The inception of a welfare state once offered hope to the lower social classes of democratic nations, and was generally met with acquiescence from the remainder of society. However, the incompatibility between “welfare” policies in representative democracies and long-term macroeconomic success has since been exposed. A solution to the problem, unfortunately, has yet to surface.
The theoretical warnings of extensive government intervention have long been theorized, as evident in the economic theory of Ludwig von Mises. The revelation of this incompatibility has been developing in empirical research for at least thirty years. David Cameron’s 1978 article, “The Expansion of the Public Economy,” marks a scholarly reassessment of Keynesian economics. Cameron explores the across-the-board rise of government spending in industrialized nations from 1960 to 1975, seeking to locate the sources of expansionist policies. The most notable contribution of this work is its evaluation of international trade in regards to redistributive policies. Cameron finds that political parties and economies’ dependence on trade are at the source of government expansion. The increasing globalization of the markets, combined with the increasing uniformity of parties’ expansionist agendas, suggests that the “rise” of the welfare state is still underway.
Garrett and Lange’s article, “Political Responses to Interdependence,” examines the impact of market globalization on partisan politics. The relatively expansive policies of market intervention traditionally advocated by leftist parties are no longer suitable for international markets. Leftist parties are now compelled to lessen their support of corporatist arrangements, due to international market integration. However, the redistributive policies of the Left remain a distinctive feature of leftist party platforms. Both the Right and the Left face political pressures to protect their national economies from international competition. Both sides converge on the expansionist policies of supply-side spending. Increased spending is the dependable political solution to globalized markets.
But is it the best macroeconomic solution? Mark Gasiorowski contends that it is not. Moreover, Gasiorowski exposes a link between democratic governance and poor economic strategy, finding that, “…democracy undermines macroeconomic performance because of the adverse effects of unrestrained political participation” (345). Democratic rule is shown to promote higher inflation and slower economic growth. The level of democratic rule, not the level of economic or political development, is the causal variable for macroeconomic performance across nations. Although Gasiorowski offers constructive suggestions for economically sound democratic policies, the political incentives for implementing these reductionary policies cannot compete with the institutional incentives for increased spending policies. Less democracy—the inherent opposition to the preferences of the people—is Gasiorowski’s solution.
Paul Pierson’s, “The New Politics of the Welfare State,” explores the institutional incentives for economic policymaking as embedded within democratic governments. The author reaffirms the widespread contention that politicians’ preferences to get reelected effectively refrain their economic policies to the short-term. Moreover, democracies offer almost no political incentive for “retrenching” the policies of wealth redistribution. In fact, such retrenchment would be political suicide for many politicians. A substantial reduction of expenditure would require a strong coalition within government, which would have to offer the recipients of government aid something in place of their revoked benefits. The institutional structure of representative democracies discourages any such collaboration. Special interests and pervasive bureaucracies have added to the insurmountability of retrenchment. Increased spending is much easier, politically, and offers many opportunities for politicians to gain votes.
Until the masses become aware of the looming economic collapse of the welfare states, government expansionism will progress. Inflation will rise rapidly; real wages will decrease reciprocally. Markets can survive some regulation and modification, but can never flourish in strict captivity. Deficit spending and bureaucratic interests, in the context of democratic rule, ensure the social procrastination in “paying the bills.”
If economies continue to stagnate, and populations continue to grow, the welfare state will be regarded as the most severe economic blunder of the twentieth century.
-Dan Blazo
Your first two paragraphs seem to suggest that the paper will focus on the "incompatibility between 'welfare' policies in representative democracies and long-term macroeconomic success." Your later discussion implies that you are interested in the gap between what is politically convenient and what is economically efficient. That certainly helped to unify your paper. The last two paragraphs do not seem to be very necessary or to be closely tied to the positive research in the readings for this week.
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