Once You Go Statist, You Can’t Go Back

While many Americans were tuned in to the healthcare summit last week, I found myself drawn to the labor strikes spilling out into the streets of Athens in response to the austerity measures the Greek government will be forced to implement as a condition for getting bailed out of its debt by the rest of the EU.

Given their overt aim of ramming through Congress the largest entitlement and budget busting expansion of government in a generation by reconciliation, it appears that the Democrats have learned nothing from what we are seeing unfold in Europe.  The debt crisis we see coming to inevitable fruition in Greece, and which soon could engulf (deep breath now) Italy, Portugal, Spain, Ireland, etc. is the real world illustration of Margaret Thatcher’s most astute take on socialism’s fatal flaw: “You eventually run out of other people’s  money.”

At the risk of oversimplification, the Greek crisis can be summed up so:  in 2001 Greece dumped the drachma in favor of the EU’s new currency, the euro.  This gave it sudden respect in the financial markets that were eager to lend to the nation now backed by the solid euro.  Athens raised billions from foreign banks and pension funds at almost the same rate as such staid nations as Germany and went on a government spending binge which supercharged its economy.   This faux prosperity played right into the hands of the entitlement class and political cronies were more than eager to spread the new borrowed euros around, draining government coffers to support ever more government spending.   A socialist nirvana…for a while.   But with an economy with little manufacturing base that lives off tourism and farming, they have been living on borrowed money — and borrowed time — for years.  When the financial crisis hit, Athens cooked the books to mask its swelling deficit but reality has finally come a-knocking.  Now Greece must adopt draconian budget cuts to stabilize its finances and maintain its creditworthiness in order to refinance its $25 billion debt or risk default and expulsion from the EU.

How is this crisis, which would appear on the surface to be more about monetary policy relevant to the current healthcare discussions?  After all, as David Frum rightfully pointed out to me, Greece spends less than 10% of GDP on healthcare as compared to our 17% and soon to grow.   To see the nexus one must step back and ask a more basic question.  What is Greece doing wrong?  Put simply, they are spending more on a fixed entitlement system than they are taking in revenues at an alarming rate.  Their public pension liabilities alone are projected to reach 25% of GDP by 2040.  This model is simply unsustainable…regardless of the services offered.  For Greece it was bloated public service compensation packages.  For the USA it is an already unsound Social Security and Medicare/Medicaid entitlement staggering towards bankruptcy.  By adding another $2 trillion in costs to a budget already swimming in red ink (as some astute observers estimate the real cost to be) the Democrats could send us into Greece territory in a hurry.  Even if the end of our Greek tragedy is played out differently than running to a central authority for a bail-out. The problem is not this healthcare bill or that government pension per se.  Rather it is the underlying socialist dogma that begets an unending expansion of government largess with no coherent policy for controlling costs, population declines that are shrinking the available tax base,  and thus…well, look at the streets of Athens to see the verdict of socialism played out in vivid imagery.  History does not repeat itself, but it sure does rhyme a lot.

One can say this is just a case of strong adaptable nations being forced to share a currency with small weak economies with structural rigidities (David argues that is not the same as welfarism—my answer; if I understood his point, “structural rigidities” is just a euphemism for entitlements that cannot be reversed).  But socialist leaning policies will eventually sink all boats, just some sooner than others.  Chancellor Merkel all but admitted Germany is not as strong as it once was by rejecting on fiscally prudent grounds Obama’s stimulus play outright.

So the Greek government must now enact serious fiscal discipline to earn that body’s bailout.   But as the protests show, once a people have gotten a taste of the entitlement buffet, it’s almost impossible to suddenly impose on them a crash diet.  The greater good?  The future of your nation?  I got mine until I die. That’s just too bad if you’ll never get yours.   Self-righteous liberals thinking they are acting for the public good could benefit from watching the real self-centered face of socialism unmasked in Athens.

Many of us selfish capitalists who resist government expansion over here could see that there was always a defect with the European model.  While my liberal friends lauded the wonders of government healthcare, government-funded early retirement and government-paid vacations, they ignored (denied?) the mathematical fact that this was a system careening towards insolvency that needed only one severe economic downturn to push it over the cliff in a hurry.  Socialism shares an insidious characteristic with a ponzi scheme in that to keep it going, you need new suckers to pay out the old ones.  In the case of welfare, you need new taxpayers.   Well, Greece (and most of non-Muslim Europe in fact) is experiencing a terminally negative population growth.  Greeks have 1.3 kids for every two parents.  Ten parents, beget six children beget 4 grandkids and so on. This reverse family tree in which the last generation standing is faced with the burden of crippling taxation to support an entitlement edifice that will collapse under the weight of its benefits is unsound.

And what of the nations like Denmark with a larger welfare state than Greece who seem to be doing just fine?  My answer: give it time. Denmark’s population in 2000 was 5.336 million.  By 2025 it is projected to fall to 5.2 million.  From the late 1960s to the present, fertility rates have been declining.  Tick-tock.

That social observation aside, the overarching economic question still remains:  if the demographics of Europe do not change, who will one day bail out the bailers?  Don’t look to the USA.   The majority Democrats here have turned a blind-eye to Europe’s day of reckoning and in an astounding act of ideology trumping real-world lessons.  And as the Greeks clashing in the streets with police show, even if we do regain control of Congress in 2012, once an entitlement so large has been enacted, be it healthcare here or public service pensions over there, it can never be taken away, even when a nation’s back is to the wall.

The great tragedy underlying the healthcare debate is that sensible, less draconian measures that do not hurl us into the abyss of statism were clearly brought to the fore by the GOP, be it tort reform (which a Democratic party held hostage by trial lawyer money will never adopt) or cross-state coverage.  One fixes a broken leg by splinting the leg, not shooting oneself in the head.   But alas a pyrrhic victory for the Democrats, who care more about the political fall-out for doing nothing than the disastrous ramifications for the country by passing a bad bill, seems feasible. The left wing ideologues who control the power positions in the party of Jefferson see this as their one shot to enact a liberal agenda they have been craving for a generation come what may… through a “reform”  that the polls show few Americans want—and, most important, no country afford for long before the snowball of mathematics catches up to us all.  Ask the Greeks.  Opa!