TCS Daily


Where the Left Is Moving Right

By Jurgen Reinhoudt - July 27, 2007 12:00 AM

In Europe, reforms are in vogue. Though many special interests are fiercely resisting change, it is striking to see just how many European Social-Democrats have come to recognize the need for structural reforms to welfare states.

Witness Gerhard Schroeder, the former center-left Chancellor of Germany: in 2003, he called for a "change of mentality" in his own party, the SPD, as well as in German society as a whole. "Much will have to be changed to keep our welfare and social security at least at its current level," he added, as he argued in favor of reforms that would trim entitlements, and cut taxes. The Chairman of the SPD, Franz Müntefering, supported Schroeder by saying that "we believe that things must be rearranged and restarted in Germany in this decade." Not long thereafter, Schroeder took the lead in making German labor laws more flexible.

In France, former Socialist Prime Minister, Lionel Jospin shocked the left several years ago: when asked on TV what he was going to do to help laid off factory workers beyond the public assistance already on the books, he said that "the state cannot do everything." It was not so much the truth of the statement that came as a shock; it was that a leader of the French left would say it so candidly. Throughout his tenure, Jospin privatized numerous state-owned companies, including Air France, even as he criticized capitalism.

Former Labour British Prime Minister Tony Blair became famous for his "Third Way" philosophy, which he said moved "beyond an old left preoccupied by state control, high taxation and producer interests."

And in Italy, on July 20, center-left Prime Minister Romano Prodi announced a deal raising the retirement age from 57 to 61. Though the deal was a somewhat watered-down version of the pension reform plan originally passed by his center-right predecessor Berlusconi, it shows that the Italian left is aware that structural reforms are urgently needed.

In many countries the left has been willing to discard or, at the very least, publicly re-consider old big-government approaches in order to re-invigorate economic growth and general prosperity.

In the United States, by contrast, those most committed to the welfare state tend to talk about trimming entitlements the least. This is particularly true of politicians aspiring to the highest office of the land.

Yet the statistics—affirmed by center-left and center-right experts alike—are unequivocal. The United States is facing a tremendous fiscal shortfall in the decades ahead. In addition to Medicare, Social Security and Medicaid will have to be dealt with: the total entitlement shortfall is expected to surpass $50 trillion, and there are no politically easy solutions.

Under reasonable calculations of higher spending, according to the Congressional Budget Office, Federal spending as a percentage of GDP will rise from about 20% today to 35% in 2050 to pay for the additional entitlement spending. But that is excluding state and local spending, which takes up about 11% of GDP.

Thus, under a reasonable scenario, by 2050, the federal, state and local governments in the U.S. will spend 46% of GDP, not that far from what France spends today (54%).

To avoid getting there, benefits for entitlement recipients may have to be trimmed; contributions of wealthy retirees to certain programs may have to rise, private Social Security accounts could be permitted, and benefits may have to be dependent on one's income or total assets. There are many possible pieces of a comprehensive solution, yet they are not being discussed in political circles.

Far from tackling the looming fiscal crisis, Presidential candidates are busy marketing expensive new plans to voters. The healthcare plan of John Edwards would "cost the federal government some $120 billion a year," $1.2 trillion over a ten-year period, for the foreseeable future. And that's not including $15 billion per year in proposed anti-poverty measures. No word on how the existing entitlement shortfall will be dealt with.

Similarly, Senator Barack Obama's healthcare proposals, would cost "$65 billion a year," roughly $650 billion over a ten-year period, "though other health experts think it would be higher." No credible word yet on how the existing entitlement shortfall can be managed.

There is another problem: estimates of new entitlement programs inevitably underestimate the actual cost, either for political reasons (to ease passage) or out of innocent miscalculations, as happened with Medicare. In 1966, its first year of existence, Medicare cost $3 billion per year: the House Ways and Means Committee predicted it would cost $12 billion in 1990, taking inflation into account. But instead of costing $12 billion in 1990, Medicare cost $107 billion. And it is set to cost $488 billion in FY 2008.

Or consider the new prescription drug benefit for seniors, estimated to cost about roughly $1 trillion from 2007 to 2016: the costs of that program are set to rise significantly thereafter as more baby-boomers retire. Originally, the White House estimated the plan to cost $400 billion over a 10-year period; it ended up costing substantially more.

While proposals for new entitlements may be politically easy, they are fiscally reckless. Candidates who promise expansive new entitlement spending are effectively writing checks the American economy cannot cash. They will take us to the place where Europe is today: a place where existing entitlements are unaffordable. Yet what matters is not so much the specific measures being considered, but the broader mindset from which they originate. It is in this context that comparing the European political mindset to the American political mindset is useful.

In 2005, the liberal Washington Post columnist Sebastian Mallaby, criticized the opposition of many Democrats to the possibility of investing in private Social Security accounts by saying that "a party that refuses to acknowledge the urgency of entitlement reform is a party of ostriches." He's right—and the label applies to many leaders in both parties.

Presidential candidates ought to learn from Europe's lessons. Even if it is politically painful, we should not race to the place that Europe is trying to get away from.


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17 Comments

Where have all the Liberals Gone?
What do you guys say about this? I am listening.

USA ace in the hole
The US government owns nearly half of the western USA.

Harry Browne, a libertarian and financial expert proposed the USA should sell all its land and buy annuities to replace the current social security programs allowing a transition to economically sound plans.

But that removes power from the politicians so it will never happen unless the people vote the bas*ards out.

they're still there
They've just disguised themselves as "social democrats" rather than "socialists".
The article paints a rather rosy picture of Europe when it states that "social democrats" here are having second thoughts about big government.
They have in fact no such second thoughts.
They're using their new schemes to in fact create more government control over everyday life.
Those people under Germany's new labour laws no longer are free to find their own jobs for example. Each job offered has to be approved by the Arbeitsamt (labour office) and people have been known to get job offers rejected by them.
In one famous case a person was told to quit her job for another one because that would put her income to a level that would mean they'd no longer have to pay unemployment money to her husband. They never took into consideration that she'd be exchanging a job she'd held for over 10 years on a permanent position for a short term contract with no chance of renewal.

Things are similar all over Europe. Efforts to increase government control are officially presented as "deregulation" by replacing several rather loose rules and laws with a single highly restrictive one.

Pretty decent article
Good points in the article, we DO need smaller government in America. We should not move further in the direction of European socialism in general. Some policies may be advantageous however, they should be examined and analyzed on a case-by-case basis. Lets not be ideological about it, lets be smart.

And if a candidate proposes a new, huge government program, he/she needs to explain how it will be funded without raising taxes. At the very least, he/she needs to do that, thats just step 1 in many steps of gaining acceptance to growing government. Thats how it should be anyway.

Thats the liberal position.


You got that right marjon- vote the bums out. But that doesn't work because they're all the same. We're doomed either way.

Perverse Reactions
Note that immediately after the old Soviet Union was disbanded under president Reagan, thus strongly implying that socialism was a dead-end, the United States promptly voted in Bill Clinton, a socialist.

It's a perverse reaction we have when socialist policy suffers an extreme setback elsewhere... We seem to have an arrogant idea that it may have failed elsewhere, but that as Americans we can do it right.

I wouldn't be surprised to see the same thing again, in a perverse response to the adoption of more conservative policy in Europe.

We'll show them how socialism is done! ( Not )

CharlesB

Hole in the ace
Who will buy it, and why?

Edwards Plan
"The healthcare plan of John Edwards would cost the federal government some $120 billion a year."


It's a trap, don't believe it. The 120 billion will soon be 240 billion and that's just the start. If you want to see what government healthcare looks like, Canada and the UK are prime examples. Costs rise, service dimishes and meaningful reform is all but impossible.

Bush had one thing right ...
... he tried to get people to realize that the pyramid scheme that is social security will eventually collapse and tried to get private accounts for younger folks to replace Social Security. Of course, the lamestream media lambasted him for thinking such a thing and there were no politicians from either party with the courage to swallow hard and do the right thing. Too bad.

remove your head from your ass
You might see better. Australia has an excellent balance between public and private health care. We have universal health care of a high standard and one of the worlds best private health care wich cost less then half yours does.

Goodbye, Yellow-Brick Road
"Our health system is struggling to meet the increasing demand for chronic disease management and preventive care. Our ageing population will increase this demand and place further pressure on an already stressed system," Professor Leggat said.

http://www.aushealthcare.com.au/news/news_details.asp?nid=9407

"Australia, like many countries, faces serious challenges in caring for a growing population of older people with multiple health problems. Our health care system is fragmented, with geriatric services spread across different areas of the health system, in particular across the hospital/ community care divide," Professor Stephen Bird, Professor of Exercise Sciences, RMIT and project leader said today.

http://www.aushealthcare.com.au/news/news_details.asp?nid=9423


The real crisis is the totally inadequate attention being given to the development of long-term goals and coordinated strategies for Australia's health system.

http://www.onlineopinion.com.au/view.asp?article=298

Health Care in a Free Society
Rebutting the Myths of National Health Insurance

http://www.cato.org/pubs/pas/pa532.pdf


Hole not as large as you might think
Prices would drop and instead of forking over 150K for 8 acres (in SE Arizona) putting a sizable chunk of that land on the market would allow me to shoot for 15-20 acres... not only would they they gain money from the sale, they would no longer have to manage it and instead would be bringing in tax revenue from it.. sounds like everyone wins except those who already own sizable chunks of land and want to sell it for top dollar in the near future.

It would be interesting to see what government could do if they sold even 10% of that land.

No perfect systems out there..
Look any and every health care system is going to face difficulties and challenges...

We need to ask ourselves what metrics are relavent when jusdging a health care system and then evaluate differant systems on that basis. Percentage of GDP spent, cost per person, infant mortality, life expectancy, ect.., I can't imagine a set of metrics which would put our health care system above that of almost any other 1st world nation unless we choose to completly disregard cost and the overall health of the American people.





just improvements
We need to study what works and what doesn't work around the world and adapt the best parts of all systems into our own, one step at a time.

We could start by insuring that every American had access to preventative care, and then encouraging it's use.

Systems?
We don't need no stinking systems! We need free markets and gov't out of the way. Read Arnold Kling's article.

Re: Canada & health
Must disagree Birdy. I have many relatives in Canada. Not only do they have no problems getting ALL the care they need and want, I know a child who has lymphatic cancer and they have rushed him to a Vancouver, BC children's hospital, paid for parents to stay, and, of course paid for everything involved in treatment.
As a US citizen, my daughters and myself were quite ill with a flu, needing IV treatments in the small town clinic. The entire charge for us 3 out of country people, for a night of care in a normally closed evening clinic while we puked and did what ever else, was 200 bucks.
When they first moved up there they complained about the GST (Goods and services Tax, which is high. 10% or so) but soon realized it paid for their healthcare, my sister in law a small stipend while she cared for her son, and disability when my brother in law broke his back in a mining accident. They have some government stuff, but I have never met even a cranky Canadian beaurocrat (vs. US) and Canadian citizens are usually a pretty happy and polite bunch...very few people on valium there. (Just a joke, not a true know fact.)

Cheers
I think you are right on track. I hope you know these people shock me, as an American, and scare the F.... **** out of me. Can I move to Australia? (ha, ha) Bush is starting a committee to proclaim himself fucking president for life. He would have to get soldiers in US to turn guns on citizens. Aint gonna happen and his damn "base" the second amendment people (Everybody needs a gun) Will be fighting that BS..the only time I appreciate the second amendment.
I sincerely hope you know...There was always a very large percentage of US citizens who never voted for that ******* and his illegal regime. 2000 hurt, 2004 was a stabbing pain that hasn't gone away.

It appears you are talking about Chavez
and Venezuela. Document your allegations or admit your lies. That stabbing pain is a long nose growing from your face. Yes, you can move to OZ; good bye!

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