As the Great Depression enveloped the world in the 1930s, many people saw it as a failure of capitalism and blamed capitalists for causing it. The “blame game” rhetoric of that day and today are strikingly similar – accusations of business profiteering, exploitation of the middle and lower classes by the upper income earners, corporate greed, you name it. Franklin D. Roosevelt was especially vitriolic in his first inaugural speech in 1933:
We are stricken by no plague of locusts. Plenty is at our doorstep, but a generous use of it languishes in the very sight of the supply. Primarily this is because rulers of the exchange of mankind's goods have failed through their own stubbornness and their own incompetence, have admitted their failure, and have abdicated.... The money changers have fled from their high seats in the temple of our civilization. We may now restore that temple to the ancient truths.
The economic breakdown also caused informal welfare systems to break down. Before the Great Depression, church and community took care of its own. Welfare was provided locally by locals. But the severity and duration of the Depression caused those private systems to fail as their benefactors found themselves in need. Therefore, social liberals called for government economic intervention and called for wealth redistribution. Militarists like Hitler called for war. Each would produce misery in its own way.
As America struggled through the Depression, Roosevelt was the first President to seize the idea of not letting a crisis go to waste. He was enamored with socialism and employed a number of socialists in his administration. Because he had absolute majorities in the House and Senate – the first President since the Civil War to have such an advantage – he pushed his aggressive agenda into laws that transformed American society. Unfortunately World War II interrupted his efforts to completely transform America into a welfare state, but he did achieve what could be called a European-style social democracy.
Roosevelt’s interventions caught the attention of British socialists who were looking around the world for ways to transform British society into a welfare state. When war came, much to the delight of the socialists, the power and prestige of the British government was enhanced. Government managed the economy during the war, running it more efficiently and on a larger scale than had been the case in the 1930s. The government squeezed more production out of industry than the capitalist owners had done before the war. And the whole of British society rallied together behind the war effort, sharing the stress of war as if it were on the front lines – which in effect it was. The war converted the British Isles into one massive war machine.
These experiences led the British to a reject Adam Smith’s economic philosophy of laissez-faire capitalism after the war. The war years had shown what could happen when British society united behind common pursuits instead of promoting capitalistic pursuits whose self-interest, according to Smith, would benefit all of society if unfettered by the heavy hand of government. Not true, they said; profits proved morally corrupting. After all, didn’t the pre-war pursuit of self-interest plunge the world into the Great Depression with the few benefitting from the sweat of the many, bringing injustice and inequality with it? They thought so.
Following the war, a British "eminent lady" was interviewed by author John Gunther and expressed her distrust of laissez-faire policies, saying, "Frankly we do not know which to fear most, Russian Communism or American capitalism.” In her mind, they were moral equivalents.
The war imposed a great economic strain on the British economy causing the government to spend 13% more than it was taking in as revenues. There was every reason to expect that the country would be poorer after the war and that government would have to play a bigger role in the distribution of resources for the well-being of society. Therefore, in the war’s early years, the British government asked Sir William Beveridge to prepare a report on how the government could help the British people in the post-war years. Beveridge issued his Beveridge Report on December 2, 1942 – 69 years ago this week. It has become the Holy Canon for the founding of the welfare state in the United Kingdom.
Beveridge recommended that government should find ways of solving the five “nasties” of unreformed society – want, disease, ignorance, squalor, and idleness. If you think you’ve heard this hubris before, you have. It was called Lyndon Johnson’s Great Society in our country – one of the most expensive con jobs foisted upon the American taxpayers since the founding of the Republic. But I digress. In order to cure these social ills, Beveridge argued, the British government must be able to provide every member of society an adequate income, adequate healthcare, adequate education, housing, and employment. Somehow he left out being faster than a speeding bullet, more powerful than a locomotive, and able to leap tall buildings in a single bound.
The Chancellor of the Exchequer, Sir Kingsley Wood, astutely believed the report to be "ambitious and involv[ing] an impracticable financial commitment" and therefore urged delaying if not withholding its publication. However, the Cabinet decided to publish it anyway, its monstrous impracticalities notwithstanding.
The London Times called the Beveridge Report: "a momentous document which should and must exercise a profound and immediate influence on the direction of social change in Britain". The Manchester Guardian called it "a big and fine thing". The Daily Telegraph said it was a consummation of the revolution begun by David Lloyd George in 1911. The Archbishop of Canterbury said it was "the first time anyone had set out to embody the whole spirit of the Christian ethic in an Act of Parliament". Even Hitler ended up with a copy of it in his Berlin bunker. But after all of the jolly good backslapping was over, there was a war in process and social reform would have to wait to see who won.
The Beveridge Report was filled with good intentions but it failed to anticipate how the British and global economies would change in a post-war world. Some thought the world would fall back into an economic depression when war spending was cut off. In fact, the demand for consumer goods and housing had been so pent up because of the restrictions of the war years that consumer demand exploded after the war ended. The UK was able to participate in the boom better than countries on the Continent, especially the losers, but it lacked the resources to stay in the game. Money had to be borrowed which was relatively easy to repay during the boom years. But political choices ended the boom in the UK even as it went on in other countries of the world.
With the war ended, the Labor Party was swept into power in 1945 – somewhat surprisingly – and its leaders were determined to create what they called “the New Jerusalem.” A social transformation of the magnitude they envisioned would make government the partner and protector of the people using the Beveridge Report as the template. There would be cradle to grave security for all with basic needs provided by the government. The Labor government created “free” medical care under the National Health Service (forever cursing it to sub-standard care), nationalized the pension system (making it as bad as the American Social Security System, if not worse), reformed education and housing, and promised full employment which required, among other things, nationalizing basic industries – like power, broadcasting, and transportation – and operating them with the efficiency of the US Postal Service.
When the post-WW II boom ended, helped by the crowding out effects of British social policies, the UK found itself deeper in debt as the cost of maintaining these expensive welfare state programs overwhelmed the economy’s ability to pay for them.
Today, as the 70th anniversary of the Beveridge Report approaches, there is soul searching in the UK as it assesses the track record of the welfare state it chose to be three generations ago. The critics outnumber the advocates. One talking head, John Humphrys, a UK Dan Rather, is outspoken in his assessment of the defects of Beveridge’s gift. In a recent commentary entitled Our Shameless Society: How the Welfare State Created an Age of Entitlement, Humphrys said:
When Beveridge wrote his report in the 1940s he saw a nation in which there were vast numbers of people who were desperate to work if only they could get a job. Now there are many who have no incentive to get one because they are better off on benefits.
We are now seeing the UK welfare state experience play out across Europe as economies within the eurozone implode because entitlements are more attractive than work. With their governments telling them that their welfare programs are not sustainable, the citizens of these countries are rushing into the streets to protest and strike and destroy property like spoiled children throwing a tantrum. They apparently believe that turning their countries upside down will cause their governments to relent in withholding benefits they can no longer afford. In fact it’s the taxpayers in the more fiscally prudent countries who are telling their governments that they will not work well into the 60s in order to subsidize the profligacy of member countries whose citizens retire in their 50s with generous pensions and lounge on the beach.
Are you thinking it won’t happen here? Think again. It is happening here! Look at what happened in Wisconsin and Ohio when their Governors tried to restore fiscal sanity to their state budgets. There were recall elections in Wisconsin, teachers occupied the State House preventing the government from doing its work, even assaulting one legislator. The unions almost got a sympathetic justice elected to the Wisconsin state supreme court, which would have overturned Governor Walker’s reforms. Ohio unions likewise spent multiple millions but they were successful in defeating Governor Kasich’s reforms.
Almost 75% of the country thinks America is headed in the wrong direction and most are angry about the fiscal mess we call an economy, but the sure way to shorten a political career is to propose cutting federal welfare and entitlement programs. Those programs account for a majority of government spending and we can’t afford them but let a Presidential candidate run on that plank in 2012. The person who will win the 2012 presidential election and the people who will win Congressional seats will be those who can put the best con on American voters by admitting that things are bad but they can be fixed painlessly. Americans may not take to the streets to riot and burn but they don’t want to give up their goodies anymore than the welfare addicts in Europe and the UK.
But industrial economies, including the US, will soon have no choice. The aging demographic and the growth in entitlements are about to collide. Last year the Bank for International Settlements released a report showing that government debt in most industrialized nations will soar above 200% of GDP in a couple of decades – higher for some countries – and the options will be pretty grim if that causes markets to collapse and savings to evaporate.
The European economies are farther down the path to economic disaster than we are and may have passed the point of no return. Government spending already represents half of their economic output. I don’t see how they can survive, but the next two years should tell.
What will happen? Who knows? We’ve never seen anything like this before. It would be a good time for the bad guys to start a war.
In the meantime, how would you assess the health of an economy that borrows over 40% of what its government spends? Whose citizens, 47% of them – almost half – receive one or more federal government payments? Which has 21 million citizens on food stamps whose cost has doubled in the past four years? That’s America. Thanks to the reckless spending of Barack Obama, and to a lesser extent George Bush, the US economy is in debt by $14 trillion which with historically normal tax receipts would take about six years to pay down if no money is spent on any other program. Yet $14 trillion pales into insignificance when compared with the unfunded liabilities of welfare programs the federal and state government have piled up since the Great Depression.
Is there any hope for us? Sure. We can elect a government that will cut government spending by at least 20% to balance the budget, that will compel Americans to resume responsibility for their individual welfare by eliminating entitlement programs or limiting access to them, that will get government out of trying to solve every social ill and resume the Founders’ view of a limited government that devotes its resources to national defense, roads, and social capital. Voters would throw them out at the next election but Obama showed how much can be done in two years with a determined President and a bullet-proof Congress.
Or we can go broke.
Those are the choices.
When he was running for President, Barack Obama campaigned throughout Europe symbolic of his embrace of their social welfare economies. Before fawning crowds he gushed, “In America, there’s a failure to appreciate Europe’s leading role in the world.” That romance with European socialism has pushed this country to the edge of an economic abyss.
We had better get our economic house in order and do it with haste. If world economies begin to fail, we will not escape the impact. If our economy fails, there’s not another economy in the world that is large enough to bail us out.
Dessert anyone?
We are stricken by no plague of locusts. Plenty is at our doorstep, but a generous use of it languishes in the very sight of the supply. Primarily this is because rulers of the exchange of mankind's goods have failed through their own stubbornness and their own incompetence, have admitted their failure, and have abdicated.... The money changers have fled from their high seats in the temple of our civilization. We may now restore that temple to the ancient truths.
The economic breakdown also caused informal welfare systems to break down. Before the Great Depression, church and community took care of its own. Welfare was provided locally by locals. But the severity and duration of the Depression caused those private systems to fail as their benefactors found themselves in need. Therefore, social liberals called for government economic intervention and called for wealth redistribution. Militarists like Hitler called for war. Each would produce misery in its own way.
As America struggled through the Depression, Roosevelt was the first President to seize the idea of not letting a crisis go to waste. He was enamored with socialism and employed a number of socialists in his administration. Because he had absolute majorities in the House and Senate – the first President since the Civil War to have such an advantage – he pushed his aggressive agenda into laws that transformed American society. Unfortunately World War II interrupted his efforts to completely transform America into a welfare state, but he did achieve what could be called a European-style social democracy.
Roosevelt’s interventions caught the attention of British socialists who were looking around the world for ways to transform British society into a welfare state. When war came, much to the delight of the socialists, the power and prestige of the British government was enhanced. Government managed the economy during the war, running it more efficiently and on a larger scale than had been the case in the 1930s. The government squeezed more production out of industry than the capitalist owners had done before the war. And the whole of British society rallied together behind the war effort, sharing the stress of war as if it were on the front lines – which in effect it was. The war converted the British Isles into one massive war machine.
These experiences led the British to a reject Adam Smith’s economic philosophy of laissez-faire capitalism after the war. The war years had shown what could happen when British society united behind common pursuits instead of promoting capitalistic pursuits whose self-interest, according to Smith, would benefit all of society if unfettered by the heavy hand of government. Not true, they said; profits proved morally corrupting. After all, didn’t the pre-war pursuit of self-interest plunge the world into the Great Depression with the few benefitting from the sweat of the many, bringing injustice and inequality with it? They thought so.
Following the war, a British "eminent lady" was interviewed by author John Gunther and expressed her distrust of laissez-faire policies, saying, "Frankly we do not know which to fear most, Russian Communism or American capitalism.” In her mind, they were moral equivalents.
The war imposed a great economic strain on the British economy causing the government to spend 13% more than it was taking in as revenues. There was every reason to expect that the country would be poorer after the war and that government would have to play a bigger role in the distribution of resources for the well-being of society. Therefore, in the war’s early years, the British government asked Sir William Beveridge to prepare a report on how the government could help the British people in the post-war years. Beveridge issued his Beveridge Report on December 2, 1942 – 69 years ago this week. It has become the Holy Canon for the founding of the welfare state in the United Kingdom.
Beveridge recommended that government should find ways of solving the five “nasties” of unreformed society – want, disease, ignorance, squalor, and idleness. If you think you’ve heard this hubris before, you have. It was called Lyndon Johnson’s Great Society in our country – one of the most expensive con jobs foisted upon the American taxpayers since the founding of the Republic. But I digress. In order to cure these social ills, Beveridge argued, the British government must be able to provide every member of society an adequate income, adequate healthcare, adequate education, housing, and employment. Somehow he left out being faster than a speeding bullet, more powerful than a locomotive, and able to leap tall buildings in a single bound.
The Chancellor of the Exchequer, Sir Kingsley Wood, astutely believed the report to be "ambitious and involv[ing] an impracticable financial commitment" and therefore urged delaying if not withholding its publication. However, the Cabinet decided to publish it anyway, its monstrous impracticalities notwithstanding.
The London Times called the Beveridge Report: "a momentous document which should and must exercise a profound and immediate influence on the direction of social change in Britain". The Manchester Guardian called it "a big and fine thing". The Daily Telegraph said it was a consummation of the revolution begun by David Lloyd George in 1911. The Archbishop of Canterbury said it was "the first time anyone had set out to embody the whole spirit of the Christian ethic in an Act of Parliament". Even Hitler ended up with a copy of it in his Berlin bunker. But after all of the jolly good backslapping was over, there was a war in process and social reform would have to wait to see who won.
The Beveridge Report was filled with good intentions but it failed to anticipate how the British and global economies would change in a post-war world. Some thought the world would fall back into an economic depression when war spending was cut off. In fact, the demand for consumer goods and housing had been so pent up because of the restrictions of the war years that consumer demand exploded after the war ended. The UK was able to participate in the boom better than countries on the Continent, especially the losers, but it lacked the resources to stay in the game. Money had to be borrowed which was relatively easy to repay during the boom years. But political choices ended the boom in the UK even as it went on in other countries of the world.
With the war ended, the Labor Party was swept into power in 1945 – somewhat surprisingly – and its leaders were determined to create what they called “the New Jerusalem.” A social transformation of the magnitude they envisioned would make government the partner and protector of the people using the Beveridge Report as the template. There would be cradle to grave security for all with basic needs provided by the government. The Labor government created “free” medical care under the National Health Service (forever cursing it to sub-standard care), nationalized the pension system (making it as bad as the American Social Security System, if not worse), reformed education and housing, and promised full employment which required, among other things, nationalizing basic industries – like power, broadcasting, and transportation – and operating them with the efficiency of the US Postal Service.
When the post-WW II boom ended, helped by the crowding out effects of British social policies, the UK found itself deeper in debt as the cost of maintaining these expensive welfare state programs overwhelmed the economy’s ability to pay for them.
Today, as the 70th anniversary of the Beveridge Report approaches, there is soul searching in the UK as it assesses the track record of the welfare state it chose to be three generations ago. The critics outnumber the advocates. One talking head, John Humphrys, a UK Dan Rather, is outspoken in his assessment of the defects of Beveridge’s gift. In a recent commentary entitled Our Shameless Society: How the Welfare State Created an Age of Entitlement, Humphrys said:
When Beveridge wrote his report in the 1940s he saw a nation in which there were vast numbers of people who were desperate to work if only they could get a job. Now there are many who have no incentive to get one because they are better off on benefits.
We are now seeing the UK welfare state experience play out across Europe as economies within the eurozone implode because entitlements are more attractive than work. With their governments telling them that their welfare programs are not sustainable, the citizens of these countries are rushing into the streets to protest and strike and destroy property like spoiled children throwing a tantrum. They apparently believe that turning their countries upside down will cause their governments to relent in withholding benefits they can no longer afford. In fact it’s the taxpayers in the more fiscally prudent countries who are telling their governments that they will not work well into the 60s in order to subsidize the profligacy of member countries whose citizens retire in their 50s with generous pensions and lounge on the beach.
Are you thinking it won’t happen here? Think again. It is happening here! Look at what happened in Wisconsin and Ohio when their Governors tried to restore fiscal sanity to their state budgets. There were recall elections in Wisconsin, teachers occupied the State House preventing the government from doing its work, even assaulting one legislator. The unions almost got a sympathetic justice elected to the Wisconsin state supreme court, which would have overturned Governor Walker’s reforms. Ohio unions likewise spent multiple millions but they were successful in defeating Governor Kasich’s reforms.
Almost 75% of the country thinks America is headed in the wrong direction and most are angry about the fiscal mess we call an economy, but the sure way to shorten a political career is to propose cutting federal welfare and entitlement programs. Those programs account for a majority of government spending and we can’t afford them but let a Presidential candidate run on that plank in 2012. The person who will win the 2012 presidential election and the people who will win Congressional seats will be those who can put the best con on American voters by admitting that things are bad but they can be fixed painlessly. Americans may not take to the streets to riot and burn but they don’t want to give up their goodies anymore than the welfare addicts in Europe and the UK.
But industrial economies, including the US, will soon have no choice. The aging demographic and the growth in entitlements are about to collide. Last year the Bank for International Settlements released a report showing that government debt in most industrialized nations will soar above 200% of GDP in a couple of decades – higher for some countries – and the options will be pretty grim if that causes markets to collapse and savings to evaporate.
The European economies are farther down the path to economic disaster than we are and may have passed the point of no return. Government spending already represents half of their economic output. I don’t see how they can survive, but the next two years should tell.
What will happen? Who knows? We’ve never seen anything like this before. It would be a good time for the bad guys to start a war.
In the meantime, how would you assess the health of an economy that borrows over 40% of what its government spends? Whose citizens, 47% of them – almost half – receive one or more federal government payments? Which has 21 million citizens on food stamps whose cost has doubled in the past four years? That’s America. Thanks to the reckless spending of Barack Obama, and to a lesser extent George Bush, the US economy is in debt by $14 trillion which with historically normal tax receipts would take about six years to pay down if no money is spent on any other program. Yet $14 trillion pales into insignificance when compared with the unfunded liabilities of welfare programs the federal and state government have piled up since the Great Depression.
Is there any hope for us? Sure. We can elect a government that will cut government spending by at least 20% to balance the budget, that will compel Americans to resume responsibility for their individual welfare by eliminating entitlement programs or limiting access to them, that will get government out of trying to solve every social ill and resume the Founders’ view of a limited government that devotes its resources to national defense, roads, and social capital. Voters would throw them out at the next election but Obama showed how much can be done in two years with a determined President and a bullet-proof Congress.
Or we can go broke.
Those are the choices.
When he was running for President, Barack Obama campaigned throughout Europe symbolic of his embrace of their social welfare economies. Before fawning crowds he gushed, “In America, there’s a failure to appreciate Europe’s leading role in the world.” That romance with European socialism has pushed this country to the edge of an economic abyss.
We had better get our economic house in order and do it with haste. If world economies begin to fail, we will not escape the impact. If our economy fails, there’s not another economy in the world that is large enough to bail us out.
Dessert anyone?
It's hard to picture the scenarios of what might be next in Europe and the US. Will we follow the Canadians, make some tough choices and get our house in order? Could Europe followed by the US descend into chaos? What on earth might that look like? Anarchy? Revolution? Western Spring?
ReplyDeleteIn America if Conservatives win the Senate and the Presidency will the Paul Ryans prevail; will we have the backbone to make needed reforms or will we just buy the country a few years?