would be such a bad thing (might even do something to limit the economic inequality that folks are so worried about). The real incentives you need to be worried about are the disincentives to work. Given how distant the benefits are from the time of work, however, I don’t see this as a big problem.

  14. Donna V. says:

    What I want to know is how a program originally intended to help poor elderly people during the depths of the Depression came to be seen as an indispensable entitlement, a way to supplement a comfortable retirement. I know an old couple at my parish who used their SS checks to go to Vegas and play the slots. Just try mentioning means testing to them; just the thought of privatization a few years back put them in a rage. “It’s OUR money, we paid into it all those years” will be the mantra heard across the land in a few years time as the oldest boomers start retiring.

  15. Art Deco says:

    It was not intended as a temporary relief program, but as a retirement program. It was not enacted during the depths of the Depresssion, but in 1935, when the economy was two years into a vigorous recovery; it did not pay one dollar in benefits until 1940, at which time the country had fully recovered from the Depression (in terms of output; the labor market remained dysfunctional).

  16. Donald R. McClarey says:

    It also assumed that by 65 most of the people who paid in would be dead. In 1935 the average life expectancy of a man was 59.9 years and a woman 63.9 years. If Social Security had been adjusted over the years to account for increasing life spans, it would kick in at age 80.

  17. Art Deco says:

    I think your math is somewhat off. What would be salient would be the life expectancy of someone who had reached working age, not the life expectancy at birth. Until comparatively recently, changes in life expectancy at birth were driven by changes in infant and early childhood mortality. (An alternate figure I have seen would have the actuarially sound retirement age at 73 given the rate of assessment on wages of that era).

  18. Donald R. McClarey says:

    According to social security in 1940 46% of men in the age group 21-65 would not live to collect social security and 39% of women in the same age group would not survive to collect social security. By 1990 the percentages were 28.6% and 16.3% of nonsurvival for the same age groups not to collect social security. Additionally there was a 5 year overall life expectancy increase for those receiving social security during the same time period.
    http://www.ssa.gov/history/lifeexpect.html

  19. Donna V. says:

    In 1935, we were two years into a “vigorous recovery,” which began in 1933? Sorry, Art Deco, that doesn’t sound right to me. My understanding (which certainly may be wrong) is that the only thing that pulled us out of the Depression was the shift to wartime production. I have not read Amity Shales book “The Forgotten Man” but I know her premise is that FDR’s Keynesian spending programs actually deepened and prolonged the Depression in the US after it had ended in other countries.

  20. Art Deco says:

    Much obliged for the link. It says there that there were 9.0 million Americans over 65 in 1940, or 6.8% of the population. The following has the age structure of the population in the year 2000:

    http://www.censusscope.org/us/chart_age.html

    If you interpolate, it appears that ~6.8% were over the age of 73.5. Since it is common for wage-earners to retire at 62 and for public employees to retire at 55, we are a ways away from a sustainable retirement system.

  21. Donna V. says:

    Well, it looks like there was improvement of sorts in ’35, although I don’t know that I’d call it “vigorous”:

    By 1935, unemployment in the United States had fallen from its high around 25 percent down to around 17 percent, more than three times Sweden’s and still a long way from its 1929 level of 3.2 percent. While Sweden’s industrial production had risen 50 percent above its 1929 level, industrial production in the United States was 25 percent lower than its 1929 level.

    The economy had improved, but it was still depressed. Unemployment was a little higher than in 1934, perhaps around twenty percent of the workforce, while many were working only part-time and many others had dropped out of the workforce.

    Eventually economic recovery would come to the United States with government purchases for war production, and the end to high unemployment would come with another form of government spending — payment for the widespread induction of men into military service.

  22. Art Deco says:

    The Bureau of Economic Analysis of the Department of Commerce (among other sources) provides figures on the real gross domestic product of the United States during that era. The following is the change registered when compared to the previous calendar
    year:

    1930: -8.6
    1931: -6.5
    1932: -13.1
    1933: -1.3
    1934: 10.9
    1935: 8.9
    1936: 13.0
    1937: 5.1
    1938: -3.4
    1939: 8.1

    More granular statistics on industrial production and money income date the beginning of the expansion to the spring of 1933. Since the war, year-over-year improvements of ~2.5% have been the norm.

    From the above, you can calculate that production levels returned to 1929 levels by 1937 and that per capita income had done so by 1939. Growth was quite rapid in 1940 and 1941 as well, so the trajectory of growth in per capita income over the period running from 1929 through 1941 was similar to historical norms. The labor market was, however, a mess. IIRC, about 6.5% of the workforce was unemployed without qualification in 1940 and another 8.5% was on the rolls of Works Progress Administration, the Civilian Conservation Corps, &c. The unemployment rate in 1929 (at which time the ratio of federal expenditure to domestic product was .03) was 3.2%.

  23. Blackadder says:

    In 1935 the average life expectancy of a man was 59.9 years and a woman 63.9 years.

    This is true but misleading. A large part of those lower life expectancy numbers was the result of higher infant mortality rates. Most people who lived long enough to pay into Social Security lived long enough to collect it, and the life expectancy at age 65 in 1940 was 12.7 years for men and 14.7 years for women. Details here.

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