The Disintegration of the Welfare State


I rarely feel a strong urge to take an entire article and pick it apart piece by piece. Butcher it, more like. Today Vinay Gupta pointed out this article by Neil Reynolds, with the comment “awful, Italy, etc.” The article is called “the disintegration of the welfare state,” and upon reading it I felt a strong urge to thwack whoever absolutely failed to teach this man any history, economic theory or sociology at all. The article is a long series of platitudes wrapped up into a narrative that more or less comes down to “everything bad in the world is democracy’s fault, just look at what democracy has done to our economy! Long live unabashed capitalism!”

He starts off by saying:

Democracies produced Nazi Germany and Fascist Italy, fulfilling the expectation of Socrates and Machiavelli that democracies end in tyranny.

Let’s look at that. If you happen to know anything about the history of World War II, you’ll see that the Nazi rise to power actually happened not as the result of democratic elections resulting in a good vote for Mr. Hitler’s party, although they had gotten 37.4% of the votes in July 1932 and failed to form a government. In November the same year a second general election yielded them 33.1% of the electorate’s support, the decrease in which is generally attributed to the fact that Germany was recovering from the depression. After another no-go at forming a government, precisely because they refused to do any deals with the other parties, Hitler was named chancellor anyway by a decree from Hindenburg, forming a minority government. Then just as the communists were getting angry about this, the Reichstag conveniently burns down, and it’s blamed on the communists. Then president Hindenburg is convinced, by the chancellor, to give out a second decree suspending all human rights and civil liberties, which gave Hitler the power to ban the communist party, thereby eliminating his biggest opponent. Another election, under these terms, hardly democratic by any measure, was held in 1933, granting the Nazi party 43.9% of the vote, giving them 51.8% total when allying with the Nationalist party.

Can we agree here that this is not a story about democracy, but a story of very shady dealings and disruption of social values?

The rise of Mussolini and the Fascists in Italy was, arguably, more democratic. Instead of being undiplomatic, then burning down the parliament, and then banning the most important opposing political party, the Fascists merely manipulated public opinion under the guise of protecting an Italian value system, and providing reforms, not stating their interest in authoritarian rule. So while, yes, unlike the Nazis, they did get elected into power, they did so by way of misinformation.

Both of these examples do point out important failures in *representative *democracy – on the one hand how dangerous it is to put power into the hands of very few people, and on the other hand how important it is that people have access to good and correct information. From these failings, the author comes to the conclusion that invoking Socrates and Machiavelli is worthwhile; essentially saying that democracy, taken to its limit, is mobocracy, comfortably ignoring the fact that every single time anything supposedly democratic has done something “bad”, it’s not been by a mob decree, but by the decision of a few people who were granted an unsavory amount of authority by some process that is only democratic insofar as poorly informed people are ushered into voting booths to choose from a set of equally poor options.

Let’s continue:

Now democracies are fulfilling the complementary expectation of Nobel laureate economist Milton Friedman that democracies end in bankruptcy. Put a democracy in charge of the Sahara, Mr. Friedman once said, and sand itself will become scarce.

This is a cue for me to launch into another one of my rants about artificial scarcity, but to save all of us a bit of time, I’m going to break good convention and quote one I wrote earlier:

The capitalists are playing the CC-PP [communize costs, privatize profits] game. Consider a few examples: after the great depression John Maynard Keynes suggested ideas that became rolled into Franklin D. Roosevelt’s New Deal, which was accepted and performed quite altruistically. But if we look at the situation, what was being done was huge debts were being forgiven towards the people who caused the depression to begin with and society as a whole was being made to pay. In Iceland in 2008, as soon as the financial situation of the banks was regarded as ominous, the banks were – and get this – nationalized. The assets of the banks were seized and the government put in direct control of the daily operations of the bank.

The owners were magically freed from their already non-existent obligations towards the financial stability of the bank, losing a pile of money that didn’t exist either anyway, and the full brunt of the debt that the owners had created within the bank pushed onto the nation.

The exact same story happened with Fannie Mae and Freddie Mac, and any number of other examples come to mind. Would a bank ever be nationalized if it were doing well? Not at all. Indeed, as was seen in Bolivia in 2001 the obverse is true. Profitable ventures, such as selling water to peasants, tend towards privatization in any system that assumes scarcity of the same. Instant profit!

The net result of the CC-PP game, in this instance, is the production of a situation where the rich play by the Marxian rules and the poor play by the Smithian rules: Socialism for the Rich, Capitalism for the Poor. […]

The government, then, is a tool being used by two factions to preserve their own dominance. For those who strive to increase their influence, a government is a way to satisfy their egotistical yearnings. For the capitalists, a government is the best insurance policy other people’s money can buy.

[For more on that, see my essay “The End of (artificial) Scarcity”]

In short: Democracy is not to fault here so much as the ability of those with unreasonably great control over financial capacity – or capital – to demand ludicrous amounts of forgiveness when they fail, lest they take the rest of society with them. Friedman’s horribly misguided assumption is that democracy is equal to greed, when, in fact, greed comes not from the democratic process but as a systemic residual in any system that punishes piety and rewards misanthropy. Such as our monetary system. Which brings us to the next point:

Mr. Friedman’s primary fret, though, was the tendency of democracy to centralize political and economic power in the same hands.

What kind of democracy are we talking about here? Is it the one where we use the actual meaning of the word, that the people rule, or is it the one where we use the bastardized modern version of the word, where some people rule? Representative democracy is, indeed, designed to centralize political power in order to maintain an economic system which disfavors equality in any form. There are systemic features in representative democracy which force all players to optimize their behavior within the system, even if that means accenting to the demands of those holding the capital hostage.

Mobs have already taken to the venerable, iconic streets of European states, notably among them Greece, birthplace of Athenian democracy. It’s apparently easier to give wealth away than it is to take it back. Democracy assembled the welfare state peaceably enough. Can democracy dismantle it as peaceably? No, it can’t. The mobs are not finished.

Ignoring the fact that many European streets are far from venerable, we should note that those mobs are there for a reason. Social injustice, to a very large degree based on the results of the CC-PP game noted above, where decent people have been forced to pay taxes to uphold the state. To paraquote Max Weber (actually, to quote Herbert Snorrason; but that’s still unpublished):

The state is an institutionalized way of using force to extract economic goods from a large population in order to maintain a relatively small population that produces no economic goods itself.

People are protesting in the streets of “Paris and Rome, of Milan and Sarajevo, of Reykjavik and Bucharest” – not to mention Athens – not because democracy has somehow stripped them of their rights, but precisely because democracy failed to happen in the first place. Where government was acting under the guise of providing a welfare state, it only did so as far as was convenient for the holders of the capital, so as to maintain the peace while more economic goods were extracted from them. Of course the mobs aren’t finished. They’re just getting started.

It is here that the authors argument becomes poisonous, as he leaves the realm of quote mining for misguided platitudes into the realm of speculation. The suggestion that he proceeds with is along the lines of: “Fascist economics reduced Italy’s debt to 50% of GDP, but democratic economics increased it beyond belief. Democracy is bad, all hail fascism!”

The caveat emptor if you’re going to buy this argument is that it takes a huge inductive leap, followed by a logical fallacy, followed by scale error:

This is an intriguing observation, suggesting that the accumulation of debt in affluent democracies reflects a cultural adaptation – in which public debt funds la dolce vita – as much as it reflects political ideology or novel economic theory.

The leap is that democracies necessarily must be in debt. The logical fallacy is that whereas fascism leads to not debt, therefore not fascism leads to debt.

[In logical terms, with | as or, -> as induction, <=> as equivalence, ¬ as not: (a -> ¬b) <=> (¬a -> b), which expands to (¬a | ¬b) <=> (a | b), which is obviously ludicrous - ¬a | ¬b is true when neither a nor b is true, but false when both are true.]

Finally, the scale error is embedded in the concept of la dolce vita: The sweet life for WHO, exactly? Recall that while the working class were working their asses off to keep the welfare system going, they were also working their asses off to keep both the “democratically” elected ruling elite and their capitalist overlords well fed. The sweet life never trickled down (need I point out that trickle-down economics don’t work, or must I cite examples, such as the mining camps where child slaves are digging up coltan to refine tantalum, so all the rich folk can have iPhones?).

Here Reynolds quotes somebody, but doesn’t say who:

The adoption of Keynesian analysis provided politicians with a rationale for borrowing money to buy votes.

Votes are expensive. Studies have shown that campaign funding can cause around 1-2% sway in opinion (see Malcom Gladwell’s Tipping Point)… so of course public spending is a more sensible method for the ruling class to keep in power – spend somebody else’s money. Heck, spend the voter’s money. It’s a great way of keeping the people forced to pay the taxes subdued while simultaneously blocking new entrants into the political market (unless funded by the owners of capital, who, quite reasonably, don’t do such funding unless somebody in the ruling class is failing to hold up to their end of the bargain).

It is, however, odd to disagree with somebody so terribly yet be in total agreement with their explicit conclusion:

Democracies have made people more dependent on the state than any humanitarian necessity required. For Italy, and for other democracies, the worst is surely yet to come.

Again, I put a big question mark on the use of “democracies” – exchange it for “the states”, and you’ll get both a statement much closer to the truth plus an embedded explanation of exactly why they have done so. The worst is yet to come, yes, in the economical sense, since the system we are currently governed – nay, enslaved – by, is now both financially and morally bankrupt, instead of merely being the latter.

But the implicit statement here is one I refuse to accept: That democracy is somehow to blame for the financial disarray created by capitalists playing the CC-PP game, and that Friedmanian corporatist propertarian economics is somehow to be our savior. No thank you.

The real disintegration of the welfare state isn’t caused by the welfare, nor the people trying to live in the state, but by the state itself and its willingness to allow the capital owners to cash in on the best insurance policy other people’s money can buy.

As a person living in Reykjavík, as somebody who has attended the “riots” Mr. Reynolds speaks of, and having witnessed the economic shock therapy that the Friedmanite hoardes have been raining down on us, I for one am more, not less, interested in democracy than before. In fact, I think it’s high time we get real democracy – direct democracy.