The Death of the Welfare State

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The Death of the Welfare State

Capitalism's great strength is that unfettered competition leads to efficient use of resources, as those who create the most value win — and those who don't create enough sufficient value lose.  The result is the creation of the largest possible economic pie. 

The welfare state was designed to ensure those who could not generate sufficient economic value — due to age, health or other limitations — would not suffer excessively.  As originally formulated, it was not only compassionate but it promoted social stability and served as another mechanism for maintaining power and control.  And for several generations, demography and rapidly rising productivity have enabled the welfare state to operate and greatly expand in scope. 

Annual Federal Welfare Spending 1950 to 2008

Annual Federal Welfare Spending 1950 to 2008

Unfortunately, those who have promoted and engineered this system of welfare, and continue to do so today, lack a fundamental understanding of both human nature and the unintended consequences that have arisen from the system.  It is these factors that have made the welfare state unsustainable.

It all started simply enough in Germany in the 1880s with government insurance to cover health, old age, and accidents.  Throughout the 20th century, wealthy nations created programs to cover education, health care, unemployment insurance, public housing, and income redistribution, all of which were virtually non-existent at the beginning of the century. 

Initially, this growth of government accelerated due to the incorrect perception that the Great Depression was caused by a failure of capitalism and the resulting belief that a broader safety net was needed to offset the problems with a market economy.  Following World War II, communist and socialist politicians were elected in much of Europe, largely because of their perceived role in wartime resistance movements. 

Also during the 1950s and '60s, annual economic growth in Europe's richest countries averaged 4.5 percent, versus a 2.1 percent average growth rate from 1820 to 2010.  Rapid economic growth, coupled with left-leaning governments and a lack of confidence in markets, created the perfect environment for the size of the welfare state to explode...

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