| Submit your comments on this article |
| Economy |
| Our Sinking Welfare State |
| 2009-06-22 |
| WASHINGTON -- Raised in an individualistic culture, Americans dislike the concept of the "welfare state" and do not use the term. But make no mistake, the United States has a welfare state, and its future is precarious. The true significance of General Motors' bankruptcy lies more with this welfare state than with the battered condition of American capitalism. Broadly speaking, the U.S. welfare system divides into two parts -- the private, run by firms; and the public, provided by government. Both are besieged: private companies by competitive pressures; government by rising debt and taxes. GM exemplified the large corporation as private welfare state. In contracts with the United Auto Workers, GM promised high wages, lifetime employment, generous pensions and comprehensive health insurance. All this is ancient history: new workers get skimpier benefits. As metaphor, GM's bankruptcy marks the passage of this model. Companies still provide welfare benefits to attract and retain skilled workers. But these shelters against insecurity are growing flimsier. Career jobs remain, but lifetime job guarantees -- whether formal or informal -- are gone. Last year, about 50 percent of male workers aged 50 to 54 had been with the same employer at least 10 years; in 1983, that was 62 percent. Health insurance and pensions tell similar stories. In 2007, employer-provided insurance covered 177 million Americans, 59.3 percent of the population; in 1999, coverage was 63.9 percent. Since 1980, companies have gradually moved from "defined benefit" to "defined contribution" pensions, notably 401(k)s. Defined benefit plans provided guaranteed monthly payments; defined contribution plans -- just putting money into a pot -- make workers responsible for managing retirement savings. What most Americans identify as government "welfare" are payments to single mothers, food stamps and (perhaps) Medicaid, the federal-state health insurance program for the poor. But that's not the half of it. Since 1960, government has changed radically. Then, 52 percent of federal spending went for defense, 26 percent for "payments for individuals" -- the welfare state. By 2008, 61 percent consisted of "payments for individuals," 21 percent for defense. Social Security and Medicare -- programs for the elderly -- represented the lion's share: $1 trillion in 2008. Most Americans don't consider these programs "welfare," but they are. Benefits are paid mainly by present taxes; there's little "saving" for future benefits; Congress can alter benefits whenever it wants. If that's not welfare, what would be? Pressures on private and public welfare won't abate. The economic conditions that encouraged corporate welfare have long since vanished. In 1955, GM, Ford and Chrysler accounted for 95 percent of the U.S. light vehicle sales, reports economist Thomas Klier of the Chicago Federal Reserve. With market dominance and technological leadership, the "Big Three" assumed they could pass along to customers the costs of job guarantees, high wages and fringe benefits. Eager to defuse the class warfare of the 1930s -- and to avoid unionization -- many U.S. companies imitated the model. They, too, believed that competition would be limited and technological change could be controlled. These conceits are gone (in 2008, the Big Three's market share was 48 percent and dropping). Now, companies are hyper-sensitive to competitive and economic threats. A survey of 141 major companies by consulting firm Watson Wyatt found that 72 percent have recently cut jobs, 21 percent reduced salaries and 22 percent curtailed matching 401(k) contributions. In theory, expanding public welfare could offset eroding private welfare. President Obama's health care proposal reflects that logic. The trouble is that the public sector also faces enormous cost pressures, driven by an aging population and rising health costs. The Congressional Budget Office projects the federal debt to double as a share of the economy (gross domestic product) to 82 percent of GDP by 2019. Any sober examination of figures like these suggests that the system has promised more than it can realistically deliver. We are borrowing not to finance investment in the future but to pay for today's welfare -- present consumption. Sooner or later, the huge debt will weaken the economy. Nor would paying for all promised benefits with higher taxes be desirable. Big increases in either debt or taxes risk depressing economic growth, making it harder yet to pay promised benefits. The U.S. welfare state is weakening; insecurity is rising. The sensible thing would be to decide which forms of public welfare are needed to protect the vulnerable and to begin paring others. Our inaction poses another dreary parallel with GM. It was obvious a quarter-century ago that GM the auto company could not support GM the welfare state. But the union wouldn't surrender benefits, and the company acquiesced. Inertia prevailed, and the reckoning came. The same cycle, repeated on a national scale with sums many multiples higher, would be correspondingly more fearsome. |
| Posted by:GolfBravoUSMC |
| #3 After reading Shales "The Forgotten Man" and watching the recent scenario unfold, I believe you've nearly hit the nail on the preverbial head Moose. Brown rice keeps rather well in Mason jars by the way, or so I'm told at the oriental market. |
| Posted by: Besoeker 2009-06-22 19:06 |
| #2 Besoeker: The sad truth is that government lied. It never had the authority to create Social Security, Medicare or Medicaid, but it did so for pragmatic political reasons. From the very beginning, they were efforts to turn America from a capitalist nation to a socialist one, and both political parties were complicit in the scheme, either overtly, or by refusing to tear down what had been unlawfully created. Thus it has been an inevitable consequence of the public voting itself the treasury, that one day the bill would come due, and none would be left to pay. So what we now face is that the US government will have no choice but to renounce its debt, SS, Medicare and Medicaid will end, and the Defense budget will be severely cut, so most of our overseas military will return home. Domestic production will have to be recreated, because most trade will be over with the renunciation of the debt. However, credit will be only for those with 100% collateral, what today we think of as debit. The end result will be the restoration of the pre-Frank Roosevelt economy. The only choice will be to minimize the national pain, or to drag it out. |
| Posted by: Anonymoose 2009-06-22 18:51 |
| #1 Frankly, I do NOT consider government programs Social Security and the like, which I have paid into faithfully without choice, which have earned -0- interest and paid -0- dividends since the early 1960's as "welfare." If the government wishes to toss my payments into the general fund and operate a huge, cross-generational ponzi scheme and piss it away, I am pretty much powerless to do anything about it. It will either be there, or it will not. I'm betting on the latter, but if it returns to me $ .10 cents of thousands of dollars I have paid in...., it will damn sure not be "welfare." |
| Posted by: Besoeker 2009-06-22 18:11 |