NCPA - National Center for Policy Analysis


July 15, 2010

The European economic turmoil of 2010 finds its proximate cause in the global economic slump, which has strained government budgets everywhere.  Its source is the vast expansion of Europe's welfare states, says Brian C. Anderson, editor of City Journal. 

Consider the example of Greece.  What has pushed the country to the precipice is a regime of government benefits and union perks that the country doesn't produce enough to afford, says Anderson: 

  • Greece has one of the most generous pension systems in Europe -- it spends 12 percent of its gross domestic product (GDP) on pensions -- even though the number of able-bodied working-age Greek taxpayers to fund them is fast dwindling.
  • The nation's 65-and-older population could rise to 25 percent by 2030, up from 18 percent today, experts project.
  • To maintain even its current welfare state, Greece has imposed high taxes, which discourage work and entrepreneurialism.
  • It has also gorged on debt; last year, it ran a nearly 14 percent budget deficit, and its debt has hit 115 percent of GDP.
  • Long-term economic stability will require a considerable downsizing of Greek government commitments, and Greece's problem is only a slightly exaggerated version of Europe's as a whole. 

The Obama administration and Democrats in Congress have used the financial crisis as an excuse to try to remake the United States into a European-style social democracy.  The bailouts of Wall Street firms (begun under President Bush), the $800 billion neo-Keynesian government stimulus, ObamaCare, the partial takeover of the automotive industry, efforts to increase regulations of the airwaves, higher taxes, proposed new environmental mandates -- all of it is pushing in the same statist direction, says Anderson: 

  • During the first months of 2010, paychecks from private firms made up the smallest share of personal income recorded in U.S. history, while government benefits reached an all-time high.
  • Federal spending last year exceeded 24 percent of GDP, the highest peacetime percentage ever for the United States.
  • Once new Obama entitlements kick in, that percentage could reach 40 percent of GDP by 2050.
  • Debt, according to some projections, could reach a Europe-like 90 percent by 2020. 

To afford all this spending, the private sector will eventually have to pay a lot more to the government.  This would reject what has worked in the United States in favor of what has proven inimical to progress, says Anderson. 

Source: Brian C. Anderson, "Crisis undermines government fundamentalism," Washington Examiner, July 14, 2010.


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