Tuesday, March 19, 2013

How the Welfare State Bankrupts: French Edition

It is widely or popularly held that “safety nets” provide “social justice” and “compassion” to underprivileged people.  On the surface this looks valid. 

But in reality or by looking deeper, the welfare system provides perverse incentives that accomplishes the opposite. 

Such includes dependency, sloth, reduction of the incentive to save, promotes reckless behavior via the moral hazard, incites social conflict via class warfare policies brought about by envy and the entitlement “something for nothing” mentality and fosters economic instability which raises the risks of crises via chronic deficits, huge debts and inflationism. 

All these undermines productivity, prosperity, peace and social harmony, and most importantly, civil liberties.

GoldMoney’s Alasdair Macleod  talks about the decadent French welfare state as example (bold mine)
However, the financial press is less familiar with the enormous future commitments of European governments, which are truly alarming. And these figures do not even fully expose the difficulties for governments to deliver their welfare obligations.

Eurozone unemployment is over 10% on average. This means that 10% of tax contributors are out of the picture and become a welfare burden, so Spain and Greece where unemployment is at 26% are in immediate trouble with their welfare budgets. Another unfavourable factor is the dominance of the state.

Take France, whose general government is 57% of GDP. Her working population is 28 million out of a total population of 66 million; 3 million are unemployed, which leaves 25 million, of which 8 million are employed by government. We can disregard government employees, since they are a net government liability, not a source of revenue.

That leaves only 17 million productive taxpayers who have to pay for the welfare and pensions for 66 million in a heavily state-controlled economy. Furthermore, a significant proportion of private sector employees are working in nationalised or government-supported industries, so the true figure of real taxpayers is significantly less than 17 million.

We can draw two conclusions about the European states: their welfare, health and social service liabilities are, unless they ditch the majority of their welfare commitments, going to bankrupt them; and because their true taxpaying base to fund this largess is smaller than generally realised, taxes are going to have to rise to the point where it is not worth genuinely productive people working.
When unproductive sectors takes more from what the productive sectors can give, such parasitical nature of relationship only means one thing: bankruptcy, as the Santa Claus (free lunch) principle eventually liquidates itself, and a coming social chaos. In short, feel good short term economically unfeasible policies eventually unravels.

Yet the seduction of welfare systems emanates from the lies founded and peddled for by politicians. As the great libertarian author Henry Hazlitt warned (Man versus the Welfare State p.34).
THE WELFARE STATE CAN ARISE AND PERSIST ONLY by cultivating and living on a set of economic delusions in the minds of the voters
At the end of the day, the welfare state epitomizes the axiom "the road to hell is paved with good intentions".

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