Posted by Chriss Street
With the Congress and the Administration in full battle mode over implementing Obamacare to convert the United States into a European welfare state, Dutch King Willem-Alexander gave a nationally televised
speech to his nation’s Parliament on September 16th declaring the welfare state was dead. The message, written for the King by Prime Minister Mark Rutte’s government, stated that current levels of state spending for unemployment benefits and subsidized health care are unsustainable amid Europe’s ongoing economic malaise. With Moody’s credit rating agency threatening to downgrade Dutch debt, the King announced that citizens soon will be expected to create their own social and financial safety nets with much less help from the state
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Economists
define a nation to be welfare state when 20% or more of its gross domestic
product (GDP) is spent by the state on welfare and education. The United
States has never hit that level, but welfare and education “investment”
spending under President Barack Obama rose to 19.4% of GDP in 2012. Implementing Obamacare will
convert America into a welfare state for the first time in our history.
The
concept of the welfare state that ensures cradle to grave well-being for its
population is uniquely a European creation.
It originated in Bismarck’s Germany in the late 19th century and took root in Britain and
the Scandinavian countries during the Great Depression. The Treaty Establishing the European
Economic Community in 1958 set standardized social objectives
across the continent for “promotion of employment, improved living and
working conditions … proper social protection, dialogue between management and
labor, the development of human resources with a view to lasting high
employment and the combating of exclusion”. The
1993Maastricht Treaty expanding the European Union (EU) and
adopting the euro currency legally required European states to provide
high living standards and good working conditions.
Historian
Tony Judt famously stated that the European social model “binds Europe
together” in contrast to the “American way of
life”, which sociologist and former communist Will Herbergdefined in 1955 as so individualistic that
“it stresses incessant activity on his part, for he is never to rest but is
always to be striving to ‘get ahead.’”
The
objective of the welfare state is “limiting the reliance of family and
market” through equality of opportunity and an
equitable distribution of wealth to achieve contentment for the
group. This involves financial redistribution transfers through
progressive state tax rates to provide an array of services and make direct
benefit payments to individuals. Hillary Clinton argues in “It Takes a
Village” that communities are superior to parents at raising children and
economist Peter
Lindert argues in “Growing Public” that state “investments”
contribute to economic growth and do not reduce productivity.
But
according to a study by the Brussels-based Bruegel think-tank: “Much of Europe
suffers from a mutually reinforcing interaction between limited productivity
gains, protracted deleveraging, weak banking sectors and distorted relative prices
… This combination contributes to an overall weakening of economic growth and
threatens to turn into self-perpetuating stagnation.” The report acknowledged that 30
years ago the economic output of the countries that formed the EU had 15%
higher output than the U.S., but by 2017 the output of the EU will be 17% less
than the U.S.
The
International Monetary Fund warned on April 18th that the EU’s “structural
unemployment” rate – that is the unemployment that won’t go away even if the
crisis ends and the economy returns to normal – is expected average a staggering 10.1%, up from
7.4% before the European financial crisis began in 2009.
This grim
economic outlook threatens substantial financial stress on the solvency of the
Dutch and the Germans, whose Aaa credit ratings have backstopped the multiple
EU borrowings that rescued Portugal, Ireland, Italy, Greece and Spain (PIIGS)
from bankruptcy. But on July 23rd, Moody’s
Investor Services put the Dutch and German premier credit ratings on negative credit watch, in
anticipation of a possible credit downgrade. Moody’s on September 3rd put
more financial stress on the Dutch and Germans by also changing the credit outlook to negative for EU debt they guaranteed.
King
Willem-Alexander’s words are highly symbolic, since European elites on the
center-right and the center-left have resisted challenging the welfare state as the social contract between Europe’s rulers and those ruled. Europeans enjoyed decades of lush welfare benefits without paying for full costs. European economies burdened by high taxes and government interference were able to mask their dismal trade and industry performance through massive amounts of borrowing. But if the Dutch and Germans pull their guarantees, most of European welfare states will collapse like houses of cards.
center-right and the center-left have resisted challenging the welfare state as the social contract between Europe’s rulers and those ruled. Europeans enjoyed decades of lush welfare benefits without paying for full costs. European economies burdened by high taxes and government interference were able to mask their dismal trade and industry performance through massive amounts of borrowing. But if the Dutch and Germans pull their guarantees, most of European welfare states will collapse like houses of cards.
All of
this should serve as a ringing endorsement for nations around the world to
imitate the “American way of life. But just at the moment of
triumph for America’s market and family friendly economic model, the Obama
Administration and a few ideologues want the United States bound together with
the collapsing European welfare states.
Listen
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