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The Vicious Welfare Cycle November 13, 2006

Posted by federalist in Economic Policy, Social Politics.

Interesting debate going on about demographics, comparing EU to US.  In passing the Economist offers a poignant summary of the vicious cycle of state welfare

Generous welfare states tend to reduce the number of hours worked:  high taxes mean that workers take more of their pay as untaxed leisure; unemployment tends to stretch out, thanks to generous benefits and reemployment schemes; sick leave and disability insurance reduce the cost of absenteeism; high pensions encourage healthy seniors to retire; and welfare benefits and family leave policies encourage women to spend more time with their children. 

Governments have largely nationalised the traditional functions of the family, but in doing so they have not eliminated the need for future generations to care for the current ones in their dotage.  Unfortunately, the assumption of family duties by the state allows people to free ride on the fertility of others—which they seem to be trying to do in massive numbers.  As we’ve mentioned before, a society where everyone tries to free ride on everyone else is headed for disaster.  Europe’s safety nets, or at least the pension systems, may contain the seeds of their own destruction.

There is another question to be asked, of course:  even if Europe can survive the costs of its own large welfare state, could it survive America’s adopting the same model?  There is an argument to be made that Europe’s risk averse culture free rides on innovations developed for America’s less regulated markets—particularly in pharmaceuticals and medical equipment.  If this is true, Europeans enamoured of their generous safety nets should not be urging the same on the US.  The greatest good for the greatest number would be best served by keeping quiet and letting those foolish Americans take the bullet for the rest of the world.



1. federalist - January 14, 2007

Peter Schaeffer has an excellent comment on a Marginal Revolution discussion of apparently successful welfare states:

A commonly heard expression in Denmark is that the welfare state and mass immigration can not be combined and therefore immigration must end.

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