Tag Archives: welfare states

Why the New Paradigm Was Inevitable, by Jeff Thomas

Great cultures and civilizations start down the path to ruinous downfall when their government’s start taking from the productive to buy the support of their populaces. From Jeff Thomas at internationalman.com:

the New Paradigm

Just as people go through a lifespan that consists of different stages, so empires tend to follow a pattern of stages.

They tend to start off slowly, making progress as a result of industriousness, understanding that progress is dependent upon hard work and an entrepreneurial spirit.

This is important to understand, as it’s the one essential in the growth of a nation. No nation becomes an empire through complacency or a lack of productivity. Welfare states do not become empires, although most empires end up as welfare states.

So, if that’s the case, what is the progression? And more importantly, what does this mean, considering the dramatic changes that are now unfolding in much of the world?


As stated, prosperity is created through a strong work ethic and an entrepreneurial spirit throughout a significant portion of the population. This is what brings about wealth creation – a condition in which people invest their time and money in a business enterprise that reaps profit. The profit is then re-invested to expand upon that success.

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Fiat’s failings, gold and blockchains, by Alasdair Macleod

Alasdair Macleod is the best writer on monetary economics on the Internet. From Macleod at goldmoney.com:

The world stands on the edge of a cyclical downturn, exacerbated by trade tariffs initiated by America. We know what will happen: the major central banks will attempt to inflate their way out of the consequences. And those of us with an elementary grasp of economics should know why the policy will fail.

In addition to the monetary and debt inflation since the Lehman crisis, it is highly likely the major international currencies will suffer a catastrophic loss of purchasing power from a new round of monetary expansion, calling for a replacement of today’s fiat currency system with something more stable. The ultimate solution, unlikely to be adopted, is to reinstate gold as circulating money, and how gold works as money is outlined in this article.

Instead, central banks will struggle for fiat-based solutions, which are bound to face a similar fate with or without the blockchain technology being actively considered. The Asian and BRICS blocs have an opportunity to do something with gold. But will they take it?


Central banks around the world are praying that there won’t be a recession, and if there is that a further monetary stimulus will ensure economic recovery. Their problem is Keynesian theory says it will work, but last time it didn’t. In fact, it has never worked beyond a temporary basis. The big surprise this time was the lack of officially recorded price inflation. But this is due to the system gaming the numbers, making it appear there has been some moderate growth when a proper deflator would confirm most Western economies have been contracting in real terms for the last ten years.

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The Hidden Link Between Fiat Money and the Increasing Appeal of Socialism, from Patrick Barron

Alan Greenspan wrote a good essay on monetary gold back when he was friends with Ayn Rand. Among many pertinent points, he argued that gold as money made welfare states impossible. Fiat money has made a lot of bad ideas possible. From Patrick Barron at mises.org:

What causes the seemingly unfounded confidence in socialism we encounter more and more in the news media and among political activists? In the Extinction Rebellion movement, for example, activists are quite certain they have learned that there is an alternative to markets as the means to economic prosperity. It’s a means that does not involve meeting the legitimate needs of one’s fellow men in the marketplace.

It is likely not a coincidence that most people living today have lived most of their lives in a world dominated by fiat money. It has now been nearly fifty years since the United States broke all ties between the dollar and gold. It’s been even longer since other major currencies were tied to gold at all. Consequently we now live in a world where the creation of wealth is seen by many as requiring little more than the creation of more money.

In this kind of world, why not have socialism? If we run out of money, we can always print more.

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The Secret History of the Monopolization of Welfare by the State, by Richard M. Ebeling

One pernicious effect of the welfare state is that it crowds out private, voluntary charity. From Richard M. Ebeling at aier.org:

The fundamental political issue always confronting society is whether human relationships shall be based on free association and voluntary choice, or on governmental compulsion and command. Of course, in most societies there are elements of both, often called the interventionist state or the “mixed economy.” But, nonetheless, the basic institutional alternatives are liberty or coercion.

This often seems difficult for people to fully appreciate or understand. We select where we live, we accept or not accept a job offering, we decide on the furniture in our home and what (if anything) we will read in terms of books or magazines, or to watch on television. We pick our friends and choose the clubs and associations we want to join. A thousand other everyday choices and decisions reflect our freedom in still much of what we do.

Political Interference in Market Affairs

Yet, at the same time, we take for granted many aspects and facets of our lives where such decision-making is narrowed or co-opted for us by those in political authority. We are compelled to pay into the government pension system called Social Security; we are taxed to pay for types and degrees of medical and health care that we may or may not desire or consider worth what the government garnishes from our salaries to pay for it before we even see a penny of our earned incomes.

The government regulates how business is done, under what terms and conditions an employer may hire a worker, what products may be produced and with what qualities, features and characteristics, and sometimes the price at which the good or service may be sold.

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The Real Significance of the French Tax Revolt, by Peter C. Earle

People have reached a breaking point. They are tired of paying ever-increasing taxes and getting very little in return. From Peter C. Earle at aier.org:

The gilets jaunes (Yellow Jacket) anti-tax riots in France escalated over the past weekend, again citing the impact of higher taxes on fossil fuels –and high levels of taxation in general – on everyday life. French citizens, already subject to the highest taxes in the OECD, are being crushed by both new and systematically increasing taxes, and have taken to the streets by the hundreds of thousands in a “citizen’s revolution”. Recommendations to declare a state of emergency have for the time being been tabled.

With no sense of irony whatsoever, in a press conference on Saturday French President Emmanuel Macron stated: “I will never accept violence.”

Yet violence is the core component of his chosen vocation as a statesman.

Taxation poses as an equitable transaction – goods and services provided by a government in return for a fee (more galling and Orwellian, a “contribution”) from the taxpayer – but the nature of the interaction is obvious to all but the indifferent or determinedly thoughtless. It is not voluntary and does not follow from reason; neither will even the most indefatigable defenders of state appropriation, given the choice (and confidentiality), miss an opportunity to skirt the taxman and retain their property.

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How Welfare States Encourage Bad Economic Thinking, by Jakub Bozydar Wisniewski

Welfare states encourages all sorts of bad thinking; it’s not limited to bad economic thinking. From Jakub Bozydar Wisniewski at mises.org:

The greatest intellectual accomplishment of the laissez-faire liberal theorists was the recognition of the “hard” and “soft” institutions that are crucial prerequisites of productive accomplishment and material prosperity. The hard institutions include private property rights, market prices, and sound money. The soft institutions include those that reinforce values such as prudence, thrift, resourcefulness, innovative courage, and respect for success.

However, this accomplishment was accompanied by a proportionately great intellectual error — the belief that these institutions can be safeguarded exclusively by monopolistic apparatus of aggressive violence, commonly known as states. Since states necessarily parasitize on the productive output of market society, the belief that they are necessary for its emergence, let alone that they can remain “minimal” after its emergence, is fatally misguided. On the contrary, it appears perfectly predictable that they will grow in step with the increase in market output.

Unfortunately, this is not the end of the story. As powerful as states may be in terms of sheer physical force, their survival is ultimately rooted in favorable public opinion, and the best way to secure such opinion is to share their plunder as widely as possible. Thus, with sufficiently wealthy hosts at their disposal, states invariably turn into “welfare” states. And it is at this point that they start sawing off the branch on which they are sitting.

With productive achievement institutionally separated from consumption opportunities, the wealth-generating soft institutions start to erode particularly fast. When there is great abundance all around, but it seems that it can be enjoyed without putting in any productive effort, increasingly many of those who do not so enjoy it come to believe that abundance is a free good, and that the only reason why it is not free for them is because someone unfairly withholds it from them. In other words, the prevalence of welfare-statist “redistribution” spells the death of economic thinking – that is, thinking in terms of resource scarcity, opportunity costs, and incentive structures. This temporarily strengthens the state even further – since at this point the state immediately steps in as an entity that is able and willing to punish the malevolent withholders – but it also further accelerates the death of the goose that lays its golden eggs.

To continue reading: How Welfare States Encourage Bad Economic Thinking

How the Welfare State Dies, by Pater Tenebrarum

You’ll never guess what kills welfare states, but here’s a hint: Margaret Thatcher. Give up? Per Thatcher, welfare states run out of other people’s money to spend. That’s what’s happening in France and across southern Europe now. From Pater Tenebrarum at acting-man.com:

Hollande Threatens to Ban Protests

Brexit has diverted attention from another little drama playing out in Europe. As of the time of writing, if you Google “Hollande threatens to ban protests” or variations thereof, you will find Russian, South African and even Iranian press reports on the topic. Otherwise, it’s basically crickets (sole exception: Politico). Gee, we wonder why?

They don’t like him anymore: 120.000 protesters recently turned Paris into a war zone. All Hollande wanted to do was to loosen a handful of labor market restrictions (it’s too little too late of course). France’s labor legislation is among the most convoluted and restrictive in the entire nominally capitalist world. It has created enormous institutional unemployment and is a major contributor to France’s inexorable economic decline (see “France’s Sacred Labor Code” for details). Photo credit: Benoît Tessier / Reuters

Given that France is under a “state of emergency” since last year’s terror attacks in Paris, it is presumably easy for Hollande to ban demonstrations by decree, from a legal perspective at least. It seems unlikely though that a ban would actually stop the protesters. What is Hollande going to do if they just continue to strike and hold demonstrations? Invade France? Arrest hundreds of thousands of people?

These protests have been going on for more than a month now. What makes this confrontation so interesting is that Mr. Hollande himself started out as a devoutly committed socialist. Upon coming to power, he immediately introduced a 75% “super-tax” on the rich (causing a number of them to simply pack their bags and leave) and let loose his far-left industry minister Arnaud Montebourg, who’s job it apparently was to spout outdated Marxist slogans and micromanage France’s industries – especially the dying ones.

For a reminder of the days when a gung-ho Montebourg set out to show the world that socialism works after all (if only it is done right!), see “Moving France toward a Command Economy”. Somehow, he failed to deliver the desired results though. Big surprise! The whole world was vastly astonished.

Unemployment in France – even at the peak of the boom, unemployment never fell below 7%. It is fairly typical for an extremely over-regulated welfare state to have a high rate of institutional unemployment, but France is certainly a standout.

Once Mr. Hollande’s popularity had fallen to such a low level that one would have arrived at a round 100% by adding his approval rating to Vladimir Putin’s (Putin scored 87%, Hollande 13%), he apparently decided he no longer had anything to lose. Montebourg and a number of other cabinet members were kicked out and replaced with more centrist “technocrats” who were tasked with getting the French economy out of its rut.

The attempt to slightly reform the “code du travail” is part of the new program. The proposed modifications are already a compromise, the result of backtracking under the pressure of all sorts of interest groups in Hollande’s own party. It took the new cabinet an eternity to even get to this point. The reforms are halfhearted market liberalization measures that can at best be called “better than absolutely nothing”.

To continue reading: How the Welfare State Dies


Europe is Now Drowning Under the Cost of Welfare Bills, by Matthew Lynn

From Matthew Lynn from telegraph.co.uk:

When she isn’t shipping in more Syrian refugees, or trying to find new ways to destroy the Greek economy, the German Chancellor Angela Merkel is fond of quoting an alarming statistic: Europe accounts for just 7pc of the world’s population, and 25pc of its GDP, and yet it also accounts for a massive 50pc of its welfare spending.

The point is an important one. Europe’s welfare spending is out of control, and is on a scale that is both lavish and unaffordable compared with the rest of the world. There is a problem, however. Neither she, nor any other political leader in Europe, has the will to do anything about it.

Eurostat, the statistical agency of the European Union, has this week published updated figures on the total welfare bill across Europe. It is rising, and in some countries is getting up to a quarter of national output. Meanwhile, the percentage of spending on stuff like infrastructure or education, which increase an economy’s potential output, is falling.

So long as that is true, it is very hard to see anything other than a bleak future for any of Europe’s economies.

If you dip into the blogs, there is a mildly entertaining debate about whether Merkel’s often-quoted figures are correct. On close inspection, it turns out that nations that make up the EU currently account for 7.2pc of the world’s population and a shade over a quarter of total output. When the World Bank crunched the numbers on social spending, however, it found that in fact Europe accounts for a massive 58pc of global welfare spending.

What is certainly true is that Europe’s welfare budget has turned into a juggernaut that is careering out of control.

To continue reading: Europe is Now Drowning Under the Cost of Welfare Bills

Atlas Collapsed, by Robert Gore

One of humanity’s enduring fantasies is luxury and wealth without effort—Midas, manna from heaven, alchemy. If half the energy that has been put into the quest for something for nothing had been directed towards productive endeavors, society would be several centuries more advanced than it is. Fortunately, nature and markets yield nothing to dreams unconnected to thought, curiosity, exploration, experimentation, testing, ingenuity, invention, integrity, work, and production. Unfortunately, man has devised ways—theft and slavery—to coercively separate production from its producers, to which, in the interest of self-preservation, producers must yield. The more that’s stolen the less they produce. In extreme cases, they meet only the subsistence requirements necessary to avoid the whip, jail cell, or firing squad.

All manner of philosophies have attempted to justify theft and slavery, and here, religion falls under the rubric of philosophy. Producers have supposedly owed a debt to a deity or deities, or, more accurately, to their anointed representatives on earth. Religion has often been conjoined with the state, so producers supported both priests and rulers, who have frequently been one and the same. Of course that support was not a matter of voluntary choice. When producers got a relatively good “bargain,” they were allowed to keep more than a subsistence portion of their own production, and the coercive force employed against them was also deployed to protect them from criminality and external invasion.

Historically, governments, whether run by holy men, enlightened despots, or brutal thugs, have always failed, felled by hubris, rapacity, depravity, and incompetence. One constant has been that their tyranny, corruption, and wars eventually required more resources than they were able to expropriate from their producers. Failed governments have invariably been bankrupt governments.

Despite the claims of their progenitors, there was nothing new about nineteenth and twentieth century collectivist philosophies. They were merely variations on time worn justifications of theft and slavery. Dictatorships of the proletariat replaced the divine right of kings, but the reality was still governments forcing producers to hand over what they produced. What was new, blossoming in the nineteenth century, was the astonishing productivity unleashed by capitalism in those countries that moved away from the older kleptocratic formulations, notably the US and Great Britain, by affording producers an unprecedented degree of freedom and protection of property and contract rights.

Capitalism was revolutionary not just in its productive bounty, but more importantly, in its philosophical implications. Those implications were grasped at an instinctive and emotional level by its critics long before Ayn Rand connected the dots for its would-be proponents in her seminal philosophical novel, Atlas Shrugged. Capitalism is the economic system that flows from the premise that an individual’s life is his or her own, not the property of the state. If individuals’ lives are indeed their own, then they must be free to either keep or voluntarily trade that which they produce. These are the logical consequents of the Declaration of Independence’s assertion, “We hold these Truths to be self-evident, that all Men are created equal, that they are endowed by their Creator with certain inalienable Rights, that among these are Life, Liberty, and the Pursuit of Happiness.”

Securing those inalienable rights has proven devilishly difficult. In 2015, the earth’s inhabitants are living under governments guided by a mishmash of incoherent precepts from which only one constant emerges: individuals’ lives are not their own, they are the property of the state. The ideals embedded in Jefferson’s declaration and Rand’s opus are more revolutionary now than when they were penned and typed, respectively.

The consequences of theft and slavery are predictable. In Western welfare states, governments have stolen and enslaved under a banner of faux humanitarianism that has enhanced only the welfare of governments. As power and resources accrete to them at the expense of individuals’ liberty, rights, and wherewithal, the robbed and the enslaved’s incentives to produce dwindle. There is, as Adam Smith noted, much ruin in a nation, but even capitalism’s bounty can be completely ransacked.

The sputtering of the global economy, its dying gasp before it descends into depression, are not the result, unfortunately, of a conscious shrug among the world’s Atlases, but rather their staggering—to be followed by their collapse—under the weight of taxes, regulations, corruption, enforced transfer payments and government-provided services to the unproductive, permanent war, and the maintenance of massive military-industrial-security complexes. Unable to limit their rapacity to the fruits of the current generation’s labor, governments have plunged into debt, stealing from future generations and consigning them to debt slavery until they either collapse or repudiate.

Bankruptcy and war will fell the current constellation of governments. While government failure is nothing new, the scale of the impending collapse will be unprecedented. Debt, fiat currencies, and taxes only allow so much fraud and theft. To survive and thrive, governments must be able to acquire real resources with their phony scrip and expropriation. The world’s public and private debt is a lien, often a literal one, on the world’s real resources, and its nominal value of around $225 trillion is about three times world GDP. That nominal value understates the true extent to which present and future assets and production are encumbered. Welfare state pension and medical promises dwarf current governmental debts. Add entitlement promises to existing debt and even that gargantuan number falls well short of the notional amount of financial derivatives, all of which incorporate some sort of debt. Estimates of their size range from $700 trillion to over a quadrillion dollars.

The world is at peak debt; it’s broke. In effect, every real asset on the planet is subject to one or more claims; every financial asset is somebody’s debt (or equity, which is only a residual and contingent claim behind debt), and income streams are less than total debt service. This unsustainable load will grow more unsustainable.

Deleveraging, mostly from insolvency and write-offs, has barely begun, and so far has only occurred in the natural resource sector. The ongoing constriction of opportunities in developed world welfare states has been met with a reduction in family formation and birthrates. Denied the opportunity to produce, would-be Atlases are not marrying or procreating, either. This means aging populations and increasing draws on old age “entitlements” will be funded by a shrinking pool of producers. Measured in dollars, world GDP started contracting last quarter and will continue to do so as recession, debt contraction, falling asset prices, excess capacity, and rising unemployment spread from Canada, Brazil, and many emerging market countries to the rest of the world.

Predictions of some sort of emergent global government and a new world order should be met with skepticism. Not that there aren’t plenty of people out there who wouldn’t like to see such an outcome, but governments require resources, and the bigger the government, the more resources it requires. Governments propose; individuals dispose. Bigger, more powerful, intrusive, and repressive government will also be more expensive government, hastening Atlas’ collapse. A global superstate can steal every asset and institute slavery, but the world’s productive individuals, denied their rightful incentives, will produce enough to subsist and no more.

The result will not be an imposed “order,” but chaos, as the dream of world government crashes on the reality of producers who cannot and will not sustain it. The most dangerous predictions of the future are straight line projections of the past. A straight line prediction that governments will continue to grow, get more powerful, and perhaps consolidate into a still bigger and more powerful government may be the most dangerous prediction of all. Imposing order requires energy, and government as an institution is already spent and exhausted. The future is not likely Orwell’s totalitarian nightmare, but rather the human entropy that has engulfed the Middle East and Northern Africa and is migrating to Europe. Say hello to the gathering world disorder.


TGP_photo 2 FB




We’re Doomed

From Charles Hamilton, via Zero Hedge, via Biderman’s Money blog:

Demographics – Why The Great Recession Started (And Won’t End Anytime Soon)

WWII is still reshaping our economic reality. The massive global loss of life in WWII and its birth dearth during the war created a demographic hole (unusually high death / unusually low births over a 5 to 10 year period). The subsequent baby booms in the US and globally in Japan, Europe, and so many more locations which were affected by the war created a “pig in the python” moment. This unusually large wave of population growth from ’45-’55 was “pent up demand” from the war. Those of family rearing age who waited, those who remarried, and those who fretted…they rushed to make up for lost time over the decade after the wars conclusion. But the subsequent generations were in no such rush and in fact began an ongoing process of slowing the creation of families and children.

But society and its leaders assumed this baby boom anomaly to be the new reality. They built an entire economic system on the one decade anomaly. But that wasn’t enough. They had to layer the anomaly with the unsustainable and the previously immoral levels of usury (renamed and rebranded as leverage, credit) and economic policies only effective as the passing of the pig was imminent. The baby boom group or entity spanning 10 years will in 2015 turn a collective 60-70yrs old. The “pig is passing” from the American and global workforce into retirement and now the wreckage and folly of such basic misnomers has come home to roost…and will get far worse. Central bank and government actions to create the problems and subsequent responses should be seen for what they are…entirely self-serving and ineffective.

For the rest of Mr. Hamilton’s excellent article, a tightly reasoned, well-supported, and graphically illustrated argument why demographics are economic destiny, which means a bleak prognosis for most developed countries’ economies, follow the link. The article merits and rewards a careful reading.