The central problem, at the root of the worldwide crisis, is the welfare state. Until that is addressed directly, the world will remain in economic stagnation, at best.

Monty Pelerin’s World

The day-to-day speculation regarding economic policy is irrelevant to all but speculators. The majority of the country is concerned about their future and when jobs will become plentiful again. For them, the news is not good.

The underlying problem faced by all developed countries cannot be solved by economic policy. The central problem, at the root of the worldwide crisis, is the welfare state. Until that is addressed directly, the world will remain in economic stagnation, at best. QE, stimulus, etc. are merely smokescreens to divert your attention from the real cause. They cannot and will not work. Indeed, they make the problem worse.

Bill Bonner concisely describes the welfare state problem:

The welfare democracies made promises they can’t keep. “Government can have only two legitimate purposes,” said William Godwin, “the suppression of injustice against individuals…and the common defense against external invasion.” Beyond that the decline in marginal productivity of government spending is remarkably steep. The courts and police protection have real and immediate payoffs.

Bonner then describes what happens when a State goes beyond what it can reasonably do:

Retirement, unemployment, bailouts, payoffs, tariffs, subsidies, free food and lodging, committees, councils, regulations – all quickly have perverse outcomes. More and more people switch from producing to conniving and chiseling. The more something for nothing is available from the government, the more people do nothing useful to get it – including getting control over the government itself.

Mr. Bonner has, in these two excerpts, captured the problem of the welfare state. By expanding the role of government beyond where it can possibly be effective, all welfare states slowly destroy the private economy. Western Europe (and the U.S. is right behind them), the most advanced social welfare states, have been described as” underperforming” for years.

Europes economies have been so damaged as to jeopardize their societies. They are incapable of dynamic growth, their governments are insolvent and civil unrest is beginning in areas where even feeble attempts to reduce welfare benefits have occurred.

All welfare states and their societies are on the verge of collapse as discussed in Welfare States R.I.P. and Political and Economic Situation Dire.

In the truest sense, the world does not have an economic problem. It has a government problem.

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