The Birth of the Modern Welfare State

American-Welfare-State-Eanfar.orgThe modern age in the field of Economics was born from the destruction of Europe in World War I. That war inspired a young British economist—John Maynard Keynes—to closely examine the mechanics of international exchange between nations, which was increasingly necessary to manage the enormous international debts and flows of capital and goods during and after WWI. In his first book, The Economic Consequences of the Peace, Keynes vividly chronicled many of the economic consequences of the Versailles Treaty, which was the product of a political and economic tug-of-war between Britain, France, and Germany at the 1918 Paris Peace Conference after WWI. In that book, Keynes explicitly predicted that the Treaty would lead to another international war because of the economic ignorance and political paralysis of the participants at the peace conference.

A Transcontinental Orgy of Carnage. Keynes’ prophecy came true in September 1939 when Adolph Hitler’s Nazi war machine invaded Poland and set into motion a transcontinental orgy of human carnage: World War II. Approximately 72 million human deaths, tens of millions wounded, and 100 million humans were directly involved in WWII combat operations. (Rummel 1998) Nearly three per-cent of Earth’s entire population was killed during the war. In over a dozen countries in Eastern Europe and Asia, double-digit percentages of their entire national populations were killed. How could global human civilization unravel so rapidly and violently within the span of only a few years?

Large-Scale Human Suffering is Politically Impossible to Ignore. American political Liberalism (as opposed to economic liberalism or “neoliberalism”) since the early 1900s has been typically associated with ideologies and theories that promote relatively more generous social welfare policies than corresponding conservative policies. In fact, political Liberalism was a worldwide populist and cultural response to the devastation of World War I, the Great Depression, and World War II, all of which exploded into the global consciousness in historically rapid succession. That series of humanitarian catastrophes made it politically impossible for politicians in any democratic country to ignore the deep economic suffering of 100s of millions of humans worldwide. This was the socioeconomic environment in which FDR’s New Deal policies and the modern welfare states of Europe were born.

The Birth of the Modern EU Welfare State.  As economic conditions deteriorated during the Great Depression, the unemployment rate rose to politically catastrophic levels, exceeding 30% in several European countries. And as the subsequent wartime devastation of Europe’s infrastructure paralyzed European industrial production, the European economy was incapable of providing subsistence employment to tens of millions of destitute humans throughout Europe. With so many humans unable to survive, it is no surprise that large segments of the European population preferred Communism, Socialism, and various other forms of collectivism to the abject poverty and deadly starvation that they were experiencing under collapsing Capitalism.

Government Intervention Was the Lesser of All Evils. Serious students of political history know that it was politically impossible for FDR and his European and Asian counterparts to avoid implementing large-scale social welfare programs because it was socially and economically improbable for large national populations to organize themselves efficiently, peacefully, and effectively around cohesive national economic and labor policies that would prevent further war and destruction to human civilization. Thus, government intervention into various economic markets was perceived as the lesser of all evils in nearly all countries around the world, even by most free-market-oriented observers.

EU vs. US Government Performance. Many Americans mock and snicker at the European economies today. They incorrectly label them as “socialist economies,” despite the fact that most EU economies have:

  • grown faster than the U.S. economy for many years;
  • delivered demonstrably higher quality of life to EU citizens than the U.S. economy delivers to Americans;
  • benefited from empirically proven higher quality government performance, in terms of lower political corruption, higher fiscal accountability, less financial waste and abuse, etc.1

The PIGS Are Not Proof of Prodigal EU Governments. Before my American friends start pointing at the so-called “PIGS” (Portugal, Italy, Greece, and Spain) as proof of EU government prodigality, let’s set the record straight: The economic problems that the PIGS have been suffering from since 2008 have been overwhelmingly caused by over-leveraged private banks, which shifted their private debts to their governments. This is exactly what happened in the U.S. when U.S. banks were bailed out by the U.S. Government (i.e., socialism for banks: wealth redistribution from American taxpayers to banks and their shareholders) while privatizing their profits (i.e., Americans go into debt to survive while banks prosper).

The Difference Between the EU and U.S. Governments. Unlike the U.S. Government, which spends $ trillions that it does not have, the vast majority of EU debt has not been caused by profligate government spending in the EU. To the contrary, the vast majority of EU debts have been caused by profligate private banks who abused their balance sheets to boost their profit margins, then they were bailed out at the expense of the entire EU population. The primary difference is “the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost,” as former U.S. Federal Reserve Chairman Ben Bernanke said. (Yes, he really said that.)

Welfare States Prevent Wars. Like many liberty-loving Americans, I don’t like the idea of a “welfare state,” but what I subjectively like and what is objectively necessary are two different things. What many Americans don’t realize today is that the social safety nets (so-called “welfare states”) in Europe exist in response to catastrophic economic conditions and the large wealth disparity between the landed European aristocracy and the poor masses, which spawned Hitler, world wars, and collectivist ideologies. The relatively generous European welfare systems that exist today were the only way to create political stability, avoid another genocidal world war, and prevent Communism and Fascism from spreading to Western Europe during the Cold War. As a result of those experiences, the Europeans understand that perfect liberty is meaningless if you’re dead.

The American Proto-Welfare State. FDR’s New Deal during the Great Depression and then President Johnson’s Great Society in the 1960s were responses to the U.S.’ own economic challenges, which those presidents were forced to implement to create political and economic stability just like the EU countries were forced to do. The primary reason that the U.S. has avoided a more extensive and overt “welfare state” is because the U.S. has received the once-in-human-history gifts of the world’s reserve currency (Bernanke’s “printing press”) and the petrodollar simultaneously. These unprecedented privileges have forced every country on Earth to use the U.S. Dollar (USD) for the past several generations, thereby keeping the U.S. economy much more stable than it would have been without these special conditions.

When Economies Collapse, Welfare States Rise. If the U.S. Government had to operate under the same economic and political constraints as all other countries on Earth, there is no doubt that the U.S. economic and political systems would have collapsed many years ago. That would have created pressure on U.S. politicians to implement much more extensive welfare programs just like the EU to soften the pain of the suffering American masses. To my fellow Americans who still irrationally assume the U.S. is immune to all those economic and political pressures: You’re in for a rude awakening.2

The American Welfare State is Here. Given that approximately 50% of the entire American population is already dependent upon substantial forms of government assistance, Americans can no longer pretend the U.S. is not a welfare state. (The 2008 bank bailouts already prove it’s a corporate welfare state.) But the U.S. is a welfare state in denial, which gives Americans the worst of all worlds: Corporate socialism, widespread debt and poverty, an unaffordable and deteriorating healthcare system, an unaffordable and deteriorating education system, the destruction of the Middle Class, and widespread ignorance about the true health of the U.S. economy, which creates a tone-deaf political class that continues to cram failed economic policies down our throats in exchange for a never-ending river of political campaign financing.

The American Welfare State Will Grow Rapidly. Given the inevitable collapse of the U.S. economy due to continued private and public debt asphyxiation, the ongoing fragmentation of the USD’s reserve currency and petrodollar status, and the profound labor force consequences of artificial intelligence and machine automation, Americans can expect far larger welfare programs in the years to come. Without those programs, there will be increasingly more violent political protests, more ideological extremism, more unnecessary foreign wars instigated by U.S. politicians to distract Americans from their domestic economic pain, and more liberty-killing forms of authoritarian government imposed upon Americans in the names of security and Democracy.


Notes:

1. See detailed quality of government performance data for many countries in my book or at the Quality of Government Institute and the World Bank.

2. I was a die-hard Libertarian most of my life until I realized that Libertarianism is an incomplete governing philosophy in a world in which all of the following are now occurring simultaneously: special interest corruption, systemic political corruption, artificial scarcity created by corporate monopolies, corporate welfare, disintegrating Middle Class, unjust wars instigated by the convergence of corporate and political interests, job-killing artificial intelligence, and rampant market failures caused by corporate manipulation of tax and regulatory policies. It’s not enough to say “All these problems are caused by big government intervention!” That’s BS, naive, and lazy thinking because it ignores all the real-world historical and socioeconomic conditions that actually cause corporations and governments to behave the way they do.

The size of government is not nearly as important as the institutional integrity of government. All of these problems plague the U.S. economy today far more than EU economies because the U.S. Government does not have enough institutional integrity to protect its citizens from the inevitable onslaught of human greed and gluttony that occurs when financially powerful private groups are able to hijack their society’s corporate and governmental institutions. I hate tyranny of all kinds, but economic oppression masquerading as Laissez Faire Capitalism is an unelected tyranny, which is much less tolerable for a society than any elected tyranny.



About Ferris Eanfar

Ferris Eanfar has over 20 years of experience in technical, financial, media, and government intelligence environments. He has written dozens of articles and several books in the field of International Political Economy, including Broken Capitalism: This Is How We Fix It, which provides unique insight into what is wrong with the global economy and how to fix it. To learn more about Ferris, please visit the About Ferris page.

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