The State the Welfare State is In

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“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 Australia

Bill Bonner

Bill Bonner

Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning.
Bill Bonner

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Comments

  1. All too true.
    The reality penny is dropping.

    Personally I believe we need new government and by this I do not mean simply a change of government.

    I believe that we need Business As Usual government who are tasked with keeping the lights on for a fixed and manageable budget with little capacity other than the measure of inflation to increase this.

    I believe we also in conjunction need another government. This would be the aspirational or future government. Their job would be to plan what and where their country is going, and fully cost and budget their plans with the people allowed to vote to approve or deny it.

    All too often, checked by only an election every few years, politicians chase bad policy or bad ideas with money they manage badly and with no over-sight.

    Bailing out the banks would have had to have come via a poll and the people would have to be in approval.

    If it was to happen, then the people would decide not some heavily lobbied and financially complicit politian looking for a seat on some financial juggernauts board.

    One rule I was taught when much younger than I am now and which has yet to be demonstrated to be anywhere short of absolutely spot on, is … ‘Give a politician a dollar and he will spend a dollar ten’.

    Reply
  2. Great article – really enjoyable to read. With that said, I was with you until this part:

    “The masses are beginning to see this as a losing proposition”

    Say again?

    In Australia I strongly suspect the masses will attempt to hold onto their beloved system of “rights” and entitlements until the very bitter end.

    Also, the masses never for a moment considered that they are getting 50 cents of value for every dollar taxed. Afterall, if the government is giving it to them, it’s for free!

    This is the mentality at hand, and nothing short of a complete collapse of the system is going to change it, IMHO.

    Reply
  3. That is so true Daniel, well said. And you can tell people not to do various silly things but until we suffer first hand from our poor choices we continue think we can get away with it…human nature.

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  4. Totally agree, BB. Greece is a prime example. Australia will follow suit but the mining resources income, unfortunately, will delay the inevitable. The selfish baby boomers will learn the hard way. Oh well, no doubt their future Chinese landlords will be very sympathetic to their ageing hippy concerns.

    Non-bludger
    July 26, 2010
    Reply
  5. “…no doubt their future Chinese landlords will be very sympathetic to their ageing hippy concerns.”

    Nah, we’ll all be gone by then, son. It’s _your_ lucky generation that’s the fan that get s hit… . :)

    Reply
  6. I gave up working in Australia,and now will spend the most productive years of my life working in Singapore being taxed at 7%.For what I earnt in Australia, I got nothing from the governmet, lost 49% income to tax.I could go on for ages how much it breaks my heart to see Australia’s rivers of tax income being flushed down the toilet of lies,deceitful schemes and polical schemes by both sides of government, and not invest in sustainable, service orientated jobs.Wake up Australia,the govenrment is broke and inept.They are lying to you as they are trying to keep their jobs.They have changed the retirement age to 67(hello, who can work till that age, especially a labour intensive jobs) to squeeze the last ounce of life out of its citizens.

    Reply
  7. “…lost 49% income to tax….” ???

    _Who_ is inept?!~

    Reply
  8. I’m glad you did make mention of the massive military budget in the US. It is fascinating that the military budget is never ever mentioned in the media or by anyone as a possible source of budget savings over there when it is such a huge chunk of the budget. There are those who would argue that it is a very productive use of money. As for the finance industry, well, let’s just say that skimming the cream off the system for little productive value is probably at the source of most of the US’ problems. At least the people can experience the benefits of social welfare.

    Reply
  9. bring back rum, sodomy and the lash, then that wll be too good for all the thieving buggers. the miltary, prisons, drug dealing, private security,quack doctors, backyard abortionists, jack the ripper. oh what a wonderful vision for the future. oh what a collapsing system that was once so pure of purpose and activity (somewhere around ancient greece I would imagine).
    bring it all on, WWIII and lets start all over again from a level playing field.
    ( /sarcasm).

    point taken though, but please start at the top (I know you guys do) . by the time you get through the top 1% that own 90% of the wealth, the other ‘problems’ might not be so bad.

    Reply
  10. You won’t beat the welfare lobby in this country. It’s big and it’s entrenched. 780,000 irretrievably ‘crippled and insane’ on the DSP apparently? And an internet search of ‘sole parent pension abs’ would seem to indicate that the number of single mums is some sort of state secret these days???

    Plus was talking to my bro a while back about setting up a business – He said Don’t forget that you have to offer a pensioner discount – Why said I? Because some of them get severely pissed if you don’t said he!

    Anyway it just ain’t trendy to point the finger at charity cases – Even if you should winkle a few of them out of their hidey holes, the bleat will always be But what about the poor little kiddies – Surely they shouldn’t be made to suffer because their ma ‘n pa are what they are?

    But then I just found out that I’m one too – Earning less than $70K pa (or somesuch) I get a ‘low income’ tax offset I gather? Must admit that if I let myself, I could find that a bit demeaning? But either way, I sure as hell do find it incongruous. And am seriously tempted to be thoroughly PO’ed at our successive governments that have gone out of their ways to turn us into charity cases. Plus at us collectively for having lapped it up.

    But ain’t morally outraged ENOUGH to give my bit of my fellow tax payer’s largesse back! I’m working on the theory I’ll get used to it in time … Everyone else seems to have? :)

    Reply
  11. “Earning less than $70K pa (or somesuch) I get a ‘low income’ tax offset I gather?”

    Yes, Ned… you do indeed. But console yourself that you’ll also get it if you salpack down to $69,999.00 pa, too. Now… don’t ya feel better knowing that? Of course there’s now a limit ($50K) on how much we can stick into Super, at (y)our age. The rules change all the time, of course. That’s why one should always keep a personal FA (fun advisor) very handy…!~ :)

    I have to smile when I read that someone has left Oz because they’re paying _half_ their salary in tax. What an embarrassing admission!~

    Reply
  12. It’s a hell of a way to run a country Biker. If one was actually convinced that national boundaries might still be the big deal they are now in another 40 years then he could be a bit put out I guess? :) :) :)

    Reply
  13. Jeez, mate, I’d be put out if I was paying even _half_ that in tax!~

    Reply
  14. I think I was hard working and charitable once? But guess I’m lazy and mean spirited now??? So am more than happy to give the young blokes their chance to be stupid … :)

    Yeh, putting 35c in one’s pocket through figuring out how to pay 15c on a dollar of income rather than 50c, can definitely have its attractions compared to going out and earning another dollar income to pay the additional 35c on the initial dollar and the 50c on the subsequent dollar.

    Up here for thinkin’ – Down there for sittin’ on … As me dear old Dad’s been known to say.

    Reply
  15. OK… sixth try… and I got:

    “Duplicate comment detected; it looks as though you’ve already said that!”

    DRA clearly don’t want me commenting on tax-free seniority!~ :)

    Reply
  16. Comment by Biker on 26 July 2010:

    “It’s _your_ lucky generation that’s the fan that get s hit…”

    Nah, when your generation goes, there will be no_more_s_hit left to hit_the_fan with.

    Reply
  17. Plato’s Utopia – Coming soon – To a city state near you – Rather than wallowing in Romulus’ s_hit. Hot damn! I must let my niece and nephew know … :)

    Reply
  18. He’s right you know, Ned. All the world’s problems end with my generation.
    War, for example. No more war after we go. We invented it! ;)
    My generation invented poverty, the world’s deserts, disease, etc, etc…

    I get a lot of mirth from these young blokes arguing that all _their_ problems are caused by the previous generation. Their it’s-all-your-fault-brigade carry a chip the size of a battleship. It’s an excuse not only for failing to get ahead, but for actually _doing_ something to improve their lot in life.

    nv, you’ve got a few more decade s’ hit before you get your chance to hold back the tide, son. Don’t waste the next thirty years (as well) blaming BBs for your own inadequacies. Get off your butt and do something with your life. No more bleating, or trotting out lame excuses for your inertia, stalled circumstances, or homelessness.

    You’d do well to consider Henley’s message in ‘Invictus’:

    “It matters not how strait the gate
    How charged with punishments the scroll
    I am the master of my fate;
    I am the captain of my soul.”

    Reply
  19. Comment by Biker on 28 July

    “He’s right you know”

    Too rite I’m rite ya no.

    Correction.

    What I previously stated as “when your generation goes, there will be no_more_s_hit left to hit_the_fan with.”, now reads:

    When the greedy baby boomers purchase their final plot of land six foot under there will be a LOT_LESS_s_hit to hit_the_fan.

    Reply
  20. Oh we do so love the rumours
    it’s all caused by Baby Boomers…
    They’re grasping, gross and greedy
    _That’s_ the reason WE are needy!~

    When they’re all two metres deep
    Think of all the loot we’ll reap
    All we need to do is wait
    (You’ll be over fifty, mate!~ :) )

    Reply
  21. Don’t take it personal bi_ker peat, itsa been happenin for centuries before you ‘johnny come lately’s’, you’re not solo, but not to the unprecedented extent of the last 6 decades that is unrivalled whichever way you twist it thanks to the ‘needy greedy’ types that must have must sell must commission gimee gimee gimee, itsa all mine (here, take thy shaft).

    And the poxy thin cheap materials used to build ‘modern’ ‘designer’ homes where you will hear your neighbor fart and flush ten (10) doors either way. Good grief.

    Me wonders how you dig soooo many trenches and subsidize the needy renters whilst firmly entrenched herein.

    I reap and live by what I sow and love it.

    No mozzies FNofQ? Lol. Stop gagging on yourself, it’s embarrassing.

    Reply
  22. nv, you need a little poetry in your soul. I guess nv stands for ‘no verses’, eh?

    Very few trenches, son. Mostly large holes.

    And if your current rental is: “…poxy thin cheap materials used to build ‘modern’ ‘designer’ homes where you hear your neighbor fart and flush ten doors away… ” it sounds like you’re in one of them.

    Can’t see you digging your way out of that for a few decades, son. ;)

    Reply
  23. Comment by Biker on 28 July 2010:

    ” it sounds like you’re in one of them”

    Um, no, not now, but took a lease for six months in a ‘modern’ designer’ ‘new development’ ‘coastal’ ‘golf coursed’ wait for it, ‘village’ ‘ambience’ because we wanted the ‘experience of‘ it prior to outlay. Decided against because it’s all thin, cheap, crap.

    We’ll stick to sandstone/full brick.

    Reply
  24. Comment by Biker on 28 July 2010:

    “Very few trenches, son. Mostly large holes.”

    Wow! Must be lotza stuff happenin in WA if ya diggin big’n (large) holes. Didn’t know ya needed big’n (large) holes for a house bi_ker peat.

    Wat ya bilden bi_ker peat with those big’n (large) holes?

    Reply
  25. “…”…poxy thin cheap materials used to build ‘modern’ ‘designer’ homes where you hear your neighbor fart and flush ten doors away… ”

    From your ‘back’ground noise, it sounds like you’re still in one of them, nv.

    :)

    What you fellas never seem to realise is that when you post your sad, unhappy flatulence, post-after-post, it hardly brands you a winner, mate.
    Sorry, but you don’t smell _or_ sound like a winner to me, son… .

    Reply
  26. Comment by Biker on 28 July 2010:

    “Very few trenches, son. Mostly large holes.”

    Wow! Must be lotza stuff happenin in WA if ya diggin big’n (large) holes. Didn’t know ya needed big’n (large) holes for a house bi_ker peat.

    Wat ya bilden bi_ker peat with those big’n (large) holes?

    Wots ya prob pop?

    Reply
  27. No probs here, son.

    _You_ sound like you need a little good news, though:

    http://www.perthnow.com.au/news/national/killer-rate-rise-to-hit-marginal-seats/story-e6frg15u-1225897787563

    Mate, things are going to change for the better for you. I see a very bright future ahead. Don’t concern yourself that others are happy to work with both hands…and you’re only used to using one… . ;)

    Reply
  28. Wh-h-haha-a-aa-t… no lightning comeback, nv?

    (Gone for earplugs and a noseclip, I guess… .)

    Reply
  29. Poor ole BBs – If Tony can’t get the ladies to like him, I’m here for a short time not a good time Kev might be our only contribution to Oz’s list of learned leaders – Not much of a recommendation really is it? Might be best we stick to renovating our houses … :)

    Reply
  30. Never mind Rudd, Ned… . What about nv… also here for a short time, not a good time(?) Has to put up with a buoyant Oz economy, while his mission is to talk down a resource economy, against all odds… .

    Fancy getting stuck flush in an thin-walled Aussie apartment with a symphony of Oz flatulence erupting nightly ten doors either way. (Is that twenty rectal instruments simultaneously tooting at him and his, I wonder?!~)

    No wonder he’d like to see the Boomers Down Under, mate.
    He’s Kangaroo Edward… . :)

    Reply
  31. G’day Biker – You might find the following informative? I did:

    http://bubblepedia.net.au/tiki-view_blog.php?blogId=4

    Unless I’m very much mistaken, it is by the originator of that site???

    But either way, I found the thoughts of a chap who can afford to pay over $57K pa on rent, who has convinced himself that the market value of a $2M (Sydney waterfront?) property, should be somewhere in the $350K to $700K range, fascinating. :)

    Reply
  32. Comment by Biker on 28 July 2010:

    ” Don’t concern yourself that others are happy to work with both hands”

    Since you spend so much time here I guess you use this http://www.magicwandkeyboard.com/index.html whilst happily working “with both hands.”

    “Wh-h-haha-a-aa-t… no lightning comeback, nv?”

    Unlike yourself, I have a life. Come and go as I please.

    Reply
  33. Since you ‘come and go’ as you please, I take it that’s how you’ve picked up little gems like ‘renters’… and spelling like ‘neighbors’ and ‘subsidize’, ocker/cobber/digger/sport/mate. :)

    Reply
  34. Thanks for the link, Ned. Who would pay _millions_ for a house?!~ :)
    Who would pay $57K in rent? World is full of idjits…

    My stuff is ‘disappearing’ again. I take it as a compliment. ;)

    Reply
  35. “Who would pay $57K in rent?” – The originator of a site like bubblepedia? Whose lifestyle requirements dictate he resides in absolute Sydney waterfront property? Whilst he draws peoples’ attentions to the injustices of ‘shelter’ being overpriced? And rails against investors who’d rather sit on said shelter [highly valuable long term investment property?] than sell it to him at a long term pre-ordained multiple of average annual income? Plus old people who’ve been living in such property for years – And aren’t rushing to move on so ‘their’ children and grandchildren can have it? All round, someone who is a bit of a joke???

    Reply
  36. PS: If you do happen to get to the site, check out the stuff by “chooky” – An aging boomer with a bunch of kids who are nagging him to help out with their house deposits maybe? Who reckons Bugger dat, it’s da gubment’s job to make sure all me kids gets cheap houses – Gawd come on youse fellahs, let’s all write Mr Abbott a letter!

    There’s no fool like an old fool … :)

    Reply
  37. “All round, someone who is a bit of a joke?”

    Quite a bit of that about, apparently… . ;)

    “…a bunch of kids who are nagging him to help out with house deposits…”

    Thank God ours are independent. Gave them both a good state school education and they both own homes in their mid-twenties. No BS about government, the older generation or any other waffle… just goal-setting, hard work and belief in their own abilities.

    What still amazes me about _some_ of this generation is their belief that you should be able to have exactly what you want… and when _you_ want it.
    I’m grateful we were spared that BS with our kids… . :)

    Biker Pete
    July 29, 2010
    Reply
  38. This is worth a laugh, Ned. Here’s _the very beach suburb_ young Steven claimed you couldn’t give away, about six weeks back… :

    http://www.perthnow.com.au/real-estate/beachside-scarborough-enjoying-a-boom/story-e6frg3o3-1225888595168

    Biker Pete
    July 29, 2010
    Reply
  39. I don’t like deceptive lying little pricks yanking my chain Biker – And that’s what the boss bubblepedia boy comes across as. I see Steve Keen donated him $50 … Yep, definitely no fool like an old fool! :)

    Reply
  40. “I don’t like deceptive lying little pricks yanking my chain Biker…”

    HaHa…!!~ I was just reflecting similar views after reading the whole eleven pages, Ned. Difficult to stay focussed while reading it. Every second or third post is from an unhappy tenant bleating about how terrible it is renting; while another third are shouting the praises of tenancy as the only sensible financial decision. What a dog’s breakfast!~

    What is important is the historical record it provides. All the forecasts of property crashes with interest rates peaking at around 9.5%! Nothing about Keen’s 0% rate forecasts whatsoever, mine dew! And the _crowing_ about forced sales… mixed with outrage on behalf of tenants who suddenly found themselves homeless. What a mixture of beatings, bleatings and bleedings!!~

    Honestly, it makes DRA shine like BULLion, Ned.
    Thanks for the laugh… ;)

    Biker Pete
    July 29, 2010
    Reply
  41. It’s extraordinary stuff Biker – Even the lament now that if they prove right and there is a crash, that these houses they covet won’t be worth owning! I can’t recall coming across a more seriously confused (and disturbed!) mob of poor bugger me babies.

    Hmmm – Back to the world of the somewhat sane – Said previously I preferred concrete roof tiles and brick walls – A case of brain thinking one thing and fingers typing another – I like glazed clay roof tiles and brick. And in the absence of that then colourbond rooves are sensible.

    Reply
  42. “I see Steve Keen donated him $50”

    Wonder how much he’ll compensate the ninnies who figured he was right and sold up… and now can’t afford to get back in?!~

    There’s a classic blogger over here, who did just that; then put all his cash into the ASX to see it fall over 50%. Probably the most bitter bear I’ve read. No wonder they milk ’em for their bile in China!~ ;)

    Biker Pete
    July 29, 2010
    Reply
  43. “…the lament now that if they prove right and there is a crash, that these houses they covet won’t be worth owning!”

    YES, I saw that! ROFLMAO and kicking both legs simultaneously… !!!~ :)

    Biker Pete
    July 29, 2010
    Reply
  44. I’m going to call it quits for the evening Biker – I think I’ve had enough of figuring out who is motivating the lunatics (and why!) for one day. :)

    Reply
  45. Just saw my bank – They can’t give me a bonus interest rate on my cash deposit right now. If the others adopt that attitude it’ll bye bye to the 6% that this debt free church mouse can live on quite OK back to 4.5%

    At which point investment property returning even 3.5% is definitely worth a look. Especially if one can add a bit of value and up that to 4% or more. Given that Yes, property prices DO always go up [long term], while the value of cash DOES always go down [long term] – Unless the national pastime becomes committing to 3 generational mortgages when the population is declining perhaps?

    Reply
  46. It can be difficult to restrain oneself from laughing at them outright Biker. But I am trying to make the attempt nowadays. (Except for nasty little grubs like that bubblepedia bloke – Evil manipulating grasping little turd … He still gets up my nose if I think about him! Geez, I could rant and rave about the likes of that bloke all day!!!)

    But I reckon there’s genuine ones amongst them. Whose only real crime is that they were bought up to expect life would be wonderful. And that our pollies still encourage them to think this – Which sounds a bit crook when it just could all be horse feathers? And because it doesn’t work anyway – Only living life can convince one that some problems can’t be fixed. And that with others that can be, maintaining the status quo is way preferable to the cure!!! :)

    Reply
  47. “They can’t give me a bonus interest rate on my cash deposit right now.”

    This is big picture stuff, Ned. I’ll be interested to see what our eldest does once his 6.8% pa expires later this year.

    He’s doing better than that on the FHSAS (21.25% after tax) but I’m intrigued to see what he does next, given his doctorate in Maths.

    Still working on The List.

    Biker Pete
    July 30, 2010
    Reply
  48. “…Evil manipulating grasping little turd … He still gets up my nose…”

    The imagery is awful, Ned. Turd with claws attempting to push aside your nostril hairs! Screaming with lafffffffter. Probably funnier after a half-bottle of good Shiraz, so sincere condolences to the less-imbibed. :)

    Biker Pete
    July 30, 2010
    Reply
  49. That would explain the lingering odour of odure perhaps? :)

    Reply

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