More Entitlements, Less Deficits?

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Today Ezra Klein posted an interesting piece about the Euro crisis that confirms what I have thought for some time.

You may have heard the standard right-wing talking point that the current economic woes in Europe are directly tied to entitlements. Conservatives made a similar claim about the US deficit, which is why we’ve been talking about that side of the equation instead of higher taxes until recently (thank you OWS).

Both claims, of course stretch the truth — a lot.

The economic downturn (due to the subprime mortgage disaster) and tax cuts for the wealthy are the prime factors in the US deficit.

Entitlements are also not the boogeyman in the European crisis.

Klein’s piece, “A larger welfare state can mean a lower deficit” highlights the case of Germany, which has a hefty welfare state — but didn’t suffer from any of the problems faced by Greece and other Euro-zone countries:

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.

In fact, the reality is that a single-payer healthcare system — like the one in Canada — controls costs and actually reduces the deficit.

As recently as 1965, the cost of those two systems competed neck-and-neck. That year, Canada spent 5.9 percent of its GDP on health care. The United States spent 5.7 percent. But around that time, Canada was transitioning to its current single-payer system. Over the next four decades, the growth of health-care costs slowed in Canada while it accelerated in the United States. By 2009, Canada was spending 11 percent of its GDP on health care — and covering everyone. The United States was spending 17.4 percent of its GDP and leaving 45 million uninsured. In dollar terms, we’re spending $3,600 more per person, per year, than Canada.

I’m not an economist, but there seems to be some consensus in the articles that I have read that what Klein states is true.

I have seen no convincing evidence that European woes are principally caused by entitlement spending.

In fact, Klein makes a good argument that a strong healthcare system could act as a bulwark against deficit:

If the United States had Canada’s health-care system, and Canada’s per capita health-care costs, we would have a much “larger” welfare state, but we wouldn’t have a deficit problem. Assuming we weren’t spending that money elsewhere, we wouldn’t even have a deficit. Likewise, if any country in the euro zone maintained the United States’s health-care system and our health-care spending, it would have a smaller welfare state, but it would be sagging beneath a debt burden far more onerous than anything anyone in Europe is facing today.

-Chris

Related articles

• Contrary To Republican Rhetoric, Europe Is Not In Trouble Because Of Spending And Debt (thinkprogress.org)
• The European Debt Crisis in Three Graphs (bostongazette.wordpress.com)
• A Bankrupt Uncle Sam Hypocritically Lectures Europe On Debt (forbes.com)

Around the Web

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• Paul Krugman looks at how Japanese economic policy limited the damage from their burst housing bubble.
• David Sirota exposes the neoliberal myth that education, and not economic policies that encourage outsourcing jobs overseas is to blame for our current woes.
• A federal judge in California has ruled that the military’s “don’t ask, don’t tell” policy doesn’t pass Constitutional muster.
• Andrew Sullivan has a post over at the Daily Dish from a reader describing the still-present grief over those lost to the AIDS epidemic in the 1980s and 1990s. Also a reader response.
• Eugene Robinson at the Washington Post looks at the corrupt mess that is Hamid Karzai’s Afghanistan.
• The New York Times does some navel gazing regarding coverage of the Koran-burning pastor.

and,

• The Washington Post’s Ezra Klein shows that an income of $250,000 is a lot in the most expensive of locales.

-Chris