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Maxwell Newton, “Welfare state sinks the U.S.,”
New York Post, August 1, 1980, p. 59.

There are now nearly 60 million Americans who have opted out of the production process and are now being wholly or almost wholly supported by their fellow citizens.

Nearly 60 millions Americans can live off the work of the 95 million-odd Americans who are at work. By now, each 1000 employed Americans support over 600 Americans who receive government pensions, welfare or other benefits of one kind or another.

This burden has escalated alarmingly, from the 1960 situation, when there were some 27 million Americans getting income from the government, as compared with some 66 million at work. Thus, back in 1960 every 1000 workers had to support just 400 Americans who were receiving government tax dollars.

Not surprisingly, this huge rise in the burden of drones in the community has been accompanied by an equally alarming rise in the proportion of government social welfare expenditures to gross national product; between 1960 and 1978 the proportion rose from less than 9 percent to nearly 20 percent.

Again, this appalling trend has been the mainstay of growth of taxation incidence in America. The erosion of the national product of taxation would have been even more severe than has been the case, had it not been for the rapid decline in proportion of national product devoted to defense (down from 9 percent in 1960 to less than 5 percent today).

This astounding rise in the number of Americans who for one reason or another get a government pension or handout has helped depress the financial soundness of households’ finances. Higher personal taxation and the frightful squeeze of inflation of the “real” after-tax incomes of income earners have eroded the finances of the families of America.

In his tremendously stimulating and thoughtful statement to the House Ways and Means Committee last week, Henry Kaufman, the economist of Salomon Brothers, pointed out that the ratio of household liquidity and savings have steadily dropped over the postwar period; since 1970 declines have been alarming.

He said: “The ratio of households financial assets to financial liabilities, which stood at 9.5 in 1950, 6 in 1960, and 5 in 1970, fell to 3.9 last year. Even allowing for the appreciation of tangible assets to liabilities of households has plunged from 13.2 in 1950 to 6.3 at the close of 1979.”

Households have been eating into the inflation appreciation of household assets (and urged on by many finance companies to do so) to maintain spending power. Nothing will come out right for America until this cancer of extravagance in the Welfare State is arrested and reversed.

Households are not the only entities whose financial position has become more tenuous as a result of inflation and punitive taxation. In its important recent study, Salomon Brothers discovered that for business corporations, there has been a strong trend towards deteriorating balance sheet conditions to what is now a critical state; corporate liabilities in the last decade have grown more than twice as fast as corporate equity; corporate short term debt has been rising more rapidly than long term; and corporate liquidity ratios, current ratios, debt maturity ratios and interest payment coverages have plummeted to record lows.

Kaufman stated: “Just to improve corporate liabilities to the best (but not particularly good) maturity level that prevailed in the 1975-79 business recovery will take about $6 billion in new public bonds offerings every month for 18 months (as compared with an average monthly volume of $2 billion last year).”

This is all part of the tremendous destruction caused to the finances of families and corporations by two decades of unbridled Welfare Mania.

A fundamental collapse of some kind is not hard to conceive.

Maxwell Newton, “It’s time to confront the Welfare State,”
New York Post, August 12, 1980, p. 43.

The confusion within the Democratic Party, here and now, reflects painful adjustment as the nation faces a number of hard facts. Changing the President — as happened in 1976, 1974, and 1968 — may be part of the necessary adjustment. But the hard facts remain, President or no President.

This is how the Welfare State is working out in America today:

  • At the top of the list, as I noted last week, 60 million people on Social Security or Welfare of some kind are supported by 100 million people at work.
  • The cost of this vast handout system has only been made possible by the consumption of much of the nation’s capital. As each social class tried to get out of paying the bill for Handout America, so the inflation merry-go-round has continued.

As the cost of the Welfare State has escalated, the federal budget has gone into deficit — enormous deficit. In fiscal 1980 the deficit will be nearly $80 billion. Over and above that figure, there is the $135 billion “credit budget” — money the government can borrow and spend without congressional approval — which gives a wide open back door for a profligate Administration and Congress.

Because of the ballooning of the demands for spending on social welfare and other handouts (such as preferential loan treatment for Chrysler, and handouts to the “synfuel” industry, to farmers and to home buyers, through preferential subsidised home credits) the federal government has to get more and more taxes.

Many millions of Americans, looking at this, refuse to pay taxes at all, or pay far less than their fair share! These are the self-employed and the small business people who operate partly or wholly in a “cash only” economy.

This in turn puts more of a burden on the ordinary wage- and salary-receiving citizens who have the taxes taken out of their pay. They are paying an increasing share of the costs of the Welfare State. They do not like it. They find their after-tax incomes, when adjusted for inflation, are static or even declining. So they demand higher money wages and threaten strike. When they get their money-wage increase, they find they pay a higher proportion in tax. And with prices going up all the time, they soon find that after adjusting for inflation they are back where they started, or even behind their starting point.

While all this is going on, industry is trying to modernize itself. But it finds inflation is eating out of its balance sheet. Inventories cost more to hold and the replacement price of equipment is soaring. At the same time, taxes are being paid on the inflated profits which do not take full account of those inventory and equipment replacement costs. So the nation’s investment in the future sags.

In an attempt to control inflation, the Federal Reserve puts clamps on credit. This compounds the problem. Production falls and because few workers are laid off, output per man falls and labor costs per unit of output rise.

And because labor costs per unit of output rise, inflation continues.

In the dying days of the Roman Empire, the Caesars gave the people “bread and circuses” to keep them quiet.

But sooner or later the process of living off “the government” will come to an end, if only because large numbers of people in the society will opt out of paying and the divisions within the society will become overt.

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