The welfare state

There is a very interesting, very useful and somewhat erroneous article in The Spectator by John Maynard Keynesbanker/journalist James Bartholomew about the misuse and abuse of the ideas put forth by John Maynard Keynes. After leading us through a well written and accurate summary of when and how one of the central tenets of Keynsianism, macroeconomic demand management, worked or, more often, failed to work in e.g. America, Britain, Denmark, France and Ireland, Mr Bartholomew draws, as so many conservatives do, the wrong conclusion when he says that “Most advanced countries now carry huge national debts by past standards. In the USA it is 103 per cent of GDP, in France 95 per cent and in Britain 89 per cent. It seems very possible that these heavy debt levels are part of the cause of the chronically low growth in the modern world. It seems likely that what has led us to this high-debt, low-growth world is the dominance of the Keynesian fallacy.

I am not for a moment suggesting that Riccardo and Friedman et al are wrong, they are not, even Mr Bartholomew is on the right track. He, like most people, just didn’t bother to listen to what John Maynard Keynes said. Keynes did, indeed, advocate for increased government expenditures and lower taxes to stimulate demand and pull the global economy out of the Great Depression. But he also advocated for increased government savings/decreased spending during “good times” so that the “demand” pull of stephen-harper1government spending could be lessened during subsequent economic cycles. Prime Minister Stephen Harper, almost alone amongst Western leaders, actually understood this, which is why his post 2008 stimulus package was almost all “bricks and mortar” work, not social spending. Most silk stocking socialists, a category which embraces e.g. both Pierre and Justin Trudeau, don’t really grasp economics and they did not/ do not bother to read what Keynes wrote: the “demand” spending in recessions and depressions must be able to be switched off or, at least, cut back during “good times.” That means that “demand” spending cannot be social spending ~ it is almost impossible to turn off or even cut back social spending in a democracy: the people will vote out a government that cuts their entitlements.

William_Lyon_Mackenzie_King_1947original.917Prime Ministers Mackenzie-King and St Laurent were aware of what Keynes was saying and they heeded the lessons. The great projects of the Great Depression were designed to put money in mens’ pockets by putting them (almost all men) to work on construction sites, including building military barracks that are still in use today, 80 years later ~ we got value for the money we borrowed. They were extremely cautious about social programmes and the welfare state and both insisted that the first old age pension, for example, had to be affordable and “self financed,” and that it was, therefore, not a sensible tool to be used to provide relief from a recession or depression.

1302664079168_ORIGINALBut that all changed in the late 1960s and 1970s and beyond. The Liberals, under Lester Pearson, influenced by the 1960 Kingston Conference, took a sudden lurch to the left which was cemented into place by Pierre Trudeau. Prime Minister Pierre Trudeau appears to have believed that money didn’t matter and the economy could sustain any amount of spending, forever. He introduced a culture of entitlement that persists today, and, even as countries as diverse as Sweden and Italy have faced or must face the fact that King and St Laurent were right and Trudeau et al were very, very wrong, that the welfare state must be funded in a sustainable manner, Canadians appear to believe that Trudeau actually knew something about economics … he didn’t.

The simple fact is that there is nothing terribly wrong with the Keynseian  “demand management” theory  if, and it’s a big IF, it can actually be “managed,” that is, simply, turned on and off, again, as required. Practical politics says that it is hard, nearly impossible, even in Greece, to turn off social spending, which means that it should never has been used as “stimulus” in the first place … i.e. Pierre Trudeau was wrong. The Swedes, in the 1990s, managed to sustain most of their “Svenska modellen” of the nearly universal welfare state by scrapping the government 77155660_CM3HNE_Riots_in_Athens_Greece-large_trans++FmZwAHfbzbyjsBBHX-5JhxNmQMFlhh5Vi0wobcrJe4w(and labour’s) intrusion into the private sector and allowing Swedish companies to become globally competitive. New Zealand managed, too, after it “hit the wall” in the 1990s. Greece and Italy are having less success; proposals for (painful, to be sure) pension reforms are met, there, with Molotov cocktails rather than counter-proposals.

We, in Canada, have a dangerously structured welfare state that relies, too often, on one sole source for funding: the taxpayer. The essence of our system is that we must borrow, and saddle our children and grandchildren with the consequential debt, to finance out entitlements, and the system cannot be sustained. Keynes was not the problem: buying votes with lies and hope is the problem.

For Conservatives, the welfare state is one area where we can define ourselves as different from the Liberals, but, I need to repeat myself:

Despite being a fiscal hawk, I do not advocate dismantling the social safety net, or firing 100,000 civil servants; we cannot get elected if we do that. I do, however, want to slow the rate if growth in social spending and, gradually, giving individuals more and more choices for taking some responsibility for their own social safety nets ~ this includes big changes to the Canada Health Act.”

We, Conservatives, cannot give Canada good, responsible government if we shoot ourselves in the foot by promising to destroy the welfare state.

What we can do is to promise to:

  • Stop mortgaging our grandchildren’s future ~ that’s “code” for containing the growth of social spending;
  • Examine every programme objective-by-objective and line-by-line to ensure they are providing what Canadian need in a fair, efficient and effective manner ~ that’s “code” for programme reform; and
  • Help those in need ~ not to provide entitlements to the rich in the name of phoney “equity.”

The problem is not the welfare state and it certainly isn’t an 85 years old economic theory. The problem is twofold:

  • Attitude ~ our sense of entitlement; and
  • Responsibility.

Both are out of line with reality in Canada, as they were in e.g. Britain, New Zealand and Sweden, and as they are in America, France, Italy and Greece. The role of the political leader is to help people to change their attitudes and to accept responsibility for their own welfare.

But, we must stop looking at the USA for conservative models. There are exemplary conservative leaders out there, in e.g. the Netherlands and Singapore, but there are none, in the first tier, in America. We need to grow our own conservative polices in Canada and we need to incubate and encourage the leaders who will implement them … and that includes providing Canadians with the affordable welfare state they need.

 

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