No one is in the least surprised that Democrats and Republicans are blaming each other for this season's bad economic news. The left blames the Tea Party and the right blames the "Teat" Party; and over the next fifteen months we are going to hear lot more of it, probably more than two billion dollars' worth, if the estimates of the planned 2012 electoral expenditures are accurate.
One question that both sides are not much talking about is why so-called entitlement spending is out of control. The answer is embodied in one famous historical name - Otto Von Bismarck. The Iron Chancellor, as he was nicknamed, an extraordinary politician and diplomat, with an ability to maneuver in the complex world of 19th century European great power politics, made him that era's supreme practitioner of realpolitik. Unfortunately, the European balance of power he created only lasted as long as he remained in office. The diplomatic structure he carefully put in place after Prussia's victory over France in 1870, slowly and painfully disintegrated after Kaiser Wilhelm II dismissed him in 1890.
His most enduing legacy however, is the system of "social insurance" he put in place between 1883 and 1889. Historians regard this legislation as the basis of all of today's "Welfare State" policies. Bismarck needed stability and loyalty at home, and he was ready to use any tool he had to promote those goals. As Henry Kissinger wrote in his 1994 book, Diplomacy, "… although he was an arch-conservative in domestic affairs, Bismarck saw no obstacle to shifting Prussia's domestic policy to the left as long as it served a foreign policy purpose."
The British historian A.J.P Taylor wrote thaet, "His object was to make the workers less discontented or, to use a harsher phrase, more subservient." and "Bismarck wanted to make the workers feel more dependent on the state, and therefore on him." Ever since then, "social insurance" in all its multitudinous forms has been, at its core, an instrument of state power.
The flaw in Bismarck's scheme was that it was based on calculations that, over time, undermined the whole structure: At first there are large numbers of people paying into the system and few people collecting benefits, but that easily, as now, turns into fewer and fewer people paying into the system, and a lot more people collecting benefits.
This not only threatens the "Welfare State," but could lead to the bankruptcy of governments throughout the Western world. The problem can be summed up in two words: Life Expectancy.
While wasteful government spending attracts much deserved scorn, it is the various "Social Insurance" programs, evolved from the Imperial German 1889 legislation, that are now responsible for the vast majority of West's unsustainable government spending.
In 1880, life expectancy for the average citizen of a citizen of an advanced Western nation was between 43 and 45. Bismarck's old age pensions began to pay their benefits when the men reached the age of 70. Obviously there were far more workers paying into the fund than there were beneficiaries. Few subjects of the Second Reich lived long enough to collect the pensions that the system promised them.
In 1916, at the height of the First World War, the age when Germans became eligible for their pension was lowered to 65. That is the age that Franklin Roosevelt adopted when he pushed the US Social Security system through Congress in 1935 , when the average life expectancy in the US was around 61. In 1965, Lyndon Johnson's great society Medicare program was likewise based on the idea of eligibility at age 65.
Meanwhile, thanks to widespread improvements in living standards and in medical science, people are living longer and collecting benefits over longer periods. Today an average male living in Germany or the US can expect to live until the age of 77, and there is every indication that most citizens of the developed world will live ever longer.
Some nations recognize this. In the US and Germany, the politicians have agreed to allow the age to be delayed from 65 to 67 for old age pensions, or, in the US, Social Security. There is every indication that any attempt to adjust the age of eligibility for Medicare or to increase the age when a person in eligible for Social Security is going to be subject to a monumental political fight.
Meanwhile, in most of Europe, the highly developed welfare states are running into the same demographic brick wall -- made even worse by both the ill conceived single European currency project, the Euro, and by the high rates of taxation. The Euro has shoehorned a wide variety of national economies into a single monetary structure without turning them into a unified economy. One thing all the EU member states have in common, however, is their unsustainable Bismarckean welfare states.
People in Europe are still just as subservient to the state as they were a hundred years ago, including with their new unaccountable European Commission There is quite a bit of anger over the inability of the state to pay them the benefits to which they had become accustomed -- a blame now put on "the Rich" or "The Banks" or "Capitalism" or other useful scapegoats -- and an anger expressed through street demonstrations and violence.
These expressions of popular discontent have, on more than one occasion, pushed governments into taking actions that directly harm the economic interests of their citizens. A good example of the way protesters can have an impact, is the way France and other European states have largely abandoned the agricultural use of Genetically Modified Organisms -- a decision in the face of well-organized protests that helped raise the price of food.
Protests cannot force a state to act against it's fundamental strategic interests, the failure of the effort in the 1980s to prevent the deployment of US nuclear missiles in Europe is the proof of this.The NATO governments, particularly in West Germany, kept to their agreement to station US medium range missiles in Europe. If they had surrendered in the face of the demonstrations they would have handed the Soviets a massive victory.
On this side of the Atlantic, the "Tea Party" is different: it is the latest expression American Exceptionalism. A popular movement that demands that the State spend less money and exercise less power is historically unique, and strikes at the heart of Bismarck's legacy -- the bargain between the rulers who promised security and the ruled who accept their fate -- but which was never secure in America. Social Security has become firmly embedded in American society, but the rest of the welfare state, the part that was established in the 1960s, still faces resistance. The latest attempt to expand state power, embodied in "Obamacare," has been as completely and thoroughly rejected by a majority of the population as any domestic program since prohibition.
In a series of essays published on The American Prospect website, Walter Russell Mead describes the collapse of what he calls "The Blue State Model," but which could more accurately be called, "The Imperial German Model." The American version of Bismarck's system was never as accepted in America as it was in Europe. Over the next decade, pressure from creditors and from a significant part of the population will force a transformation of the welfare state that will reduce Bismarck's American legacy to a limited Social Security system and little else.
There is every reason to believe that America -- thanks to the "Tea Party" and to other elements of American Exceptionalism such as the constitutional system of checks and balances, and to the first amendment's protection of free speech -- will eventually recover from its current economic slump and radically reform the welfare state. The checks and balances are already pressing both parties to take seriously the popular demand to shrink the size and scope of government. The First Amendment insures that the ruling elite cannot force the people either to be quiet or to confine their discontent to stylized and impotent expressions of rage.
In Europe, the collapse of Bismarck's legacy will, in all likelihood be a far less pleasant process.
