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Is Greece the Future of America?

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It may be possible to look into Americas future. How? Watch whats going on in Greece. According to the Washington Post, Greece needs to raise about 23billion [more than $31billion] in April and May to pay debts coming due. Greek officials say that either is impossible, or would require punitive interest rates making it harder to bring the budget under control unless Europe helps out. So the Greek government awaits a bailout from Germany and France, but first it has to impress them that it is serious about fiscal austerity.

The Greek welfare states annual deficit is about 13percent of its GDP and its accumulated debt is 113percent of GDP. Meanwhile, the U.S. governments overall debt is now on track to reach 90percent of GDP by 2020, more than $20trillion. Just last week the Congressional Budget Office said that over the next decade, the annual budget deficit will be $1.2trillion more than the Obama administration has guessed. The ten-year figure is now projected to be $9.76trillion. The annual deficit is about 10percent of GDP.

Government spending is rising and the new entitlement called health-care reform hasnt passed yet. Thatll be good for a couple of trillion over the next decade.

The economic consequences of all that are likely to be dire. As the government tries to borrow more money, both to finance its programs and to pay the old debt thats coming due, it will have to promise a better return to nervous lenders, such as China. But raising the interest rate will push other borrowers rates up, which in turn will put a damper on economic activity. Unemployment will grow and revenues will shrink, but entitlement programs, such as Medicare and Social Security, will keep growing. They already face tens of trillions of dollars in unfunded liabilities and are heading toward bankruptcy. Military spending will also increase, along with most other government spending.

What will the politicians do when they find interest payments swallowing the budget, leaving them less and less money to shower on political supporters? They might resort to higher taxes, which would further dampen economic activity. They might get the Federal Reserve to monetize the debt through inflation; but that would wreak economic havoc. Politicians arent likely to cut spending because it would jeopardize their careers. At that point, the government might default on its debts, a step that has much to recommend it.

Thus, the welfare state is a fiscal failure.

The welfare state has long been presented as the viable third way, a happy medium between laissez faire full separation of state and economy and state socialism government control of the economy. Advocates of individual liberty have emphasized that the welfare state violates freedom because government takes wealth from those who produce it and transfers it to favored groups. Defenders have responded that the welfare state embodies compassion: people with means give to those less fortunate. But forced transfers through government are not true compassion. A virtue like compassion requires free choice, but government gives you no choice. So the compassion of the welfare state is counterfeit. Its more about distributing goodies at others expense to win votes for politicians.

Historically compassion had little to do with government programs for the poor and social insurance for the working and middle classes. Beginning as far back as Queen ElizabethI poor laws were intended to control people who were potential sources of social strife; and social insurance beginning in Bismarcks German welfare state was calculated to make working people dependent on the government. In both cases the free society was subdued for the sake of those in power.

Now it is clearer than ever that the welfare state is not only morally flawed, it is also fiscally unsustainable. Politicians will always have an incentive to spend, while hiding the costs or pushing them onto future generations through debt. But reality doesnt go away. It comes back to bite in unexpected ways.

Were seeing it in Greece today. Tomorrow it will be other European welfare states. Then, if nothing changes, it will be Americas turn.

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    Sheldon Richman is vice president of The Future of Freedom Foundation and editor of FFF's monthly journal, Future of Freedom. For 15 years he was editor of The Freeman, published by the Foundation for Economic Education in Irvington, New York. He is the author of FFF's award-winning book Separating School & State: How to Liberate America's Families; Your Money or Your Life: Why We Must Abolish the Income Tax; and Tethered Citizens: Time to Repeal the Welfare State. Calling for the abolition, not the reform, of public schooling. Separating School & State has become a landmark book in both libertarian and educational circles. In his column in the Financial Times, Michael Prowse wrote: "I recommend a subversive tract, Separating School & State by Sheldon Richman of the Cato Institute, a Washington think tank... . I also think that Mr. Richman is right to fear that state education undermines personal responsibility..." Sheldon's articles on economic policy, education, civil liberties, American history, foreign policy, and the Middle East have appeared in the Washington Post, Wall Street Journal, American Scholar, Chicago Tribune, USA Today, Washington Times, The American Conservative, Insight, Cato Policy Report, Journal of Economic Development, The Freeman, The World & I, Reason, Washington Report on Middle East Affairs, Middle East Policy, Liberty magazine, and other publications. He is a contributor to the The Concise Encyclopedia of Economics. A former newspaper reporter and senior editor at the Cato Institute and the Institute for Humane Studies, Sheldon is a graduate of Temple University in Philadelphia. He blogs at Free Association. Send him e-mail.