Predictable History, Unpredictable Past: The Welfare State Is Destroying America

President Franklin D. Roosevelt signed the Social Security Act into law on Aug. 14, 1935, laying what he described as a "cornerstone" of the modern welfare state.

At the time, Roosevelt claimed that the sweeping program would, "act as a protection to future administrations against the necessity of going deeply into debt to furnish relief to the needy."

He was right about the "cornerstone" part, as both parties built on the program in the decades that followed. In 1965, President Lyndon Johnson brought us Medicare and Medicaid.

In 2003, President George W. Bush and a Republican Congress added prescription drug coverage for seniors. And just last year, President Obama pushed a national health care law through Congress.

But Roosevelt was dead wrong that the program would help the nation avoid deep debt. Social Security and the entitlement programs that followed its legacy of seeking to protect citizens from the "hazards and vicissitudes of life," turned out to be fiscal disasters.

With health care costs rising and the population aging, America's welfare-state obligations are bringing the country to its financial knees. If left unchecked, the growing debt burden will not only trigger runaway inflation and stifling taxes, but it will also threaten national security.

Spending on Social Security, Medicare, Medicaid and Obamacare alone currently account for 46 percent -- or nearly half of -- federal spending, excluding interest payments. Over the next 25 years, that percentage will explode to 66 percent, or close to two-thirds, according to the Congressional Budget Office.

Numbers associated with the nation's debt crisis are almost too staggering to comprehend. Last month, total U.S. debt surpassed $15 trillion. But a recent analysis by Boston University economics professor Laurence Kotlikoff found that when long-term entitlement obligations are considered, the true fiscal gap is $211 trillion.

Greece, with an economy 1/50th the size of the U.S., is threatening the economic standing of the rest of Europe because of its growing debt burden, which hit 143 percent of its gross domestic product in 2010.

The U.S. is on pace to match that dubious distinction in under 20 years, according to the CBO, and to soar to 716 percent by 2080. Sustaining such debt would require raising marginal tax rates to as high as 88 percent, according to the CBO.

Of course, that's just on paper. The CBO warns that, "Such tax rates would significantly reduce economic activity and would create serious problems with tax avoidance and tax evasion. Revenues would probably fall significantly short of the amount needed to finance the growth of spending; therefore, tax rates at such levels would not be feasible."

While it's easy to dismiss such projections decades out into the future, the problem is that bond investors consider long-term projections when making their purchasing decisions.

If the U.S. doesn't get its fiscal house in order in the near future, bond markets will begin to lose faith in America's ability to repay its debts, creating a crisis a lot sooner than expected.

Just this past August, Standard and Poor's downgraded U.S. debt for the first time in American history. Once bond holders abandon America, the nation will either have to dramatically cut spending, raise taxes steeply, or print money to buy up the debt -- which would trigger massive inflation.

The growing debt burden is also a national security risk, because it reduces America's leverage against nation's such as China, which owns a substantial amount of U.S. debt. And the fiscal crunch will force devastating cuts to our military -- far beyond anything contemplated today.

Thus, the conclusion is inescapable that, if America doesn't end the welfare state as we have known it since 1935, it will end America as we know it today.

Philip Klein is senior editorial writer for The Examiner. He can be reached at pklein@washingtonexaminer.com.

EUROPE: THE CANARY IN THE WELFARE-STATE COAL MINE

U.S. President Barack Obama speaks as European Council President Herman Van Rompuy listens during a meeting at the White House on November 28, 2011 in Washington, DC.

by Conn Carroll, Senior Editorial Writer

23 January 2012

"If they do not carry out these austerity packages, these countries could virtually disappear in the way that we know them as democracies," European Commission President Jose Manuel Barroso reportedly said of Greece, Spain, Portugal in June 2010.

Since that time, the debt situation in each of those countries has only gotten worse. The first Greek bailout package, worth more than $110 billion, failed to calm Greece's creditors.

The tax hikes and spending cuts, forced on Greece by its rescuers, threw the country into a deep recession which only sent its debt-to-GDP ratio higher, from 143 percent in 2010 to 165 percent in 2011.

And then, just as Barraso predicted, Greece, in a very real sense, ceased to be a democracy. Prime Minister George Papandreou was forced to resign by unelected European commissioners after he suggested that Greek voters should be allowed to vote on the terms of the most recent European Union bailout package.

The European Commission then handpicked his replacement, former European Central Bank Vice President Lucas Papademos.

The coup by Europe's unelected bureaucrats was not limited to Greece. In Italy, where the government's debt-to-GDP ratio is 121 percent, Prime Minister Silvio Berlusconi was also forced to resign.

He was replaced by European Commissioner and Goldman Sachs adviser Mario Monti, who had to be appointed "senator for life" before he assumed control of the country since he had never been elected to anything.

European Council President Herman Van Rompuy said of Italy at the time, "the country needs reforms, not elections."

But the experts' reforms are still failing to quell the continent's burgeoning debt crisis. The reality is that the European welfare-state model is broken. Italy and Greece are just its first national victims.

In 2006, the European Commission produced a report on the impact the continent's aging population would have on the economy. The study found that due to Europe's expansive pension, health care and unemployment obligations, its productive capacity would begin to fall once the working-age population reached its peak. Europe reached that tipping point right on schedule in 2010.

Europe, the report predicted, will go from having four people of working age for every elderly citizen to a ratio of 2-to-1 by 2050. The study also predicted that, as the working-age population shrinks and the European welfare state grows, GDP growth will shrink by 1.3 percent a year.

The only reason that Germany and France have so far escaped Italy and Greece's fate is that their economies are growing at much faster rates than their southern counterparts.

But as that begins to change, as Europe's demographic decline puts their welfare spending on steroids and saps economic growth, Germany and France will eventually find themselves in the exact same debt spiral that Greece and Italy are now in.

The same could easily happen to the United States, too. Our debt-to-GDP ratio (100 percent) is already higher than Germany's (83 percent) and France's (87 percent).

According to the 2011 trustees report, the Social Security system is paying out $46 billion a year more in benefits than it takes in from taxes. And President Obama has only made the situation worse. His signature domestic accomplishment, Obamacare, created a brand-new $1 trillion entitlement spending program.

But don't worry. Just as the European Commission stepped in and provided unelected bureaucrats to rein in government spending, after that spending had already torpedoed the economy, Obamacare created its own batch of unelected bureaucrats empowered to ration out the health benefits of the welfare state.

Unless Obamacare is repealed, the law's Independent Payment Advisory Board will reshape the entire U.S. health care system through mandates, spending caps and price controls.
And like the Greeks and Italians, you'll be powerless to stop them.

Conn Carroll is a senior editorial writer for The Washington Examiner. He can be reached at ccarroll@washingtonexaminer.com.