Everywhere one turns the European social welfare model, or as it is sometimes called in the United States, the blue-state model, is breaking down. The president of the European Council said already more than a year ago, "We can't finance our social model anymore." And in the United States, the so-called Red States have consistently outperformed over the past decade the Blue States, which follow the European model of high taxes, high spending, and strong public employee unions. Hundreds of thousands of workers have fled high-tax California for Texas, which has no state income tax. Over the past decade, states with no state income tax grew 18% versus 8% for the other states. The 22 states with right-to-work laws have grown 15% versus 6% for the other states. And those that do not require collective bargaining for public employees grew 15% versus 7% for those that do.
Recognition that the social welfare model is history fuelled the huge Republican gains in the 2010 elections. But in other ways, the news has been slow to seep in. Despite the fact that California has been reduced to issuing paper chits for obligations it cannot meet, and the state's rapid population loss, Californians still elected 1970s retread Jerry Brown, the one-time Governor Moonbeam, over a highly successful Republican businesswoman with an inexhaustible campaign chest in 2010. Illinois, with hundreds of millions in unfunded pension plan liabilities, nevertheless narrowly elected a Democratic governor, who promptly pushed for in increase in the state income tax, even as Republican governors of surrounding states openly solicited Illinois businesses to flee to them. And as the collapse of the European social welfare model in Europe was becoming more and more evident, the United States enacted a massive regulatory scheme, touching every aspect of national healthcare (about one-sixth of the overall economy) that will add hundreds of billions of dollars to the national debt in the coming decades.
The question, then, becomes what is the enduring attraction of the European model, and why is it so hard to reverse? Walter Russell Mead begins to answer the question with a description of the.progressive social model: "A bureaucratic and professional elite would mediate social conflict between rich and poor, improving the lives of the poor while engineering the best possible administrative solutions to pressing social problems." The ideal was "revolutionary and even a noble one," he notes, and it particularly appealed to one class of people – the best and the brightest who would form that professional elite.
In addition, there is something appealing at a gut level to what Noemie Emery describes as the transformation of goods – such as quality university education, medicine, access to top-level medical care – into social "rights." Most of us instinctively feel that whether one lives or dies should not depend on one's ability to purchase a certain medicine – i.e., on how much money one has. The problem, however, is that once the process of redefining goods as rights begins it tends to expand indefinitely, until the costs of those "rights" absorb all the national purse. The current social protests in Israel seem determined to start at the end of the process and demand a perfect life, with no financial stress, by right.
And finally, as Mead notes, as long as the progressives devoted themselves to the rectification of glaring problems, progressivism could claim many successes. Child labor and anti-lynching laws are examples. Social security, meant to kick in at 65, at a time when the average American male lived to be 58, insured that those who had worked hard all their lives would not end their days eating cat food. Greater availability of mortgage credit for middle class families, dams to protect against devastating floods built by the Army Corps of Engineers – these benefitted both individuals and the country as a whole.
The problem, however, in Mead's telling is some inexorable need of bureaucracies to expand. (They are not subject to the "creative destruction" of businesses in capitalism, where unproductive businesses go out of business.) After the progressives have picked off the low-hanging fruit waiting to be fixed, they do not rest content with their achievements. As bureaucracies grow and entire industries dependent on those bureaucracies along with them, the government morphs from the Great White Father in Washington to a White Elephant to a Great White Shark, eating all in its path. The Army Corps of Engineers, abetted by a whole dam building industry, goes from building vitally necessary dams, to ones of questionable utility, to dams that make no sense whatsoever.
Fannie Mae goes from making mortgages more easily available to middle-class couples to actively pushing mortgages on the totally credit-unworthy – again abetted by the housing industry – until it brings the entire financial system crashing down. (See Reckless Endangerment by Gretchen Morgenson and Joshua Rosner.) Agricultural subsidies are not just encouraging wasteful planting, but the subsidy for corn ethanol is contributing to a rapid rise in world grain prices, which, in part, triggered the current political instability of the Middle East.
Today, we are witnessing proposals that start in the Great Shark Stage – e.g., high-speed trains that would provide negligible economic benefit at exorbitant cost. Obamacare is another example. Health care costs rose 8% this year, and are projected to rise even more next year. Nothing better testifies to the poor design of the overhaul of the entire health care system than the nearly 2,000 waivers issued so far, most to close allies of those who promoted Obamacare in the first place. Private businesses are preparing to drop employee coverage in droves, making a mockery of the promise, "If you are happy with your present health insurance, you can keep it." And the uncertainty about the costs of the program to employers has been one of the big drags on job creation, as small businessmen hesitate to hire when they don't know how much it will cost them.
Where the government becomes the major payer – education and medical care – costs inevitably rise much faster than the general cost of living. And with its larger stake in the various sectors of the economy, the government demands a larger voice as well, leading to a proliferation of regulations and bureaucrats to write them (not to mention the private sector attorneys to read them and guide clients.)
Even when the costs of government expansion become all too evident, that expansion is notoriously hard to reverse. For one thing, government programs create vast constituencies in the form of beneficiaries. More and more programs become a "third rail" that no politician dares to touch, as we have seen in the recent debt crisis negotiations, in which the president deliberately avoided specifying any cuts he was willing to make, in the hopes of being able to tar Republicans with cuts to Social Security, Medicaid, and Medicare. As Theodore Darlrymple observes, "Swedish Social Democrats understood long ago that if more than half the population became economically dependent on government, either directly or indirectly, no government of any party can easily change the arrangement." That observation may go a long way to explaining the dogged adherence to blue-state governance in bankrupt states like California and Illinois.
Moreover, bureaucracies are skilled at defending themselves. Darlrymple notes, how difficult the British government has found it to institute austerity measures. During Labor Prime Minister Gordon Brown's three years in office, three-quarters of Britain's new employment was in the public sector, 20% in the National Health Service alone. Yet even after an increase in spending from 1997 to 2007 equivalent to a third of the national debt, Britain remains "what it long has been: by far the most unpleasant country Western Europe in which to be ill, especially if you happen to be poor. Not coincidentally, Britain's health-care system is still the most centralized, the most Soviet-like."
As bad as the system was, cuts have led to even more than the usual fare of horror stories of aged patients left in hallways unattended and surgeries postponed. Not because the system was not filled with waste, but because most of that waste is in salaries and personnel, who are impossible to fire. So surgery departments were closed down, but the savings were minimal because staff costs remained the same – high-paid workers simply ended up being paid the same large salaries for doing less. Even after the budgetary cuts, Darlrymple points out, one could still find hospitals advertising in the trade journals for as Associate Director of Equality, Diversity, and Human Rights, and another for an Interim Director of Operations and Transformation – i.e., budget reduction; the latter at a wage of between $1,000-1,300 per day.
The final bar to change is that our intellectual classes have become too long intoxicated with the fantasy of the best minds somehow able to work out everything in the best possible fashion. Their answer to government failure is too often more government. Thus the press, in Darlrymple's words, "defends the public sector, viewing it as . . . a manifestation of a rationally planned society, manned by selfless workers." In a profound essay, entitled "The Crisis of the American Intellectual," Mead describes intellectuals's identification of the advance of the bureaucratic, redistributionist, administrative state with progress. The government "guided by credentialed intellectuals with scientific training and values" would "play an ever larger role in achieving ever greater degrees of affluence and stability for the population at large, redistributing wealth to provide basic sustenance and justice to the poor." The social role of the intellectual was to create the political support for the new order, through its media and academic dominance.
That has left us, Mead writes, in a situation in which "so many of America's best-educated, best-placed people are too invested in old social models and old visions of history to do their real job and help society to transition to the new level." In short, they are too invested in a vision of themselves as the proper guides of society. And given where the Western economies are holding today, that is very bad news indeed.
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