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Paul Krugman’s Welfare-State Fallacies

Jacob Hornberger
Campaign For Liberty
Thursday, May 20th, 2010

A recent op-ed entitled “We’re Not Greece” by Paul Krugman in the New York Times encapsulates everything that is wrong with liberals when it comes to economics.

The good liberal that he is, Krugman suggests that the welfare state is about “taking care of those in need.”

What he misses, however, is the issue of means, which, not surprisingly, he totally fails to address in his op-ed.

Suppose I accost you with a loaded gun and force you to take me to an ATM. I tell you to withdraw $5,000 or I’ll shoot you. You withdraw the money and give it to me. I go and give all the money to people in need. I don’t keep one dime for myself.

Haven’t I taken care of people in need? Isn’t what I did moral? Isn’t it consistent with God’s will? Aren’t I a good person?

No. I’m nothing more than a common thief. The fact that I’ve used the money to help the needy is irrelevant. The end doesn’t justify the means. I should be prosecuted and convicted.

Presumably Krugman would agree. But his moral blind spot — indeed, the moral blind spot that afflicts all liberals — is his inability to see that the same principle applies to the coercive apparatus of the welfare state. Who are the compassionate, caring people in a welfare state? All the citizens of the nation? Only the taxpayers? How about the IRS officials, especially those who harass and persecute people into paying their taxes? What about the welfare bureaucrats who distribute the dole to people? What about the congressmen, who claim credit for the federal money they bring back to their district? What about tax protestors, who don’t pay any income taxes? How about illegal immigrants who have taxes withheld from their pay?

The real answer is: None of the above. Why? Because the entire welfare-state system is founded on force, which is antithetical to moral values, compassion, and free will. The only help for the needy that matters is that which comes from the willing heart of an individual, not at the point of some bureaucrat’s gun.

Krugman laments the fact that the Greek government doesn’t have control over its own money supply, like the United States does through the Federal Reserve. If it did have that control, Krugman says, it could begin stimulating the economy with inflation — that is, by printing the money to pay off that ever-increasing mountain of debt.

What he misses, however, is not only the moral implications involved with inflationary liquidation of debt but also the fact that inflation never accomplishes anything constructive in the long term. Let’s not forget, after all, that the principal reason the Framers established a gold standard was to prevent the federal government from inflating the money supply. By manipulating money and prices, inflation produces distortions and perversions by sending bad signals to the private sector. Ultimately, those distortions and perversions become manifest, which causes things to go into a tailspin. Thus, while inflation can delay the day of reckoning, that’s all it can do.

The day of reckoning has obviously come for Greece and other European welfare states. For decades, such regimes been spending money on the dole that they didn’t have. To keep the dole payments going to Greek citizens, officials went out and borrowed money to their heart’s content and then lied about it to the other Euro countries. Ultimately, people figured out what was going on, and the jig was up.

Not surprisingly, despite facing national bankruptcy the Greek people refuse to let go of their dole system. That’s what the dole does to people — it creates a sense of hopeless dependency and also a sense of entitlement. Young Greeks are also protesting, because they feel their future life on the dole is now threatened.

Rather than dismantling their dole system, which is what they should do, the Greeks have induced foreign taxpayers to underwrite their dole, including German and American taxpayers. That’s what the U.S. Federal Reserve has committed Americans to do, without even the semblance of congressional approval.

But despite a massive Greek bailout, speculators aren’t buying it. They’re continuing to send the value of the Euro into the tank. They’re not buying it because they know that the Greeks have no intention of doing what is necessary to save themselves — dismantle their dole system. At most, they’ll reform it by reducing welfare spending a bit … and by raising taxes — the very things that Krugman recommends that U.S. officials do to address the worsening welfare-warfare spending and debt problems facing our country.

Krugman and the Greek statists recommend raising taxes as part of a welfare-state reform plan. But the problem is that the more they raise taxes, the more they send marginal firms — that is, firms that are barely making it — into closing down operations, which in turn increases unemployment, which then sends more people into the dole system.

Moreover, as people learn about the benefits of going on the dole, more and more of them look for ways to do it themselves. Why work when the government will pay you for not working? The number of people on the dole — and the amount of the dole — skyrockets while the number of people producing wealth — and the amount of such wealth — diminish.

Krugman acknowledges that Americans do have a “serious long-run budget problem,” but he says that America’s “fiscal outlook over the next few years isn’t bad” and certainly not as bad as Greece’s. He’s hoping that inflation will nurse the economy back to health so that there will be more private-sector producers paying the taxes to fund the parasitic welfare-warfare-state sector.

Meanwhile, the U.S. government continues to spend and borrow as if there were no tomorrow, both on its welfare state (including the recent bailout of Greece) and its warfare state (e.g., Iraq and Afghanistan). For decades, Krugman and others of his liberal ilk, together with conservatives, have taken our nation down the road to Greece and the Roman Empire, with their out of control federal spending, taxes, inflation, moral debauchery, socialism, interventionism, and imperialism. Today, the welfare-warfare-state chickens are coming home to roost.

There is only one solution to what they have wrought — a total dismantling of all their statism, both foreign and domestic. Tinkering will only delay the inevitable. It’s time for economic liberty, free markets, and a constitutional republic for our land.

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