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Last Tuesday, 6 December 2011, President Obama delivered an important speech at Osawatomie, Kansas, site of the famous 1910 Teddy Roosevelt speech.  The speech echoed of 21^st century Populism, blaming the rich for the economic situation of the nation and calling on the nation to reject the Republican Party?s position and embrace his.  The economic situation of the US is not due to his policies, he argues, but to the rich, which the Republican Party represents.  His speech reflected the imagery of the Occupy Wall Street movement?the 99% vs. the 1%.  The president stands with the middle class, he says, and his policies are best suited to care for the needs of the middle class.  In this Perspective, I hope to not so much evaluate his speech but focus on the much larger issue of the role of the welfare state, with all its entitlement programs, in our lives.  Is there a connection between the situation in Europe and Obama?s vision for the US?

• First of all, the crisis in Europe is not really about the euro and the currency structure of the European Union.  It is really about the welfare state.  The expansion of the state was one of the great transformations of the 20^th century.  At the beginning of that century in Europe, public spending was virtually non-existent.  But then the wealthy nations of Europe adopted programs for education, health care, unemployment insurance, old-age assistance, public housing and income redistribution.  The United States, during the administrations of FDR and LBJ, joined this transformation.  The economist, Robert Samuelson, reports on the statics of this transformation:  ?In 1870, all government spending was 7.3% of national income in the US, 9.4% in Britain, 10% in Germany and 12.6% in France.  By 2007, the figures were 36.6% for the US, 44.6% for Britain, 43.9% for Germany and 52.6% for France.  Military costs once dominated budgets; now, social spending does.?  As even the financial novice knows, two factors are necessary for this expansion of the welfare state to work:  favorable economics and demographics?rapid economic growth to pay for the benefits and young populations to support the old.  But as everyone also now knows, neither of these factors currently obtain.  The rapid and expansive growth has slowed significantly (about 2.1% on average) and demographics are in crisis, with the 65+ age level in the population growing at exponential rates.  And there are simply not enough young workers to support the older population with Social Security and health care.  In the US, the great expansion of the welfare state occurred in the 1960s and 1970s, with the creation of Medicare, Medicaid and food stamps.  In 1960, Samuelson reports, 26% of federal spending represented payments to individuals; in 2010, that figure was 66%.  Economic growth in the US has settled in from 2000 to 2007 to an average of 2.4% and, by 2050, 20% of the population will be elderly.  As Samuelson argues, ?The modern welfare state has reached a historic reckoning . . . Vast populations in Europe and America expect promised benefits and, understandably, resent any hint that they will be cut.  Elected politicians respond accordingly.  But the resulting inertia poses an economic threat, one already realized in Europe.  As deficits or taxes rise, the risk is that economic stability will increase, growth will decline, or both.  Paying promised benefits becomes harder.  Or austerity becomes unavoidable.  The paradox is that the welfare state, designed to improve security and dampen social conflicts, now looms as an engine for insecurity, conflict and disappointment.  Facing the hard questions of finding a sustainable balance between individual protections and better economic growth, the Europeans have spent years dawdling.  The parallel with our situation [in the US] is all too obvious.?

• Second, during the first term of his presidency, President Obama has largely ignored these systemic problems of the US welfare state.  He sponsored a massive stimulus package that will add nearly $1 trillion to the national debt.  His reorganization of the health care system created an entirely new entitlement in a nation already hemorrhaging from unsustainable entitlements.  This act alone has added an enormous amount of uncertainty into an already stagnant economy.  In addition, the president completely ignored the profoundly sensible recommendations of his own deficit reduction commission?the Simpson-Bowles Commission.  Further, he has ignored recommendations as well for a complete and fundamental reform of the ?corrosive and corrupted tax code that misdirects capital and promoted unfairness.?  Following these recommendations alone would have stabilized the US economy and benefited the middle class far more that anything intimated in his Osawatomie speech.  If you really want to see the effect of bad government policy on the character of a nation, simply look at what has happened in Greece.  There you see civil servants, who are victimizers behaving like victims.  The Greek government and its policies have made them what they are.  We are seeing the same thing occurring in Italy and to some extent Spain.  I would not be surprised to see similar things occurring in the United States in 2012.  Instead of leading, our president has been coddling the middle class with the focus of blame on ?the rich.?  Nothing could be further from the truth.  The systemic problems of the US are due to our welfare state, which he has actually expanded quite incredibly.  He is presiding over an ugly situation?creating greater dependency of US citizens on its government.  What is occurring in Greece will soon occur in the US.  It is really quite a sad thing to observe.  But, in the final analysis, we are perhaps getting the leaders we actually deserve as a nation.

See Robert Samuelson in the Washington Post (5 December 2011); Charles Krauthammer in the Washington Post (9 December 2011); and Phil Gramm in Imprimis (November 2011), p. 3. PRINT PDF