Welfare State Crash

According to recent reports, the US Social Security system will start paying out more in benefits than it receives in taxes next year. The US is hardly alone in having stresses on its old-age pension programmes. This raises the larger question, can society afford to pay people not to work?

It is ironic to ask this question at a time millions are being thrown out of work, and there doesn't seem to be enough to do. Of course, there always is plenty to do - it's just that it is uncertain what are profitable undertakings, and what are not.

The basic premise of the Welfare State is that those who are lucky enough to stumble upon something profitable to occupy their time should 'share' a portion of their wages (or winnings) with the portion of the populace who are not so lucky. This 'sharing' is enforced through taxation and the coercive power of the State.

During the growthy era from World War II to the end of the last century, there were plenty of profitable occupations in the Industrialised Nations and the dependent class was a minority. In recent years the dependent class has been growing much faster than the productive one. How many non-productives can society support? And at what level?

In a saner world, these questions would be coming to the front of public debate. But as that is not the case, we expect an overburdening of the productive sector and an accelerating economic decline. The end state is likely to involve the OECD nations little better off than the more advanced of the developing nations. In that case, there will be essentially no public resources for the disadvantaged and unmotivated to draw upon. Expect to see shocking poverty once again where it was supposed to have been eradicated.

Let the Economy Change

Words like 'decline' and 'collapse' are being tossed around with reference to the economy as if the economy were a static entity. Actually, of course, economies are very dynamic - with a continual stream of emerging and declining enterprises and industries. When the economy in the aggregate is growing, the emerging are growing faster than the declining are shrinking. When the declining are shrinking faster than the emerging are growing, the economy in the aggregate is shrinking, as is the case today.

Once upon a time there was a theory that if the declining enterprises were liquidated quickly, it would offer room for the emerging enterprises to grow. Imagine if you will, a forest fire burning out the dead wood.

Nowadays, the declining enterprises are given bailouts, and the forest fire of Depression isn't allowed to burn out the dead wood. If our analogy is accurate, this makes for bad forest management of the sort that led to the great Yellowstone Fire of 1988.

If current government efforts to stymie the Depression are successful, they will only put off a future, greater depression. The economy must change sooner or later to accommodate reality.

We do not know where economic developments will take society, but we opine that the rate of change is too slow. Bad operations like General Motors and AIG must be put down to allow the economy to readjust to the new realities. and the sooner the better.