Ezra Klein is a blogger/columnist for the Washington Post and an unabashed liberal. Klein has the good fortune of never having had to work a real day in his life. He is younger than my oldest son and hasn’t half my son’s brains. Klein is widely quoted by the left and he regularly pontificates broadly on a wide range of subjects with which he has neither familiarity nor experience.
In a recent column, Klein made an astonishing assertion:
A larger welfare state can mean a lower deficit
In his column he states:
Speaking of things that the European crisis is not about, while I was in Germany, my colleague Robert Samuelson wrote that “Europe’s turmoil is more than a currency crisis and was inevitable, in some form, even if the euro had never been created. It’s ultimately a crisis of the welfare state, which has grown too large to be easily supported economically.”
I don’t think that quite works. Take Germany. They have a pretty big welfare state: pensions, health care, paid vacations, unemployment benefits equal to two-thirds of one’s income. Indeed, the Organization for Economic Cooperation and Development keeps track of social spending — unemployment, old-age pensions, health care, etc — as a percentage of GDP. In 2007, Germany spent 25.2 percent of their GDP on such things. Greece spent 21.3 percent on social policies. Yet Greece is in crisis, and Germany is fine.
Germany was an interesting choice as support for his argument. It is true that Germany has survived the economic crisis in far better condition than the rest of the European Union. Knowing why it did is critical, and that has escaped the young Klein entirely.
Note that Klein claims Greece spends only 25.2% of their GDP on social spending. This is misleading on an astronomical scale. Most pensions in the EU are kept off the books and the liabilities of Greece are breathtaking. Greece has a total obligation of 875% of GDP. Germany has a total obligation of 418% of GDP.
Government wages and social benefits actually consume 75% of total public spending.
If one harkened back several years one would see other fascinating events.
Beginning in 2003 Germany, facing a 10% unemployment rate, took bold action. Under Gerhard Schroeder Germany began to trim the welfare state:
The most controversial bills passed Friday entailed reducing unemployment benefits and forcing jobless Germans into work they might not choose but that the government deems “reasonable.” Those who refuse to accept jobs after 12 to 18 months on unemployment compensation could have their incomes cut by more than 50 percent a month.
In 2007 Germany raised its retirement age to 67.
In 2010, Germany again cut welfare:
Germany will cut welfare benefits, introduce new taxes and shed government jobs to save as much as 80 billion euro through 2014 and set an example for the rest of Europe, Chancellor Angela Merkel said Monday.
and it cut spending:
Drastic public spending cuts totalling more than €80bn ($96bn, £66bn) were unveiled by Angela Merkel, German chancellor, on Monday, combined with up to 15,000 job cuts in the public sector, as part of a sweeping austerity package.
At Cato, Michael Tanner demolishes the “increased taxes will solve the deficit” argument:
Greece also provides an object lesson to those who believe that budget deficits are the result of low taxes. Greek taxes run as high as 40 percent on incomes above €70,000 per year. There is also a 19 percent value-added tax (VAT) on all goods and services sold in the country. Corporate tax rates, as is the case with most countries, are lower than those in the United States, but still high at 24 percent. Capital gains are taxed at rates ranging from 5 percent to 20 percent or included in corporate income. Dividends are taxed at 10 percent and are subject to corporate taxes. By far the largest tax, however, is the payroll tax. Employers must contribute 28 percent of wages to the government’s social-insurance schemes, and workers contribute another 16 percent directly, making the total payroll-tax burden 44 percent of wages. Overall, the Greek government takes in more than 38 percent of GDP in taxes.
It’s not low taxes that caused the Greek crisis, but high spending. (Sound familiar?) The Greek government consumes more than half of the country’s GDP. It is difficult for any government to collect enough taxes to support spending at that level.
Oh, and by the way, Ezra, Germany also cut taxes.
So what does Klein’s example teach us?
Raising retirement age, trimming the welfare state, cutting spending and cutting taxes has strengthened Germany.
Sounds like a great plan for the US. Welcome to the right, Ezra.
DrJohn has been a health care professional for more than 30 years. In addition to clinical practice he has done extensive research and has published widely with over 70 original articles and abstracts in the peer-reviewed literature. DrJohn is well known in his field and has lectured on every continent except for Antarctica. He has been married to the same wonderful lady for over 30 years and has three kids- two sons, both of whom are attorneys and one daughter on her way into the field of education.
DrJohn was brought up with the concept that one can do well if one is prepared to work hard but nothing in life is guaranteed.
Except for liberals being foolish.
Great article. Thanks. I’ve been having an email conversation with an Occupy Portland friend about exactly this issue (whether raising taxes and spending are the key to getting us out of this mess). I’m going to share your analysis (and documentation) of Germany and Greece with her.
Excellent article, but you were far too kind with the propaganda writer, Klein.
A story about Mr. Journolist, the huge koolaid hauler for the Won. Goebbels and Leni Riefenstahl would be proud. Triumph of the Ill. The latest I heard was that he was coaching Liberal Democrats on using the media properly. Should be the other way around. He would make a fine Nazi. The Washington Compost- hilarious!
Excellent article, Dr. J. It seems that Europe is beginning to move away from the socialistic policies that beset them and under Obama, America is lurching towards them.
Why is that liberals have no sense of learning from history?
Good response to the childish views of Klein. Still can not understand his popularity.
But you missed the largest issue with Germany. The cuts you describe only get Germany through the latest financial crisis. The glacier of debt approaching that country in the next 20-30 years makes their current cuts look like child’s play. Germany’s debt will reach 300% of GDP by 2030 and over 400% by 2040; sooner if the economy does not perk up. And BTW, those numbers are heavily researched and available on many institutional websites.
The cause is the same for all western nations; paying social nets through redistribution and current tax revenues ( a simple kind of pyramid scheme ) rather than through investments returning any kind of ROI. You know, like any idiot would do.
USA alone will consume 20% of GDP in debt rollover at some point in the next 30 years barring fundamental restructuring. Who is going to fund that? The idiot economists and the Progressives keeping arguing that interest payments will not be a problem. Who cares about the interest rates? It is the debt rollover that kills us.
UK, France, Germany and the rest of the Eurozone will begin consuming similar portions of world GDP; by then, India and China will hopefully have moved enough hundreds of millions into the middle class to sustain their own growth, leaving the pay as you go crowd and semi-socialists to restructure in a panic while capital flees to safer harbor.
Which brings up another point; it is almost time to ignore the Progressive sound bite tripe; by now their story line is so far from reality that it no longer warrants a response. And THAT should basically be the talking point response of any serious politician.
Hmmm…let’s see…he has no brains, has never worked at a job, but he writes for the Post and you are stuck scribbling here with the skill of an 8th grader. LOL.
@mattens: One of the best fortunes that one could have in life is the gift of low expectations.
I am not discomforted by your sorry comments. You have no idea what I am or have accomplished, but I will tell you this- I have had an effect on your life.
LOL indeed.
That the boy writes for the Post demeans the Post. He is the eunuch at the harem. He sees it done all the time but has never done it himself.
The typical liberal.
This is the same sort of thing as using John Kennedy as an example to support tax cuts. Kennedy reduced marginal rates from 91% to 70%. This was still way above Obama’s “class warfare) 39.6% proposal. Likewise, Germany reduced public spending; so this is supposed to mean that the USA should attempt to solve its deficit problems almost entirely through spending reductions. But Germany’s public spending (particularly non-defense) is still far above that of the USA and they are doing a much better job with their budget, because their taxes are higher.
There’s a sweet spot — both in taxing and in spending. Not too much. Not too little. Just right. Right now, we are too little on the tax side. Lowest taxes in a century. And it’s contributing to the deficit. As concluded by all of the bipartisan commissions and committees who’ve tried to come up with solutions.
– Larry Weisenthal/Huntington Beach CA
Ah yes, Larry chimes in with his class warfare and narcissistic love of tax increases all so he can feel good about himself. It is clear Larry is trying to convince himself he is right, not us.
Larry, Mata, others, and myself have proven you wrong time after time. get over it.
openid.aol.com/runnswim
I think if you tax the rich now, it will be spend by OBAMA and redistribute to his contributors not to the poor, because he will get it back in his pocket but to spend with his friends abroad so, when he will go,
you will see the RICH come back and help AMERICA get back up, and work for a living and this AMERICA
will rise again, we must remember the RICH are AMERICAN and love their COUNTRY, as other people,
know how to do it too, you just have to look how he is spending for his reelection, not trying to help with
the billion he received from the RICH, any other PRESIDENT would have done a campaign with more self restraint on cost, knowing the people are having a hard time. but learned to spend non stop, he will do it as long as he has money coming from others, it’s an incurable desease,