Currencies, Economics, Politics

27 February 2009

Spend like a European but fund it like a Californian

Obama's budget strategy can be summarized as follows:

Spend like a European but fund it like a Californian.

In other words, increase entitlement and public sector spending in an aggressive and recurring way, but attempt to fund it narrowly on the volatile, cyclical and mobile earnings of a very few.

We know the California funding model doesn't work.  Combining a shaky, proven to fail funding model with the very expensive European social democratic spending model courts disaster. 

The European social democratic model runs at a deficit in good times despite taxing almost everybody for everything and despite failing to address their demographic time bomb of retiring boomers and fewer young taxpayers.  There is no country anywhere that has successfully funded this model only on the very rich.  In fact, there is no major country anywhere that is successfully funding this model even when taxing the poor and middle class much more heavily than in the US.   Resource-rich countries with tiny populations like Norway and Canada run social democratic systems that are well-funded, but the US isn't that type of country and even in Canada and Norway the middle class pays higher taxes than in the US in return for those higher benefits.

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