Monday, May 07, 2012

Europe: Chickens Coming Home to Roost?

Europe is a flutter with the defeat of conservative French president Nicolas Sarkozy, and the talking heads are wondering about the long-term ramifications of a Socialist regaining power.

To go along with this fun, I found this little article from Yahoo News wondering if "austerity" has now become a dirty word.

One reason this interests me is because of the humungous debate we're having here in the United States in this election cycle. Will we as Americans go the route of Europe and embrace a nanny state type of society and the level of taxation that requires, or will we retain our historic national character of limited government, restraint on taxes, individual freedom and individual responsibility?

It's hard for me to type "restraint on taxes," because we are hearing all sorts of hollering about the need to raise taxes so we can keep the level of social spending as is, or actually to allow for increasing it. And therein lies the debate. We're already trillions of dollars in debt, and the economies of several European states are beyond moribund. The cradle to grave, nanny state benefits cost a LOT of money - and in the long term it is unsustainable.

The hoo-hah also illustrates a maxim that the politicians who push for increased social benefits know cynically very well. Once people are accustomed to getting that government "benefit" or check in the mail, they are very loath to give it up and get very angry at anyone who wants to dry up the teat. That's why Social Security has historically been called the "third rail" of American politics—certain political death for any politician who wants to mess with it.

Luther Gulick of the American Society for Public Administration had a quote from President Franklin D. Roosevelt that pretty much sums up the attitude of politicians who love giving out benefits to potential voters. I quote Gulick's memo below in its entirety, with FDR's statement in bold . . .

MEMORANDUM ON CONFERNCE WITH FDR CONCERNING
SOCIAL SECURITY TAXATION, SUMMER, 1941



Beginning in June, 1941, I was working in the Treasury organizing the study of federal, state, and local government fiscal relations. My colleagues for this project were Harold Groves of Wisconsin, Mabel Newcomer of Vasser, and Clarence Heer of North Carolina—though Heer later withdrew from the staff and served only as a special advisor. The result of our work was published under the title, “Federal, State and Local Government Fiscal Relations," as Senate Document 69 of the 78th Congress, First Session.
As part of the study, Harold Groves and I came to the conlusion that federal enactment of a retail sales tax might prove to be a highly useful revenue producer, and at the same time something of a brake on the then mounting inflation. We also thought that a federal enactment would prevent the further spread of state legislation and that this would mean the possibility of repealing the retail sales tax at a later point in the economic cycle when counter deflationary measures might be required. Henry Morganthau showed no interest in the proosals and repeated all of the regular arguments on the sales tax ignoring the fiscal policy considerations arising at a time of high incomes and commodity shortage. I, therefore, discussed the problem with FDR when he asked me how I was coming with the Treasury study. He said to go ahead and explore the idea with Harold Smith, Marriner Eccles, and others.
In the course of this discussion I raised the question of the ultimate abandonment of the pay roll taxes in connection with old age security and unemployment relief in the event of another period of depression. I suggested that it had been a mistake to levy these taxes in the 1930’s when the social security program was originally adopted. FDR said, “I guess you’re right on the economics. They are politics all the way through. We put those pay roll contributions there so as to give the contributors a legal, moral, and political right to collect their pensions and their unemployment benefits. With those taxes in there, no damn politician can ever scrap my social security program. Those taxes aren’t a matter of economics, they’re straight politics.”
FDR also mentioned the psychological effect of contributions in destroying the “relief attitude.”

Of course we know that Social Security has ballooned beyond what the original intent was - supposedly. It was never intended (at least we were told) to be a pension program for seniors. It was supposed to be a "supplement." But in time, millions of seniors came (and still do) depend on Social Security checks as their sole source of income. And there is no motivation to supplement that income, because the more you get from another source, the government reduces what you get in Social Security. And then add on "Survivor Benefits" and a host of other government goodies that have been added on through the years, including Medicare and Medicaid. Food stamps. And on and on and on and on, with no end in sight. 

Rather than trying to get the economy humming on all engines, and trying to benefit as many as possible with good paying private sector jobs, AND letting people keep/save more of their own money, the only jobs that are being added these days are government jobs with fat, juicy pensions and other benefits that are bankrupting states  and municipalities. Government produces nothing. It takes, although it does provide certain "services." But as a revenue-generating entity, no. 

Europe is in trouble. They don't like austerity, and will riot over it. America is headed that direction. With riots no doubt coming sooner or later. 

And that's what some politicians are probably hoping will happen, although they'd die before they'd admit it. 

Sola's note: As you see, Blogger's system has messed up the font in the last half of my post, and despite me choosing the same font and size as the opening paragraphs, it still posts as very tiny and hard to read. If I increase the size while keeping the same font, it's larger than the original in the opening paragraphs. Very frustrating, but trying to get an answer about fixing it is like trying to get information out of North Korea. 

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