The Obama administration has staked its policies to a vast expansion of the welfare state, tripling the largest deficit that Bush ever accumulated, just when the European model Obama seems to admire is crashing. The welfare state is best understood as a Ponzi scheme that rewards the present at the expense of the future. It’s a great Ponzi scheme, because the marks are required, by force of law, to buy in, and because you borrow against the future when you run out of marks. Eventually, however, two problems emerge. People lose faith that the future will be better than the present, so they stop having children. Slowing birth rates slow the growth of the pool of marks, requiring greater and greater borrowing against the future. But people can see the trends, and stop lending. Hence, Greece. The Obama administration, lemming-like, is eager to run off the same cliff.
Here’s how Robert J. Samuelson puts it:
Every advanced society, including the United States, has a welfare state. Though details differ, their purposes are similar: to support the unemployed, poor, disabled and aged. All welfare states face similar problems: burgeoning costs as populations age; an over-reliance on debt financing; and pressures to reduce borrowing that create pressures to cut welfare spending. High debt and the welfare state are at odds. It’s an open question whether the collision will cause social and economic turmoil….
The threat to the euro bloc ultimately stems from an overcommitted welfare state. Greece’s situation is so difficult because a low birth rate and rapidly graying population automatically increase old-age assistance even as the government tries to cut its spending. At issue is the viability of its present welfare state.
Almost every advanced country — the United States, Britain, Germany, Italy, France, Japan, Belgium and others — faces some combination of huge budget deficits, high debts, aging populations and political paralysis. It’s an unstable mix. Present deficits may aid economic recovery, but the persistence of those deficits threatens long-term prosperity. The same unpleasant choices confronting Greece await most wealthy nations, even if they pretend otherwise.