The Birth of the Modern Welfare State

The modern age in the

field of Economics was
born from the destruction
of Europe in World War I.
That war inspired a young
British economistJohn
Maynard Keynesto
closely examine the
mechanics of international
exchange between
nations, which was
increasingly necessary to manage the enormous international debts
and flows of capital and goods during and after WWI. In his first
book, The Economic Consequences of the Peace, Keynes vividly
chronicled many of the economic consequences of the Versailles
Treaty, which was the product of a political and economic tug-of-war
between Britain, France, and Germany at the 1918 Paris Peace
Conference after WWI. In that book, Keynes explicitly predicted that
the Treaty would lead to another international war because of the
economic ignorance and political paralysis of the participants at the
peace conference.

A Transcontinental Orgy of Carnage.Keynes prophecy came true

in September 1939 when Adolph Hitlers Nazi war machine invaded
Poland and set into motion a transcontinental orgy of human
carnage: World War II. Approximately 72 million human deaths, tens
of millions wounded, and 100 million humans were directly involved
in WWII combat operations. (Rummel 1998) Nearly three per-cent
of Earths entire population was killed during the war. In over a
dozen countries in Eastern Europe and Asia, double-digit
percentages of their entire national populations were killed. How
could global human civilization unravel so rapidly and violently
within the span of only a few years?

Large-Scale Human Suffering is Politically Impossible to

Ignore.American political Liberalism (as opposed
to economic liberalism or neoliberalism) since the early 1900s has
been typically associated with ideologies and theories that promote
relatively more generous social welfare policies than corresponding
conservative policies. In fact, political Liberalism was a worldwide
populist andcultural response to the devastation of World War I, the
Great Depression, and World War II, all of which exploded into the
global consciousness in historically rapid succession. That series of
humanitarian catastrophes made it politically impossible for
politicians in any democratic country to ignore the deep economic
suffering of 100s of millions of humans worldwide. This was the
socioeconomic environment in which FDRs New Deal policies and
the modern welfare states of Europe were born.

The Birth of the Modern EU Welfare State. As economic

conditions deteriorated during the Great Depression, the
unemployment rate rose to politically catastrophic levels, exceeding
30% in several European countries. And as the subsequent wartime
devastation of Europes infrastructure paralyzed European industrial
production, the European economy was incapable of providing
subsistence employment to tens of millions of destitute humans
throughout Europe. With so many humans unable to survive, it is no
surprise that large segments of the European population preferred
Communism, Socialism, and various other forms of collectivism to
the abject poverty and deadly starvation that they were
experiencing under collapsing Capitalism.

Government Intervention Was the Lesser of All Evils. Serious

students of political history know that it was politically impossible for
FDR and his European and Asian counterparts to avoid
implementing large-scale social welfare programs because it was
socially and economicallyimprobable for large national populations
to organize themselves efficiently, peacefully, and effectively around
cohesive national economic and labor policies that would prevent
further war and destruction to human civilization. Thus, government
intervention into various economic markets was perceived as the
lesser of all evils in nearly all countries around the world, even by
most free-market-oriented observers.

EU vs. US Government Performance. Many Americans mock and

snicker at the European economies today. They incorrectly label
them as socialist economies, despite the fact that most EU
economies have:
 grown faster than the U.S. economy for many years;
delivered demonstrably higher quality of life to EU citizens than
the U.S. economy delivers to Americans;
benefited from empirically proven higher quality government
performance, in terms of lower political corruption, higher fiscal
accountability, less financial waste and abuse, etc.1

The PIGS Are Not Proof of Prodigal EU Governments. Before

my American friends start pointing at the so-called PIGS (Portugal,
Italy, Greece, and Spain) as proof of EU government prodigality,
lets set the record straight: The economic problems that the PIGS
have been suffering from since 2008 have been overwhelmingly
caused by over-leveraged private banks, which shifted their private
debts to their governments. This is exactly what happened in the
U.S. when U.S. banks were bailed out by the U.S. Government (i.e.,
socialism for banks: wealth redistribution from American
taxpayers to banks and their shareholders) while privatizing their
profits (i.e., Americans go into debt to survive while banks prosper).

The Difference Between the EU and U.S. Governments. Unlike

the U.S. Government, which spends $ trillions that it does not have,
the vast majority of EU debt has not been caused by profligate
government spending in the EU. To the contrary, the vast majority of
EU debts have been caused by profligate private banks who
abused their balance sheets to boost their profit margins, then they
were bailed out at the expense of the entire EU population. The
primary difference is the U.S. government has a technology, called
a printing press (or, today, its electronic equivalent), that allows it to
produce as many U.S. dollars as it wishes at essentially no cost, as
former U.S. Federal Reserve Chairman Ben Bernanke said.
(Yes, he really said that.)

Welfare States Prevent Wars. Like many liberty-loving Americans,

I dont like the idea of a welfare state, but what I subjectively
like and what is objectively necessary are two different things. What
many Americans dont realize today is that the social safety nets
(so-called welfare states) in Europe exist in response to
catastrophic economic conditions and the large wealth disparity
between the landed European aristocracy and the poor masses,
which spawned Hitler, world wars, and collectivist ideologies. The
relatively generous European welfare systems that exist today were
the only way to create political stability, avoid another genocidal
world war, and prevent Communism and Fascism from spreading to
Western Europe during the Cold War. As a result of those
experiences, the Europeans understand that perfect liberty is
meaningless if youre dead.

The American Proto-Welfare State. FDRs New Deal during the

Great Depression and then President Johnsons Great Society in
the 1960s were responses to the U.S. own economic challenges,
which those presidents were forced to implement to create political
and economic stability just like the EU countries were forced to do.
The primary reason that the U.S. has avoided a more extensive and
overt welfare state is because the U.S. has received the once-in-
human-history gifts of the worlds reserve currency (Bernankes
printing press) and the petrodollar simultaneously. These
unprecedented privileges have forced every country on Earth to use
the U.S. Dollar (USD) for the past several generations, thereby
keeping the U.S. economy much more stable than it would have
been without these special conditions.

When Economies Collapse, Welfare States Rise. If the U.S.

Government had to operate under the same economic and political
constraints as all other countries on Earth, there is no doubt that the
U.S. economic and political systems would have collapsed many
years ago. That would have created pressure on U.S. politicians to
implement much more extensive welfare programs just like the EU
to soften the pain of the suffering American masses. To my fellow
Americans who still irrationally assume the U.S. is immune to all
those economic and political pressures: Youre in for a rude
awakening.2

The American Welfare State is Here. Given that

approximately 50% of the entire American population is already
dependent upon substantial forms of government assistance,
Americans can no longer pretend the U.S. is not a welfare state.
(The 2008 bank bailouts already prove its a corporate welfare
state.) But the U.S. is a welfare state in denial, which gives
Americans the worst of all worlds: Corporate socialism, widespread
debt and poverty, an unaffordable and deteriorating healthcare
system, an unaffordable and deteriorating education system, the
destruction of the Middle Class, and widespread ignorance about
the true health of the U.S. economy, which creates a tone-deaf
political class that continues to cram failed economic policies down
our throats in exchange for a never-ending river of political
campaign financing.

The American Welfare State Will Grow Rapidly. Given the

inevitable collapse of the U.S. economy due to continued private
and public debt asphyxiation, the ongoing fragmentation of the
USDs reserve currency and petrodollar status, and the
profound labor force consequences of artificial intelligence and
machine automation, Americans can expect far larger welfare
programs in the years to come. Without those programs, there will
be increasingly more violent political protests, more ideological
extremism, more unnecessary foreign wars instigated by U.S.
politicians to distract Americans from their domestic economic pain,
and more liberty-killing forms of authoritarian government imposed
upon Americans in the names of security and Democracy.

Notes:

1. See detailed quality of government performance data for many

countries in my book or at the Quality of Government
Institute and the World Bank.
2. I was a die-hard Libertarian most of my life until I realized that
Libertarianism is an incomplete governing philosophy in a world in
which all of the following are now occurring simultaneously: special
interest corruption, systemic political corruption, artificial scarcity
created by corporate monopolies, corporate welfare, disintegrating
Middle Class, unjust wars instigated by the convergence of
corporate and political interests, job-killing artificial intelligence, and
rampant market failures caused by corporate manipulation of tax
and regulatory policies. Its not enough to say All these problems
are caused by big government intervention! Thats BS, naive, and
lazy thinking because it ignores all the real-world historical and
socioeconomic conditions that actually cause corporations and
governments to behave the way they do.

The size of government is not nearly as important as the

institutional integrity of government. All of these problems plague
the U.S. economy today far more than EU economies because the
U.S. Government does not have enough institutional integrity to
protect its citizens from the inevitable onslaught of human greed
and gluttony that occurs when financially powerful private groups
are able to hijack their societys corporate and governmental
institutions. I hate tyranny of all kinds, but economic oppression
masquerading as Laissez Faire Capitalism is an unelected tyranny,
which is much less tolerable for a society than any elected tyranny.
About Ferris Eanfar
Ferris Eanfar has over 20 years of experience in technical, financial,
media, and government intelligence environments. He has written
dozens of articles and several books in the field of International
Political Economy, including Broken Capitalism: This Is How We Fix
It, which provides unique insight into what is wrong with the global
economy and how to fix it. To learn more about Ferris, please visit
the About Ferris page.

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