Can You Be a Welfare State and an Economic Powerhouse?

During this campaign year, you’ve heard about politicians referring to our country as a welfare state, heavy with unaffordable entitlements for seniors that are stalling our economic growth.  Our growing welfare state is slated to cost $10.3 trillion over the next 10 years-that’s $72,000 a household, said Mitt Romney to voters in Bedford, N.H., on Dec. 20.   Will the United States be an Entitlement Society or an Opportunity Society?

Over the past three years Barack Obama has been replacing our merit-based society with an entitlement society.” said Romney during the Primaries, buoyed by federal budget data showing direct payments to individuals shot up by almost $600 billion, a 32 percent increase, since the start of 2009.

And think tanks and pundits have joined the disapproving chorus towards handouts. Here’s George Will at an address at the Cato Institute: Given the fact that a welfare state exists to transfer wealth from the working young and middle-aged to the retired elderly, a welfare state depends on a rapid rate of economic growth…to pay the bills. But a welfare state, by giving people a sense of entitlement to protection against the risks of the churning of a market economy and the creative destruction of capitalism, produces a political backlash, a political drive to provide security that is incompatible with economic dynamism.

Along comes this chart showing the correlation between high levels of social welfare and GDP.  It’s worth staring at for a few minutes because it reveals Sweden, Austria and Finland substantially outpacing the US in terms of  welfare spending and still being ahead in terms of GDP growth. All in, 6 countries surpassed us on both fronts.  So perhaps we should be careful about mistaking correlation for causation? Maybe entitlements don’t automatically spell economic drain.

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