The welfare state is the most dangerous socio-economic invention in the history of mankind. Unlike openly totalitarian ideologies it presents itself as deceitfully benevolent; unlike religious sects, its appearance is rational; and unlike war, its destruction is quiet and concealed under layers of bureaucratic, government budget practices.
The destructive forces of the welfare state will inevitably destroy every country that is seduced by its benevolent smile. In my book Remaking America: Welcome to the Dark Side of the Welfare State, I explained at length how Sweden is succumbing to the unavoidable fiscal tyranny that the welfare state brings about.
This fiscal tyranny is brought about when the taxes that pay for the welfare state have eroded the private-sector tax base to a point where neither new nor higher taxes can pay for the welfare state anymore. At this point, legislators who have invested their political careers in the welfare state will try to save it by means of austerity. This, in turn, opens a dangerous, very destructive path that every country with a welfare state will inevitably have to enter.
We can look at Sweden in the ’90s, or Greece today, to see what the end station of that path looks like.
Among the most devastating features of austerity is that it recreates the need for itself. When government cuts spending and raises taxes, it increases its net drainage from the economy: it takes more yet gives less back. As a result the pressure on the private sector increases, which accelerates the shrinking of the tax base – out of which government is supposed to fund the welfare state.
This is a technical argument, which I have outlined analytically in this paper. But the technical analysis has its counterpart in the lives that are being destroyed by austerity. The destruction is financial, psychological – and sometimes literal. In a powerful article in The Lancet, eight researchers analyze the consequences of the austerity policies in Europe over the past few years. Before we get to the actual article, let us listen to Der Spiegel and their presentation of it:
As the euro crisis wears on, the tough austerity measures implemented in ailing member states are resulting in serious health issues, a study revealed on Wednesday. Mental illness, suicide rates and epidemics are on the rise, while access to care has dwindled.
These are countries with socialized health care systems, where government is a single payer and often also a single provider. When their budget goes into deficit and politicians try to balance it by means of austerity, the result is less health care to all. But government still promises everything to everyone.
Der Spiegel again:
The rigid austerity measures brought on by the euro crisis are having catastrophic effects on the health of people in stricken countries, health experts reported on Wednesday. Not only have the fiscal austerity policies failed to improve the economic situation in these countries…
See, I told you so. What bothers me the most about this is that there are still ill-educated Austrian-theory economists who endorse this kind of destructive austerity, claiming that some time in the future it will somehow bring about prosperity for all. It never does, and no one except the Austrian armchair theoreticians should be surprised.
Back to Der Spiegel:
…but they have also put a serious strain on their health care systems, according to an analysis of European health by medical journal The Lancet. Major cuts to public spending and health services have brought on drastic deterioration in the overall health of residents, the journal reported, citing the outbreak of epidemics and a spike in suicides. In addition to crippling public health care budgets, the deep austerity measures implemented since the economic crisis began in 2008 have increased unemployment and lowered incomes, causing depression and prompting sick people to wait longer before seeking help or medication, the study found.
Says The Lancet (free subscription needed):
Greece, Spain, and Portugal adopted strict fiscal austerity; their economies continue to recede and strain on their health-care systems is growing. Suicides and outbreaks of infectious diseases are becoming more common in these countries, and budget cuts have restricted access to health care. By contrast, Iceland rejected austerity through a popular vote, and the financial crisis seems to have had few or no discernible effects on health. Although there are many potentially confounding differences between countries, our analysis suggests that, although recessions pose risks to health, the interaction of fi scal austerity with economic shocks and weak social protection is what ultimately seems to escalate health and social crises in Europe. Policy decisions about how to respond to economic crises have pronounced and unintended eff ects on public health, yet public health voices have remained largely silent during the economic crisis.
In all honesty, what can they do? Demand that health care be excluded from austerity measures? Who should take bigger beating instead? Whose taxes should go up even more?
A more interesting passage in the article reports on what exact measures EU member states have taken as part of austerity:
Initially no major changes were made to the scope (ie, statutory benefits package and services provided to the population that are covered by the state) or the breadth (ie, the population covered by the state) of health coverage, although some reductions were made (usually minor). Thus, in a few countries, some services were removed from the benefits package (eg, in-vitro fertilisation and physiotherapy in the Netherlands). In some countries, benefits for low-income groups were expanded (eg, Moldova). However, some countries—specifically, the Czech Republic, Denmark, Estonia, Finland, France, Greece, Ireland, Italy, Latvia, the Netherlands, Portugal, Romania, and Slovenia—decreased the extent of coverage by instituting or increasing user charges for some health services in response to the crisis.
These are, again, single-payer health care systems run by benevolent governments whose only goal is to make everyone well. Right?
Of course not. Under austerity, the purpose of every entitlement program changes from providing an entitlement to reducing its cost. A single-payer health care system is no longer operating under the auspices of providing all sorts of health care to everyone. Its MO is instead changed into reducing its costs – even at the expense of patients’ health, even lives:
Rises in user charges are a particular cause of concern, because they increase the financial burden on households and probably reduce the use of high-value and low-value care equally, especially by people with low incomes and high users of health care, even when user charges are low. Introduction or increases of user charges in primary or ambulatory specialist care might worsen health outcomes and lead to increased use of free but resource-intensive services— eg emergency care. Thus, cost savings and enhanced efficiency are scarce.
No one should be surprised. If you increase the price of a product (in this case taxes or user charges) people can afford less of it. That is why health professionals are so fond of higher tobacco taxes.
The incidence of mental disorders has increased in Greece and Spain,60,61 and self-reported general health and access to health-care services have worsened in Greece.60 The number of suicides in people younger than 65 years has grown in the EU since 2007, reversing a steady decrease in many countries.
The Lancet also offers a good country-by-country summary. Overall, it is a chilling read (though hardly surprising if you know the history of austerity policies in Europe in the past quarter-century) that is well worth the time.
Back now to Der Spiegel and their somewhat pointed summary of the Lancet article:
The countries most affected by this have been Portugal, Spain and Greece, the latter of which saw outbreaks of both malaria and HIV after programs for mosquito spraying and needle exchanges for intravenous drug users were axed. There were also outbreaks of West Nile virus and dengue fever. “Austerity measures haven’t solved the economic problems and they have also created big health problems,” Martin McKee, a professor of European Public Health at the London School of Hygiene and Tropical Medicine, who led the research, told news agency AP. … In Greece, the Ministry of Health reported a 40 percent jump in suicides between January and May 2011, compared to the same period the year before. While budget cuts have restricted health care access with increased costs for patients in these three nations, Greece has also seen shortages in medication, hospital staff and supplies, according to the study, commissioned in part by the European Observatory on Health Systems and Policies, a partner of the World Health Organization.
And some Austrian economists think that the Greek government has not done enough budget cutting.
The study authors also accuse European officials of failing to address these issues, writing that “public health experts have remained largely silent during this crisis.” “There is a clear problem of denial of the health effects of the crisis, even though they are very apparent,” lead researcher McKee told Reuters, comparing their response to the “obfuscation” of the tobacco industry.
There is a very clear, obvious reason for this silence. Most health officials in Europe are completely absorbed by the mythology of the benevolent single-payer system. In their world view private insurance companies are evil, while government is always good. Now that austerity has come to town, this world view is suddenly turned upside down. Government is doing irreparable harm to the lives of millions and millions of people, a fact that just does not compute with Europe’s big-government do-gooders.
Europe has gone too far down the road of austerity to ever recover from this crisis. It is doomed to become an economic wasteland with an entire continent living in industrial poverty. Fortunately, America still has a choice, but time is running out.