Promises and Riots

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Economists
are the real “party of No.” They keep saying that there is no such
thing as a free lunch — and politicians keep on getting elected
by promising free lunches.

Such promises
may seem to be kept, for a while. There are ways the government
can juggle money around to make everything look OK, but it is only
a matter of time before that money runs out and the ultimate reality
hits, that there is no free lunch.

We are
currently seeing what happens, in fierce riots raging in various
countries in Europe, when the money runs out and the brutal truth
is finally revealed, that there is no free lunch.

You cannot
have generous welfare state laws that allow people to retire on
government pensions while they are in their 50s, in an era when
most people live decades longer.

In the
United States, that kind of generosity exists mostly for members
of state government employees’ unions — which is why some states
are running out of money, and why the Obama administration is bailing
them out, in the name of “stimulus.”

Once you
buy the idea that the government should be a sort of year-around
Santa Claus, you have bought the kinds of consequences that follow.

The results
are not pretty, as we can see on TV, in pictures of rioters in the
streets, smashing and burning the property of innocent people, who
had nothing to do with giving them unrealistic hopes of living off
somebody else, or with the inevitable disappointing of those hopes
with cutbacks on the giveaways.

Nothing
is easier for politicians than to play Santa Claus by promising
benefits, without mentioning the costs — or lying about the costs
and leaving it to future governments to figure out what to do when
the money runs out.

In the
United States, the biggest and longest-running scam of this sort
is Social Security. Fulfilling all the promises that were made,
as commitments in the law, would cost more money than Social Security
has ever had.

This particular
scam has kept going for generations by the fact that the first generation
— a small generation — that paid into Social Security had its pensions
paid by the money that the second and much bigger “baby boom” generation
paid in.

What the first
generation got back in benefits was far greater than what they themselves
had paid in. It was something for nothing — apparently.

This is
the way a Ponzi scheme works, with the first wave of “investors”
getting paid with the money paid in by the second wave. But, like
Social Security, a Ponzi scheme creates no wealth but only an illusion
that cannot last. That is why Mr. Ponzi was sent to prison. But
politicians get re-elected for doing the same thing.

As the
baby boomers begin to retire, and there are now fewer working people
per retired person to pay for Social Security pensions, this scam
is likewise headed for a rude revelation of reality — and perhaps
riots like those in Europe.

All the
incentives are for politicians to do what they have done, namely
to promise benefits without raising enough taxes to pay for them.
That way, it looks like you are getting something for nothing.

When crunch
time comes and politicians are either going to have to tell people
the truth or raise taxes, the almost inevitable choice is to raise
taxes. If the people think they are already taxed too much, then
the taxes can be raised only for people designated as “the rich.”

If “the
rich” object, then demagogues can denounce them for their selfishness
and “greed” for objecting to turning over ever-growing amounts of
what they have earned to politicians.

Economists
often make stronger objections than the high-income people themselves.
That is because history has shown repeatedly that very high rates
of taxation lead to all sorts of ways by which those very high rates
of taxation do not have to be paid.

No matter
how high the tax rates are, they do not bring in more revenue when
many of the people subject to those tax rates do not in fact pay
them. The scams inherent in welfare states are not only economically
counterproductive, they turn group against group, straining the
ties that hold a society together.

December
29, 2010

Thomas
Sowell is a senior fellow at the Hoover Institution at Stanford
University. His Web site is www.tsowell.com.
To find out more about Thomas Sowell and read features by other
Creators Syndicate columnists and cartoonists, visit the Creators
Syndicate web page
.

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