The Agony of the Welfare State

The title of this post—minus the reference to Finland—is shamelessly copped from a prescient essay that Ludwig von Mises wrote in 1953.  In his article Mises pointed out that in Great Britain and Europe, the system of progressive taxation was already confiscating nearly the entire  “surplus” incomes of the successful capitalists and entrepreneurs, meaning that higher tax rates would no longer produce additional funds to finance these countries’ ever-expanding welfare states.  “Henceforth,” Mises foretold, “the funds of the beneficiaries themselves have to be tapped if more handouts are to be made to them.”

Today things have gotten far worse than even Mises foresaw.  For now it is becoming evident that the “beneficiaries” of the most advanced welfare states are not reproducing rapidly enough to pay for the benefits that they are receiving and are therefore “endangering” the “long-term survival” of the “more generous” welfare states. A notable example is Finland, which faces a “massive baby problem.”  Thus, in 2016, Finland recorded the lowest number of newborn babies in 148 years, or since the great famine of 1868.  The Finnish fertility rate has fallen to 1.57 per woman and the number of people under 20 years of age as a percentage of the working age population is the lowest among Nordic countries at less than 40%, down from 60% in 1970.

The situation has left mainstream economists devoid of solutions and wringing their hands in despair.  For Heidi Schauman, the Aktia Bank chief economist, the statistics are “frightening.”  As Ms. Schauman explains:

Time to buy old US gold coins

They show how fast our society is changing, and we don’t have solutions ready to stop the development.  We have a large public sector and the system needs taxpayers in the future.

Schauman clearly does not appreciate the delicious irony of the modern welfare state revealed in the emphasized part of her statement.  Without ability to further expropriate wealthy capitalists and entrepreneurs, the welfare state has become a crazy machine with no purpose but to perpetuate its own existence by devouring massive quantities of taxes extracted from the people it ostensibly serves.  If demographic trends threaten the existence of the machine, well then, more people must be produced to feed it. It reminds me of the wonderful Twilight Zone episode, “To Serve Man.”

Note: The views expressed on Mises.org are not necessarily those of the Mises Institute.

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