We have reached the point in some nations where “government spending” has become unsustainable at current levels. The consequences of “not doing anything about it” can be dire. Case in point: Greece. Greece’s low-out-put economy simply could not sustain its government’s lavish spending and high debt load. The banks stepped in and forced the state to impose draconian austerity measures. Result: riots in the street and shocking poverty.
Almost 30 years ago, I studied politics at York University, Toronto, which was then known as having an excellent Political Science department. I met young intellectuals from Greece and Italy who were sold on socialism. They believed that collectivism (especially wealth redistribution by the state) was a moral necessity, the answer to poverty and the key to social justice.
The “welfare state” was the “Free World’s” answer to the threat of “Communism” during the Cold War. The thinking went that the worst effects of “Capitalism” could be cured by massive state intervention, thereby lessening the danger of “Communism” as symbolized by the Soviet Union and its satellite nations.
Political parties generally found that selling the people on the need for “big government” was not difficult. Human nature, being what it is, is always open to the prospect of “getting something for nothing.” People also believe that society should be compassionate to those who are disadvantaged. Also, people crave the security that government programs seem to offer. However, in speaking to “the average Joe” about this issue, I get the sense that most people do not understand the nature of money.
Money, as it exists today, is simply a claim on the nation’s wealth (as well as being a medium of exchange). Today’s money doesn’t have intrinsic value, because it is created “out of nothing.” Money would have intrinsic value if it existed in the form of precious metal (gold, silver) or was “backed” by precious metal. State central banks control the volume of credit (money) and lend it to governments at interest. Governments then tax the people in order to pay the bankers and to generate income to meet their obligations. If they have annual shortfalls (deficits), it accumulates as debt.
Governments do not create wealth. Nor do bankers. Wealth is created by labour. People seem to take it for granted that nations such as Germany, Canada and the United States are wealthy. They seem to forget that the wealth in those countries is not “just there.” Iron ore in the ground, trees in the forest, or oil deposits do not become saleable commodities without the intensive application of labour. Arable land does not produce food without workers. The most automated factories still need people to run them. Years ago, it took much larger numbers of workers to realize a nation’s potential for creating wealth. Today, with the application of modern technology (machinery, computerization) many less “man hours” are required.
Because of modern technology, the productive capacity of labour in advanced nations is awesome. Therefore, during the post World War II economic boom, the affluent nations could afford to have millions of people remain idle and “live off the government” in one way or another (the welfare state). Governments could also afford to provide high wages and lavish benefits to public sector workers, provide “free” health care, as well as waste billions of dollars, year after year. So the size of governments in advanced nations grew and grew. Governments in Canada and the U.S. now consume over 40 percent of the Gross National Product of those nations.
For a variety of reasons, the productive sector in some advanced nations can no longer support this level of government spending. Governments in countries such as Spain, Ireland, Italy, Canada and the United States must get their financial houses in order to avoid an economic meltdown.
I’m not arguing that we should end social security, unemployment benefits, publicly funded health care or good wages and benefits for public sector workers. I’m saying that, if we want to keep those “goodies,” we are going to have to fix our economies and radically decrease government spending. This will mean rebuilding our manufacturing sectors (largely through import controls) and ending wasteful government spending. If this is not done, and soon, international bankers will take direct control of governments which default on their loan payments. Whether or not our treasured Western way of life would continue to exist in such a scenario is uncertain.