September 21st, 2011
An instant classic from Galley Hero Chris Caldwell:
The word Ponzi is on many lips just now. It may not literally describe the welfare states of Europe and America, but it is at worst hyperbole. In the United States, Democrats’ endless promises of benefits, Republicans’ idea that funding the state is optional—these amount to promises that if you, the Western consumer, just sit in front of the television eating Twinkies, the Chinese will work to supply you with the luxuries to which you’ve become accustomed, just like back in the days when the coolies built the railroads. China, apparently, views the march of history a bit differently.
The postwar European social model was viable for a long time, but it, too, has always required accounting tricks, and over time these became too elaborate to sustain. First, the demographics of the past favored the system, since the generation of those who would have retired just after World War II had been decimated in World War I. Second, the demographics of the future favored the system, too, as the unusually large Baby Boom generation paid for the generation born in the 1920s—unusually small to begin with and then decimated by another war. Finally, by the time demographics began to look more foreboding, the welfare state had been going on for so long that even people who should have been able to do the math mistook the status quo for a law of nature. They borrowed from the next generation, confident that some trick would be found such as previous generations had enjoyed. When that didn’t work, they cut the military. And when that didn’t work? Well, here we are.
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