The Welfare-Warfare Crackup

Jacob G. Hornberger
Future of Freedom Foundation

For decades, libertarians have been warning Americans of the coming crack-up of the welfare-warfare state. Of course, we couldn’t predict when the crack-up would finally occur. All we could do is to say that the road to statism, both welfare and warfare, was a road to national bankruptcy.

Keep in mind that the welfare-warfare state depends on a vibrant private sector. Why is this so? Because the welfare-warfare sector is fundamentally a parasitic sector. That is, unlike the private sector, the public sector produces no wealth. The public sector attaches onto the private, productive sector and sucks lifeblood out of it in order to survive.

Thus, a government that is committed to providing welfare and warfare must ensure that the private sector remains vibrant and productive. The parasite instinctively knows that if the host dies, there is no more lifeblood that the parasite can suck.

In the early days of the welfare state here in the United States, the free market had already produced a tremendously vibrant and prospering private sector. For more than a century, there was no income tax and no welfare system (including Social Security, Medicare, and Medicaid) and so people were free to accumulate unlimited amounts of wealth. There were also very few controls on economic activity.

This enormous free-market activity produced a huge base of income, wealth, productive capital, and economy prosperity. The socialists saw this and thought, “Wow! That’s a lot of money, and people don’t need all of it. The government should seize a portion of all that wealth to provide free money for other people.”

At first, the impact was relatively small because the wealth-producing capacity far exceeded what was being sucked out of the pockets of the productive sector. But over time — decade after decade — the parasitic sector keep getting larger and larger and its appetite kept becoming more and more voracious.

The problem became bigger and bigger, especially as the appetite of the warfare sector began growing as rapidly as that of the welfare sector. As the needs of the parasitic sector continue to grow, the increasing taxes and regulations begin forcing marginal businesses — those that were barely making it — out of business. As workers were laid off many of them would join the parasitic sector.

We libertarians kept saying that given the ever-increasing number of dole recipients in the welfare sector, combined with the ever-increasing number in the military sector, ultimately the private, productive sector would start to teeter, unable to withstand the weight and appetite of the giant, ever-growing welfare-warfare parasite.

The statists kept telling Americans: “Don’t listen to those libertarians. They’re just a bunch of doomsday proponents. Europeans do fine with their welfare state.”

We libertarians kept saying, “It’s just a matter of time.”

And now we have Greece. Bankrupt. The government is unable to unable pay the parasitic sector because the private sector cannot withstand the taxes needed to pay such expenses. Spain, Portugal, and Italy are in similar straits.

It’s no different with what is going on with several states here in the United States. See this New York Times article entitled “Illinois Stops Paying Its Bills, but Can’t Stop Digging Hole,” which points out that Illinois owes $5.01 billion and has stopped paying its bills. Other states and localities are facing the same problem.

Desperate to save their welfare-warfare programs, statists are calling for the same solution they have embraced for decades, “Raise taxes!” But today they’re showing a bit of fear about going down that road, and rightfully so, because they instinctively know that the private sector — the host — might not be able to withstand much more bloodsucking.

Meanwhile, many of the statists are calling on the Federal Reserve to print new money to bail out the states and localities as well as the federal government. They realize that the Constitution does not permit the states to resort to the printing press to pay their bills and so they’re hoping the federal government will do so.

And in fact that’s what the Fed has done for decades to resuscitate the private sector. It’s worked in the past but libertarians have continually warned that this is nothing more than a short-term fix, and a highly destructive one at that. In fact, even the statists are bit scared, given that the massive bailouts and stimulus plans implemented in the past couple of years have gotten them nowhere.

Inflation inevitably misallocates resources, diverting economic activity toward government-induced projects. When those projects come to an end, so does all the business activity that was oriented in that direction. That’s when the recession or depression once again raises its ugly head, motivating the statists to call for another round of newly printed money to keep the host alive.

But it’s like injecting adrenaline into a dying patient. It might keep him alive one time, two times, three times, but everyone knows that it can’t go on forever.

Statists ask, “What’s the libertarian solution for saving our welfare-warfare system?” Our response: “We don’t have one, because your system cannot be saved and it’s not worth saving anyway.”

Libertarians stand for an entirely different paradigm, one in which people are free to engage in economic activity without any government regulation (i.e., free enterprise), to accumulate unlimited amounts of wealth (i.e., no income tax), and to decide what to do with their own lives and fortunes (i.e., no welfare programs), and no military empire, standing army, and foreign wars. That’s why we call for a dismantling, not a reform, of both welfare-state programs and warfare-state programs.

What matters to us libertarians is freedom, including economic liberty, along with the vibrant, growing, prosperous, and harmonious society that it produces.

Jacob Hornberger is founder and president of The Future of Freedom Foundation. Send him email..