Friday, June 29, 2012

Death Notices About The Welfare State Are Premature

This article provides a graph that shows that there is no correlation between national spending on social welfare programs and the premiums that investors demand on sovereign debt.  In fact, many of the largest spenders pay the lowest interest rates on their debt.  There is a euro problem, but not a sovereign debt problem that has been caused by overspending on social welfare programs.

I would add that the sovereign debt problems are more easily explained by bad loans that banks made to private borrowers.  The banking problems have contributed to lower growth rates, and budget deficits in most of the troubled states. In any case, excessive spending on social welfare programs is not the basic cause of the problems in the eurozone.  Moreover, comparisons of the US and many other states to Greece are primarily driven by those who prefer to lower taxes and spend less on social welfare programs.

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