I\’m unconvinced that this is true

What is being challenged is nothing less than the most basic premise of the politics of the centre ground: that you can have free market economics and a democratic socialist welfare system at the same time. The magic formula in which the wealth produced by the market economy is redistributed by the state – from those who produce it to those whom the government believes deserve it – has gone bust. The crash of 2008 exposed a devastating truth that went much deeper than the discovery of a generation of delinquent bankers, or a transitory property bubble. It has become apparent to anyone with a grip on economic reality that free markets simply cannot produce enough wealth to support the sort of universal entitlement programmes which the populations of democratic countries have been led to expect.

I\’m not yet convinced that it is wrong: but nor am I convinced that it is true.

My general thought being that it is ppossible, but only if you pay a very large amount of attention to the details of where you\’re going to get the money from. And also a very large amount of attention to where the money is being generated.

Essentially, the trick is possible: but only if you have a near vicious classically liberal economy underneath is there enough growth generation that you can skim the money flows to finance that welfare state.

That is, you can have a near socialist welfare state as long as you don\’t have anything like a socoialist economy.

As I say, not sure I\’m right, but that\’s the way I\’m leaning.

7 thoughts on “I\’m unconvinced that this is true”

  1. Essentially, the trick is possible: but only if you have a near vicious classically liberal economy underneath is there enough growth generation that you can skim the money flows to finance that welfare state.

    Which is never going to happen in the UK as we have far too many people in positions of authority hell-bent on telling other people what to do and how it should be done. Indeed, I think a lot of people aspire to authority positions for this very purpose.

  2. I doubt if you can generalise about welfare states: the devil is in the details. Anyway, what probably dooms welfare states is mass immigration. Perhaps British (or French, or Swedish..) commerce can support a welfare state for the indigenous: they can’t possibly do so for every third worlder who chooses to turn up but take no part in that commerce.

  3. “but only if you pay a very large amount of attention to the details of where you’re going to get the money from. And also a very large amount of attention to where the money is being generated.”

    and

    “Essentially, the trick is possible: but only if you have a near vicious classically liberal economy underneath is there enough growth generation that you can skim the money flows to finance that welfare state.”

    Those bits are true and necessary but they are nowhere near sufficient.

    You also MUST have a near vicious control of where the money IS GOING. You need to have a near vicious control of who is claiming what money otherwise is always going to outstrip supply.

    We are talking about free money here: the demand is going to be infinite unless there is something to moderate it. Governments and government bureaucracy unfortunately isn’t the answer either – essentially that creates a system rather than personal relationships. A system which is, by definition, profitable to game…

  4. It depends upon the ability and willingness of the wealth creators to create wealth and the expectations of those on the receiving end of redistribution.
    Currently we have demands for redistribution that exceed the total wealth created – not just revenue from taxation – so we have massive disappointment due to the rationing of free-at-the-point-of-delivery healthcare and of social services and of decent education (children having to walk past two decent primary schools to get to the lousy one to which the education bureaucrats have allotted them against their will) and complaints about the cost of subsidised rail fares etc while at the same time many people (not just left-wing politicians and comedians) are making great efforts to avoid paying tax.
    Under MacMillan the state redistributed more to the poor and raised their standard of living by more than Attlee and Bevan tried to do.
    Fans of SuperMac will tell you that it is not just possible but that it has been done.
    What the aftermath of the 2008 crash showed was that all the apparent growth in UK GDP under Blair and was Brown was smoke and mirrors (a recent article has shown that a procedural change in 1997, corrected in 2011, led to RPI and hence the GDP deflator being understated by 0.6% pa from 1997 to 2011 so “real GDP” growth was overstated by 0.6% pa, combine this with the distortion due to public sector pay rises being interpreted as a rise in GDP because GDP includes the public sector at cost not value and you get nil or negligible real GDP growth) coupled with a major rise in demand. The Joseph Rowntree Trust published a survey showing that people think that a minimum standard for a family on benefits includes a TV and a car

  5. Delete the emotive phrase “near vicious” from your summary, Tim, and substitute the more emollient word “prudent”. Both Pedant-General and john 77 make pertinent points: yes, a free market economy could finance a competently-run welfare state, if its people wished for such a thing – help for orphans, widows, the elderly, the sick, the unemployed etc. The point Daley – an intelligent commentator, in my opinion – is making is that the reach of that welfare state must take account of the cycles of the free market: the busts as well as the booms.

    To build a welfare state on the basis of entitlements for all and sundry and rely, as it does, on the private sector to pay for it during a boom is one thing. To maintain those entitlements during a time of economic contraction in the private sector is another.

    So I guess the trick, as you describe it, is an ancient one: how do you provide the bread and circuses you’ve provided during the seven years of plenty during the seven years of famine? It’s a tricky one for a democratic politician, who faces re-election every four-five-six years or so. As Pedant-General says, during the years of plenty, people’s expectations rise accordingly.

    Daley’s article continues – in a portion you didn’t quote – that she thought her fellow Americans might just be prepared to tighten the belt, unlike Europeans (witness Greece, Spain, France etc). I don’t know: I’m not American, and to me America, like the past, is a foreign country.

  6. The devil may be in the details, but there are two simple base design elements that are missing from most welfare states which doom them to eventual bankruptcy. Means testing – targeting the assistance to those who actually need it – and indexation. Not just indexation of dollars, but of eligibility criteria like age. Expecting a pension system introduced when life expectancy was in the 60s to work when that’s gone up to 80s is ludicrous.

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