The Welfare State, Taken to Its Logical Conclusion

The economic tragedy unfolding in Greece is the welfare state taken to its logical conclusion.  When groups of people use the state to live at the expense of others, the feedback loop about the costs of those transfers is attenuated – often by design.  The welfare state therefore makes commitments that it cannot honor.  By the time creditors or taxpayers say, “Enough,” the welfare state has created a clash between expectations and means that leads to unrest and hardship – a clash that never had to occur.

Reuters reports that this tragedy is playing itself out in Canada, where the Medicare system is straining the budgets of taxpayers and provincial governments – even as Canada remains infamous for providing inadequate access to care.  According to Reuters, the provincial government in populous Ontario predicts that “health care could eat up 70 percent of its budget in 12 years, if all these costs are left unchecked.”  Toronto-Dominion Bank senior economist at Derek Burleton remarks:

There’s got to be some change to the status quo…We can’t continually see health spending growing above and beyond the growth rate in the economy because, at some point, it means crowding out of all the other government services.  At some stage we’re going to hit a breaking point.

The provinces are contemplating measures that would further reduce access, such as ratcheting government price controls downward, “health taxes” on medical services, and (gasp!) charging patients. (Speaking of feedback loops, an economist at Scotia Capital reasons that patients “will use the services more wisely if they know how much it’s costing…If it’s absolutely free with no information on the cost and the information of an alternative that would be have been more practical, then how can we expect the public to wisely use the service?”)

The Greek and Canadian dramas are a preview of what the welfare state, aided by its most recent expansion, will provoke here in the United States.  Again, Reuters:

Canada, fretting over budget strains, wants to prune its system, while the United States, worrying about an army of uninsured, aims to create a state-backed safety net.

Burleton captures the problem nicely:

[F]rom an economist’s standpoint, we point to the fact that sometimes Canadians in the short term may not realize the cost.

Indeed, that’s the very essence of the welfare state, and why its logical outcome is crisis.