FT concedes that the welfare state is a ponzi scheme

Last night the FT, a mainstream newspaper (and a client of mine as it happens), conceded that the welfare state is a Ponzi scheme.

© Kevin Rawlings

Defending the application of this illegal category of schemes to the welfare system, a theory was presented that only one future generation (the last) suffers out of this arrangement because each generation passes the burden forward to the next.

Once, I happened to be sat adjacent to a Ponzi scheme saleswoman in a gastro-pub in Wiltshire. It was a small place and the back of her head must have been inches from my ear. I heard a lot it. She seemed like a poor sweet mistaken and rather pretty young criminal, not the monstrous shyster you might expect, but she was still a criminal.

The rather uglier and more knowledgeable John Kay also concedes the following in the FT:

[Aside from the family, the] other means of implementing this golden rule is a social security system through which successive generations of taxpayers agree to support their elders.

Both these types of social arrangement can fail, and often have done. Inflation can prevent money acting as store of value. Or the social contract can be reneged on through an announcement that previously understood commitments are now unaffordable. Both debasement and default benefit a current generation at the expense of its predecessors and successors.

If one generation asserts for itself a higher relative standard of living than it offers to those before or after it, the social contract between generations is threatened. If life expectancy rises, that social contract can be sustained only if working lives and the length of retirement move in parallel. The rising cost of medical care, largely consumed by the elderly, is a problem everywhere.

But these issues are the product of economic fundamentals, not the particular social and institutional arrangements used to handle them. They would be problems even if those improbable villains Otto von Bismarck and William Beveridge had never invented the welfare state.

John Kay seems to be defending a theory in the abstract by dismissing the reality as a mere blip, but then ascribes the blip the status of a rival fundamental theory. Perhaps John Kay believes empirical and conceptual knowledge are different and don’t interact (an idea I disagree with) , but bashing theories together in this way makes no sense by any standard. John Kay seems to have simply picked his preferred truth irrespective of facts or of logic.

Mr Kay also mentions one other contingency which should have torpedoed the whole article:

[my] social contract can be implemented if future generations agree to recognise the financial claims created by their predecessors

Mr Kay, what if they don’t want to? Will you force them to?

Simon Gibbs

Simon is a London based IT contractor and the proprietor of Libertarian Home. Working with logic and cause-and-effect each day he was naturally attracted to nerdy libertarianism and later to the benevolent logic of Objectivism. Find him on Google+ 


  3 comments for “FT concedes that the welfare state is a ponzi scheme

  1. Paul Marks
    Sep 26, 2012 at 2:55 pm

    I happened to come upon this article today – I went to Kettering library (on another matter) and had a look at the Financial Times newspaper.

    Even amongst the various demented articles in the “FT” this one stood out.

    Mr Kay claimed the Welfare State would only run into trouble at the end of time “when the world ends” when there would be no next generation to finance the benefits of the old.

    Unless he is just lying through his teeth, this means that Mr Kay has not even glanced at the figures – figures that show a total explosion of Welfare State costs (even as a percentage of income) over the years.

    The Welfare State will not be fine to the end of time – till the “end of the world”, in fact it will collapse (it is quite obvious from the figures that it will collapse) over the next few years. Not just in Britain but in most other Western nations also.

    Are establishment people like Mr Kay (and the rest of the “F.T.” crowd) just liars? Or are they so insane they actually believe the rubbish they write?

  2. Sep 26, 2012 at 3:24 pm

    The line “both these types of social arrangement can fail, and often have done” makes him appear honst but, upon reflection, makes the whole article worthless.

  3. Ian Bennett
    Sep 27, 2012 at 7:22 am

    “a social security system through which successive generations of taxpayers agree to support their elders”

    He seems to be ignoring the fact that much of the current generation of taxpayers are too occupied supporting non-taxpayers to be able to support their elders adequately.

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