End of US individualism: Rise in social spending will make US similar to welfarist Europe and Japan

[mota bhai 2,675]

Note: The author is an Indian blogger

Posted on 2013.Oct.09

This shutdown is the first act in a long drama that, over the next 20 years, will upend historical traditions and challenge the Idea of America. Till now, the US government has been spending around 8% of GDP on three welfare items: Medicare (for the aged), Medicaid (for the poor) and Social Security (for retirees).

But demographic change — retirement of the baby boomer generation and ageing of the population — looks like it will make such spending skyrocket to 19-20% of GDP in 25 years.

Obamacare will contribute only a couple of percentage points to this rise. Medicare will be the dominant contributor to the coming welfare explosion. Not even the most strident anti-Obamacare politicians dare call for curbing Medicare, which benefits the biggest vote bank of all: the aged.

In the next 20 years, welfare entitlements must be slashed drastically —which looks politically impossible —else, the US will have to raise taxes hugely and become an European-style welfare state. This will mean the end of its historical tradition of rugged individualism and minimum government. It will mean the end of US sneering about deadbeat Europeans and their dependence on government handouts.

It will change the US beyond recognition. This helps explain the rise of the Tea Party, a motley group covering a range of Americans from white supremacists to libertarians. What they have in common is visceral opposition to high tax-and-spend policies that they see as an European disease. Many of them view Obamacare as a monster that must be killed at birth.

...

More potentially devastating than the partial shutdown of the government is the threat of the Republicans, at the behest of the Tea Party, to refuse to raise the debt ceiling of the government. Unlike in India, US law sets a ceiling on the amount the government can borrow, and whenever that ceiling is approached, Congress has to authorise an increase.

The current ceiling will be reached in late October. If no compromise is reached, hitting the debt ceiling will trigger the most draconian spending cuts. The government will have to limit all future spending to incoming revenue, balancing its budget with zero flexibility. This will mean an instant spending cut of 4% of GDP, causing a deep recession. Worse, it may mean a default on gilts, causing more havoc than Lehman’s collapse did in 2008.

US gilts are the lynchpin of the global financial system. They are the ultimate riskless asset, the base for calculating risk premia of other financial assets. The US government could guarantee its creditors that it will give debt service priority over other spending.

But this would be politically tricky: can politicians justify paying interest to Chinese bondholders while cutting off pensions to aged Americans? This may not even be constitutional.

...

Of the many ways out being discussed, the most amusing is for the government to mint a trillion-dollar platinum coin, and deposit this in the Treasury. US law prohibits the government from borrowing above the ceiling without permission. But another law allows the government to issue platinum coins without limit.

This law aims to meet the modest needs of coin collectors, but Obama could use this as a loophole to get unlimited spending power.

This will be political theatre. The real-life drama is a separate, much deeper one: the wrenching end of America as the land of rugged individualism, and its evolution into European-style welfarism.

History shows that once a big welfare scheme starts operating, it cannot be reversed — that would produce too many immediate losers to be politically feasible. So, whatever the Tea Party tries, demography will ultimately win the day for welfarism. An ageing population will protect ever rising benefits for older people. Just as in Japan or Europe.

http://swaminomics.org/end-of-us-individualism-rise-in-social-spending-will-make-us-similar-to-welfarist-europe-and-japan/

[Protocol417 161]

I guess you could take a look at some European countries and go "we don't want to be like Greece!!!"... but there are many where life is pretty damn sweet right now (for being in the middle of a global recession, at least). And Japan is doing alright, not to mention they didn't precisely lose their national identity once things changed for them systematically.

The "historic tradition of rugged individualism" bit makes me giggle a little. Besides being part myth, part nostalgia, and part mischaracterization of modern times, it reminds me a little too much of people who "long for the days" when "men were really men"

[Mr. Big Dog 10,747]

So, contrary to the illusion expressed by our resident birther in the other thread, the tea party is in fact already dead. It just doesn't know it yet.

[I AM NOT THAT GUY 5,715]

Not an end to individualism, rather the trend is toward empowering individuals that would have been eaten by predators in the past while the more successful members of the community were able to survive and bang all the hot chicks.

[mota bhai 2,675]

Not an end to individualism, rather the trend is toward empowering individuals that would have been eaten by predators in the past while the more successful members of the community were able to survive and bang all the hot chicks.

It's like Darwin is dead.