The further to the left or the right you move, the more your lens on life distorts.

Monday, December 05, 2011


In my last post, I noted that Leftist economist Paul Krugman applies his own “reality distortion field” to claim that Europe’s problems can be remedied with more spending.

Economist Paul Samuelson suggests a somewhat less delusional view about the modern European welfare state:
To flourish, the welfare state requires favorable economics and demographics: rapid economic growth to pay for social benefits and young populations to support the old. Both economics and demographics have moved adversely.

The great expansion of Europe's welfare states started in the 1950s and 1960s, when annual economic growth for its rich nations averaged 4.5 percent compared with a historical rate since 1820 of 2.1 percent, notes Eichengreen. This sort of growth, it was assumed, would continue indefinitely. Not so. From 1973 to 2000, growth settled back to 2.1 percent. More recently, it's been lower.

Demographics shifted, too. In 2000, Italy's 65-and-over population was already 18 percent of the total; in 2010, it was 21 percent, and the projection for 2050 is 34 percent. Figures for the European Union's 27 countries are 16 percent, 18 percent and 29 percent.

Until the financial crisis, the welfare state existed in a shaky equilibrium with sluggish economic growth. The crisis destroyed that equilibrium. Economic growth slowed. Debt - already high - rose. Government bonds once considered ultra-safe became risky.

The reason this argument is so threatening to American leftists is that it threatens their belief that big government can sustain itself indefinitely. A few weeks ago I noted that ironically many on the Left who believe so fervently in “sustainability” in all things, selectively reject the notion that sustainability in government is gravely threatened by their advocacy of big government. But back to Samuelson:
Switch to the United States. Broadly speaking, the story is similar. The great expansion of America's welfare state (though we avoid that term) occurred in the 1960s and 1970s with the creation of Medicare, Medicaid and food stamps. In 1960, 26 percent of federal spending represented payments for individuals; in 2010, the figure was 66 percent. [emphasis mine] Economic growth in the 1950s and 1960s averaged about 4 percent; from 2000 to 2007, the average was 2.4 percent. Our elderly population was 13 percent in 2010; the 2050 estimate is 20 percent.

If, like members of the Obama administration, we turn up the intensity of the reality distortion field, all of these data are meaningless because all you really have to do is believe. But belief is running into the harsh realities of arithmetic. The numbers just don’t add up.

Samuelson writes:
The paradox is that the welfare state, designed to improve security and dampen social conflict, now looms as an engine for insecurity, conflict and disappointment. Facing the hard questions of finding a sustainable balance between individual protections and better economic growth, the Europeans have spent years dawdling. The parallel with our situation is all too obvious.

Except for those who live within the reality distortion field.