Future government funding.

Economics Economics Questions
1

Hey!

I would first of all like to announce that my capabilities in English are very limited, I am French.

Anyhow, I’m studying in high school and we got this taskin social science about future funding of the welfare. Half the thing with the task is that you also should learn a little about any other European country, and i chosed Sweden (because I have relatives over there). But that’s quite irrelevant, because I just want to here universal economic aspects on this:

In order to maintain the same level of medical care, social care and basic education as Sweden have today, they will need 150 billion to be “implemented” by 2030. I’ll pretend to be an expert with a mandate by the Swedish government, choose one of the following solutions and argue for it and then submit it to the current government.

The solutions are:

  1. Society offers a less developed welfare systems, such as lower health insurance, smaller premiums to families with children, lower unemployment aid, where the tax is unchanged.

  2. Government invests in a public welfare system that offers high-quality services to the citizens, where the citizens themselves pay a portion of their wealth (own contributions).

  3. Government invests in a public welfare system that offers high-quality services to the citizens and where this is financed by higher taxes.

(4. Make your own suggestion)

I would like to here your thoughts about these proposals. I suspect that most of you are not especially satisfied with the given suggestions above. I would like to apply these solutions on basic economic theory, and see what would “be best”. And I have recently heard about this school of economics and it seems interesting so It would be cool if I could formulate an answer from your point of view.

Best regards!

2

Eliminate the state. Completely.

Everyone will then get the exact level of “medical care, social care, and basic education” that they decide is correct.

Peace, love, and brotherhood ensue.

3

A free market solution is the only economic solution.

None of the 3 choices given to you can be regarded as solutions based on economic theory. If you want to apply sound economics, you must go with option (4), where you radically suggest to eliminate all forms of state intervention from the health care industry.

You will need to do some HW, but most of all, you will need the courage.

4

I do not know how your public schools opperate, I just hope that you are not afraid to annoy your teacher or class mates.

I would suggest that you explain how the 3 solutions that are given are self-contradictory. A government can not give high quality service. A government can not maintain low costs. Higher taxes do not raise that quality of services.

If you can attack these ideas you make way for your own suggestions.

5

Out of curiosity, how did you get to this site?

6

“Solutions” #1 to #3 are not solutions. They are disasters. Instead of going through this all over again in a thread, you might want to read through this link first. It’s the Healthcare Reader on Mises. Then, you can post specific questions here. Good luck. [:)]

7

Allow me to say what I would if the Swedish prime minister asked me that very same question.

Please note that I’m only speaking for the government, not for the Swedish people. Others above have given you the solution that would most suit the Swedes. Form the government’s point of view…

  1. Society offers a less developed welfare systems, such as lower health insurance, smaller premiums to families with children, lower unemployment aid, where the tax is unchanged.

[/quote]

Massive protest and riots. Massive strikes and a grinding halt of the entire economy. Those few businesses which have decided not to relocate abroad do so within a year, GDP falls, ’s reputation as a “business-safe” zone is impaired for at least e decade. EVEN if the government would be willing to withstand the pressure (not likely though, Thatchers come along rarely), some far-left/far-right party would promise increase in welfare and topple the government. will be firmly on the path to radicalism.

Would be deemed a “half-hearted reform”, and would come under attack form radical parties, denouncing how the Swedes have already been forced to pay too much, and now its time for them to “collect what’s rightfully theirs”. Generally a situation akin to that outlined above would ensue, only less radical. It would also take some more time.

Increasing taxes on citizens is out of the question, riots would again ensue. Business would be forced to bear the burden of the tax increases, which would again force the flight of capital above, most likely to the Baltic countries and . Hence, total tax receipts would likely fall, leaving social insurance in an even more precarious position.

I’m afraid that the only solution available to the Swedish government would be to implement an agreement the Baltic countries to create a mutual social insurance fund. Every barrier to business relocation in those countries would be erased, while barriers to moving capital elsewhere would be increased (perhaps companies would be forced to pay 1/3 of their former Corporate Income taxes even when operating abroad). That would again result in a massive capital flight into the Baltic countries, but, knowing that those coutries have much lower tax rates, a much more vibrant business environment and a sounder social insurance system, it would allow total social insurance receipts to increase. The mutual fund thus increased, could finance an increase in benefits. Please note that the hardest part here would be to get the Baltic countries to agree. After all, they stand to lose. But than again, perhaps the EU could leverage on ’s account and even implement a continental fund should that experience prove fruitful. As maters stand, I see no other way to postpone the inevitable fall.

8

Given that the recommendation is being submitted to the government, I would recommend that a system that increases the degree of customer (parent) choice between schools and reduces public subsidy of schools to as close to zero as possible. The root problem with government schools is that they enjoy a near monopoly on the low end of education. Like any monopoly, they become unresponsive to customer (parent) demands, charge ever higher prices (via the demand for higher and higher tax subsidy) and deliver a lower quality product over time (increasing illiteracy, ignorance of basic subjects, etc.) One suggestion which is has been tried in some US districts is school vouchers, which grant the parents a certain amount of money which they can take to whichever school they please. They can use the voucher and supplement it to send their children to a more expensive private school, or they may send their child to a government school with it, or whatever. While this is not an ideal solution, it would certainly be an improvement over the current situation.

Since you are French, you have the pleasure of being able to read one of the greatest economists in history, Frederic Bastiat, in the original language… Please read this short treatise by one of the greatest countrymen you have ever had… he discusses the problems with always assuming that it is government which should provide needful services (with applications to the public education).

Hope this helps.

Clayton -

9

If you are capabilities are limited… my compliments!

The problem is very common through all of Europe: more money is needed just to fund the existing level of welfare. Let’s skip over the causes and concentrate on the problem itself. There’s a point when raising taxes doesn’t work anymore. Sweden has been slowly but steadily lowering taxes since 1998 precisely because increasing taxation didn’t work anymore. The largest businesses, a good source of revenue, were migrating abroad or were being taken over by foreign corporations keen to get their know how and reputation (Ohlins, Saab/Scania etc) and even individuals were taking their wealth abroad (mainly to The Netherlands and Switzerland). The government had to acknowledge that increasing taxation even further would end up scaring away even more people and slowly choking the country to death. But they also had to acknowledge that ordinary people in the street had come to expect too much from the government: free dental care, free superior education etc. Probably they’d have loved to drop taxes overnight considerably to attract business (and increase income) but they had to settle for a middle road. Where they worked very well was in the manufacturing business: tax breaks for R&D, advanced training and buying new machinery make high quality manufacturing very attractive in Sweden right now. Where they worked badly was in the public debt department: Sweden, pretty much like all the other Scandinavian countries, still has a very high public debt, especially when compared to the other European manufacturing powerhouse, Germany. Where they failed catastrophically was in reducing their expenses, as the projected data you presented prove.

I am using this as an example: governments all over Europe have painted themselves into a corner. To get the economy out of a decades long slump they need to deregulate and lower taxes, especially if they want to keep up with Asian powerhouses like China and upstarts like Thailand. But they also need to take into account their citizenry has been spoiled rotten by decades of overgenerous welfare politics. To cut taxes you need to either cut expenses or be ready to run massive deficits and/or inflate like there’s no tomorrow. Cutting taxes at the moment is verboten : Spain and Italy have already increased taxation. Both countries are spending untold billions in unemployment subsidies and they also need to keep up standing welfare commitments. Germany seemed set on starting a tax cut program but everything ground to an halt in face of mounting economic and social problems, but at least they won’t raise taxes in the foreseeable future. Europe seems set to sink even deeper into a long period of stagflation. This will probably spell the end of the euro as German taxpayers become less and less enthusiastic about bailing out other countries and tightening their collective trouser belt for the common good.

Frankly the only option I see as feasible is cutting taxes and cutting expenses, otherwise we’ll be back to where we started in a few years time. “Creative financing” as practiced by Italy in the last decade has proven to be an unmitigated disaster and increasing taxation would only mean more businesses are going to close up shop (leaving more people jobless) and move East. We need to get people to understand cutting expenses (mostly welfare benefits) is paramount right now. Or accept they are going to face a slow and unstoppable collapse of everything in a few years time (and health care has already started collapsing in parts of Spain and Italy).

10

Eliminating the state would be the ideal solution but maybe that position is hard for you to defend. Anyhow, if you are going to use the proposed solutions being given in this site, you must be ready for hard scrutiny from your teachers but if you have the moral courage to win the battle of ideas, the rewards are great.