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The Bankruptcy of Greece’s Welfare State

by

Make no mistake about it: The economic and financial crisis in Greece is rooted in the welfare state, a way of life in which a nation’s government is charged with the responsibility of taking money from people and giving it to other people. It is this way of life — the welfare-state way of life — that has taken Greece down.

It is Greece’s welfare-state way of life that led to out-of-control government spending and out-of-control government borrowing, ultimately leading the government and country into bankruptcy. It’s the welfare-state mindset that now has Greece hoping and praying that taxpayers from other countries will send their hard-earned money to Greece, thereby enabling the Greek government to service its debt and continue funding its welfare-state programs.

Sure, it’s theoretically possible to have a welfare state in which the total tax revenues exceed or equal the total amount being paid for the dole. But the big problem is, as Greeks have learned, that the number of people who like receiving a dole increases while the number of people paying the taxes that fund the dole decreases. Rather than cut the dole to match the tax revenues, which will make the dole recipients angry, the government proceeds to borrow the difference and continue increasing the amounts paid for the dole.

Take note, America. If you think that this sort of thing can’t happen here, you’re living in la la land. Economic and financial principles are immutable, just like the law of gravity. If a Greek jumps off a 40-story building, he is going to die. By the same token, the same thing will happen to an American citizen who does the same thing, no matter how exceptional he thinks he is.

For decades the U.S. government has been spending and borrowing to the hilt, doing much the same thing the Greek government has done. Like the Greek government, the U.S. government has been spending much more than it receives in the form of taxes. How does it do that? Like the Greek government, it borrows the difference.

That’s why the size of the federal government’s debt continues to soar. Every year, the federal government spends more than it brings in, and it borrows the difference. The “national” (read: government’s) debt continues soaring.

As we see with Greece, a government’s debt can become so large that the government simply cannot pay its expenses, continue doling out its welfare payments, and servicing the interest and principle on the debt. That’s when it’s busted. That’s why too much debt is a very dangerous thing, not only for families but also for governments.

In fact, the so-called debt ceiling is an acknowledgement of the dangers of too much government debt. The “debt ceiling” is a maximum amount of debt that Congress has permitted the federal government to incur. Once it reaches that ceiling, it cannot borrow any more money. At that point, it must operate on a pay-as-you-go basis, no different from a family that has maxed out its credit cards.

But notice something important here: Every time the debt ceiling is reached, the mainstream press scream like banshees about how the ceiling has to be raised or else the sky will fall. Every time the debt ceiling is reached, Congress bends to the pressure and agrees to raise the ceiling, permitting the spend-and-borrow orgy to continue, just as it did in Greece.

Notice something else important: After each time that the debt ceiling is reached, most everyone, especially the mainstream press, forgets about the problem, until the next time the debt ceiling is reached, and the screaming and fear-mongering get revved up again, at which point the ceiling is raised again.

It’s true that the United States has a much larger pool of wealth to tax than Greece has. But don’t forget that America also has a gigantic warfare state and military-intelligence empire that Greece doesn’t have. Greece has a giant welfare state while the United States has a giant welfare-warfare state.

Four years ago, Standard & Poor’s downgraded the U.S. government’s credit rating, owing to the large amount of ever-growing debt owed by the U.S. government. Two years later, in a classic retaliatory move the feds went after S&P during the mortgage crisis. Apparently U.S. officials believed that if they shot the messenger, that would solve their ever-growing debt problem.

But it won’t. America continues to go the way of Greece. Or, for that matter, Puerto Rico, whose government just announced this week that it is unable to pay its $72 billion in debt.

If the Greek government fails to secure its hoped-for bailout from European (or American) taxpayers, every American should watch unfolding events with much interest because they will show what lies in store for the American people down the road — i.e., bank runs, bank “holidays,” asset seizures (including retirement accounts), increased taxes, capital controls, and a constantly debased national currency (that will replace the Euro).

The welfare-warfare state way of life destroys both freedom and prosperity. There is but one solution to this moral and economic morass in Greece, Puerto Rico, the United States, and the rest of the world: a dismantling, not a reform, of the welfare-warfare state way of life. Greece has posted a warning sign to Americans. Will Americans heed it before it’s too late or will they stubbornly continue traveling down the same road?

This post was written by:

Jacob G. Hornberger is founder and president of The Future of Freedom Foundation. He was born and raised in Laredo, Texas, and received his B.A. in economics from Virginia Military Institute and his law degree from the University of Texas. He was a trial attorney for twelve years in Texas. He also was an adjunct professor at the University of Dallas, where he taught law and economics. In 1987, Mr. Hornberger left the practice of law to become director of programs at the Foundation for Economic Education. He has advanced freedom and free markets on talk-radio stations all across the country as well as on Fox News’ Neil Cavuto and Greta van Susteren shows and he appeared as a regular commentator on Judge Andrew Napolitano’s show Freedom Watch. View these interviews at LewRockwell.com and from Full Context. Send him email.