Friday, July 20, 2012

Estonia, Spain and the Welfare State

Today they are reporting massive demonstrations against "austerity" in Spain.
The protest was one of over 80 demonstrations called by unions across the county against civil servant pay cuts and tax hikes which drew tens of thousands of people, including police and firefighters wearing their helmets.
It's the basic problem with the welfare state.  It taxes and spends up to the limit in good times and then finds out that the welfare state functionaries and beneficiaries strongly object to the trimming of their benefits in bad times.

That's why there is Paul Krugman and Keynesian economics.  The solution to a debt and spending crisis is not to cut spending, they say.  Oh no.  That would cause "pointless misery." The solution instead is more spending and devaluation.

So it creates "pointless misery" for Estonia to bite the bullet and cut government spending and government employee salaries.  Far better to increase government spending on stimulus and bull through to the future. (Only, of course, in the case of Spain you can't devalue the Euro, so you call on the Germans to pony up.)

I think it is important to understand what is going on here.  Keynesian economics was born in the 1930s when the welfare state first went belly up after the central bank manipulations of the 1920s had created an unsustainable boom.  The Keynesian solution was devaluation and inflation.

But the Keynesians are just tame regime apologists trying to help get the welfare state pitcher out of a jam.  It is very difficult to get people to accept pay cuts--particularly government employees--after an unsustainable boom.  Union leaders an community organizers can get thousands into the streets to demand that the cuts be rescinded.  But if you devalue the currency or inflate it away then you have presented the people with a fait accompli.  Voila!  The politicians are out of a jam, for you can't roll back a devaluation.  Not without "pointless misery."

The real solution, of course, is that a nation's "welfare" should not be run through the government with all the waste, fraud, and abuse that entails.  Government doesn't do flexibility, doesn't do efficiency, doesn't do customer service, doesn't do constant improvement and renewal.  Government does force, and what government employees and beneficiaries want is the money, never mind if the whole country flushes down the toilet.

Moreover there is a great philosophical reason why the welfare state is a bad idea.  It comes out of Habermas' analysis of society as a dual concept, part system and part "lifeworld."  Government is all system.  You bully through a law, and then everyone has to obey the law or pay a penalty.  But humans as social animals live in a lifeworld where people in a community are constantly discussing and evaluating norms and behavior.  The more you build a welfare state the more you dehumanize people by forcing them into a system.  You make them into passive consumers of benefits and passive payers of taxes.  In a truly "social" system everyone would be involved and responsible in the day-to-day business of the lifeworld, giving and receiving and discussing and evaluating and judging--on the day-to-day business of the health of old people, the education of young people, and the relief of the poor.

When social services are returned to the lifeworld then an economic crisis would prompt everyone to pitch in to find a way, somehow, to keep grannie's meds coming, junior's education going, and helping the poor get through the hard times.  That would be a big difference from today's situation where the money goes to the most powerful special interest, whether "banksters," bureaucrats, or beneficiaries.

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