The Giant Ponzi Scheme That is the “Welfare” State

“The problem [with modern social welfare states] is that they always run out of other people’s money”
The Giant Ponzi Scheme That is the Welfare State
Margaret Thatcher

In modern Western society, we have become accustomed to the idea that the government provides for a “safety net” consisting of unemployment and retirement benefits, among many other things. This safety net is paid for through taxation and so there is a pile of money somewhere that we have all been, and are still, working hard to save up, right?

The unfortunate truth is that we have been conned; as current taxpayers we are actually paying for the retirement of our parents and grandparents, on top of paying for the unemployment benefits of those either unwilling or unable to find a job. Despite the implicit promise of a future payout, the whole system is simply a tax-and-transfer system.

Therefore, those of us that are working and paying taxes right now are not in the least paying for our own retirement. This is the very essence of the so-called welfare state, as economist Henry Hazlitt states:

“In this [welfare] state, nobody pays for the education of his own children but everybody pays for the education of everybody else’s children. Nobody pays his own medical bills, but everybody pays everybody else’s medical bills. Nobody helps his elderly parents, but everybody else’s elderly parents. Nobody provides for the contingency of his own employment, his own sickness, his own old age, but everybody provides for the unemployment, sickness, or old age of everybody else.”

Contrary to popular belief, these income transfers do not have the effect of alleviating poverty and fostering self-reliance, not even in the short term. The very structure of the welfare state as we know it profoundly discourages savings and the investments that would take place as a result of these savings. If it wasn’t for the government actively intervening in every facet of the economy and our everyday lives, such investments would create new and better tools, plants and equipment on which we all depend for increased national productivity, higher real wages, well-paid jobs and economic growth.

However, the so-called welfare state does more than just retard economic progress in general; it also perpetuates the existence of an underclass of people who are unable (and some unwilling) to care for themselves by providing the wrong incentives. The fact that half of unemployment insurance spending ($168 billion)  in the U.S. in fiscal year 2010 went to the long-term unemployed serves to illustrate that point, as well as the fact that nearly ten million new recipients were added to the food stamp rolls in three years. Jobless disability claims also rose, to a record high of $200 billion in January of last year. Across the pond in the UK, government spending on disability living allowance (DLA) more than doubled over the course of nine years from £4.5 billion to almost £10 billion. The system is rife with fraud and abuse as everyone takes whatever he or she can get in a dog-eat-dog kind of system.

The “welfare” state is completely unsustainable
Across the EU, unfunded pension liabilities now average 285 percent of GDP. It is estimated that with current welfare policies, governments in Europe will have to raise taxes by 5 to 15 percentage points of GDP – not 5 to 15 percentage points of current tax rates – just to avoid piling on more debt, amounting to tax rates running from 45 to 60 percent of GDP. Again, this would do nothing to pay off the existing debt. Needless to say, we will have an outright societal collapse before we have such humongous tax rates. A similar picture can be drawn in the case of the United States as only four European countries have larger national debts: Greece, Ireland, Portugal and Italy[1]. When adding the unfunded liabilities of Social Security and Medicare and federal pensions, the actual total U.S. debt is about $87 trillion, or 550% of the entire U.S. GDP.

The so-called welfare state is the biggest Ponzi scheme in the history of mankind. The moment enough of us realize that, the house of cards will come down. Forget all the promises made by politicians and economists, forget all the talk about what you’re “entitled to”, the money just isn’t there. Never has been, never will be. It is time to learn from our mistakes and build a new system. History can point us in the right direction.

More on that in an upcoming blog post!


[1] After the Welfare State (2012). Students for Liberty. Jameson Books: Ottawa, IL. p. 92. Available for download through http://studentsforliberty.org/wp-content/uploads/2012/04/After-the-Welfare-State-PDF1.pdf

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2 thoughts on “The Giant Ponzi Scheme That is the “Welfare” State

  1. Pingback: How the Welfare State Creates Perpetual Animosity | The Raw Report

  2. Pingback: Alternatives to the Crumbling Welfare State | The Raw Report

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