Is the Debt Crisis In Europe Spreading to the U.S.?


This just in: Government dependency is growing…

A CNN article about the expansion of government assistance first clued us in to the fact on February 7. The following day, the Heritage Foundation, a conservative think-tank, published a total of 18 extremely disturbing economic charts on the subject.

And from there, Business Insider, Investor.com and a slew of other websites and commentators picked up the story, broadcasting the fact that government dependency is on the rise.

Really, that’s not exactly shocking news considering the exponentially expanding government debt and deficit, not to mention dramatically visible societal shifts in the past few decades. But the problem becomes even more obvious when looking at Chart 11 of the Heritage Foundation’s list:

eurozone debt crisis

Source:
http://www.heritage.org/research/reports/2012/02/2012-index-of-dependence-on-government

Since the Great Society – which included the creation and implementation of Medicare, Medicaid, the Higher Education Act, and the Department of Housing and Urban Development – was first formed under President Lyndon B. Johnson in 1965, people have grown more and more attached to what many call the “nanny state.”

A nanny state assumes responsibility for its citizens’ well-being right down to their food, clothing and income if it deems necessary. Essentially, it’s one of those nice ideas that just doesn’t pan out in the long run, as evidenced by the ongoing turmoil in Europe.

Europe: The Definition of “Unsustainable”

Ironically enough, it was allegedly a European, British Parliament member Iain Macleod, who first coined the term “nanny state” back in 1965.

In 1965, that form of government had already long since taken root in England and mainland Europe. But since then, it has grown enormously.

According to Visual Economics, Germany spends 17.9% of its GDP on public healthcare and another 10.5% on education services, adding up to well over a quarter of its financial intake. France spends 16.7% and 11.4% respectively (28.1%), the U.K. spends 16.3% and 11.5% (27.8%), Spain spends 15.5% and 11.3% (26.8%), and Italy spends 13.2% and 10.3% (23.5%).

Add in unemployment benefits, housing, cash benefits, personal social services and various grants depending on the country, and that tally hikes up a lot higher. And that’s all on top of more traditional government spending on infrastructure, the military, public protection in the form of police and firemen, and government employee pay, as well as international aid and global organizations such as the United Nations.

Put it all together and you get the Eurozone debt crisis, complete with financial headaches, very real threats of default and rioting in the streets, as the world repeatedly saw in Greece, Italy, Spain and the U.K. last year… and will undoubtedly see again in 2012.

Nice idea though it is, nanny statism is flat-out unsustainable. And Europe proves it.

The United States of Dependency

The United States is no lightweight when it comes to spending, either, of course. It just happens to be in a slightly more advantageous position at this point for a few different reasons, including:

  • The dollar is still the world’s official reserve currency.
  • The U.S. didn’t turn to nanny state policies quite as quickly or drastically as Europe and therefore has – or used to have – a larger percentage of workers to draw revenue (i.e. taxes) from.
  • The U.S. government only has to fight with itself in order to get anything done whereas, in the Eurozone’s case, there are multiple governments involved, complete with multiple interests and agendas.

All the same, those factors can only go so far when the United States is set on spending $13.2 trillion per year, as it budgeted for in 2008, but bringing in less than $5 trillion. And that difference has only gotten worse since.

As the Heritage Foundation explained before introducing its 18 charts, “Annual deficits far greater than the government’s revenue are fueling explosive levels of debt. One such significant area of rapid growth is those programs that create economic and social dependence on government.”

Every new American added to the list of government dependence (around 45% in some form or another), brings the United States that much closer to becoming the next Europe… and that isn’t something we want to see.

Good Investing,

Jeannette Di Louie

Article by Investment U