FT columnist John Kay reacts to a talk that Tom Palmer, a Senior Fellow at the Cato Institute, recently gave in London.
The content of these rants is familiar. Levels of welfare provision are unaffordable; government finance is a huge Ponzi scheme. A common conclusion is to provide an estimate of the discounted value of the cost of some hated item of expenditure if its current provision were continued into the indefinite future. Mr Palmer reported that the present value of unfunded liabilities of US medicine and social security is $137tn.
Social security is a means of inter-generational transfer. The only bread fit to eat is bread baked today: but why should today’s bakers feed the retired bakers of yesteryear? Why should we look after old people, who can no longer do anything for us?
The obvious answer invokes Kant’s categorical imperative: it would be good for everyone (including ourselves when we are old) if everyone acted in this way. We feed the generations of our parents and grandparents in the expectation future generations will come along and do the same for us. But the consequences of this arrangement do have the character of a Ponzi scheme. One day, the world will end and the last generation of workers will have been cheated of their expectation of a peaceful retirement. In the meantime it is possible to calculate enormous measures of unfunded obligations, and it doesn’t matter. The value of these obligations is offset by the implied commitments of future generations.
John Kay, “The welfare state is a Ponzi scheme worth backing“, Financial Times, 26 September 2012.
There is much more in this wonderful, well-crafted essay. The FT link is gated, but the essay is also posted here, with a slightly different title.
Do read the entire essay. It is the best short essay that I have ever read on this important subject.