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Will Social Spending Cause a Depression?

What's the Latest Development?

Several European countries face sovereign debt crises while the US tries to nurture a tepid economic recovery. For a slump in its fifth year, no solution has brought swift economic turnaround. And while social spending did not cause the current crisis, it may be to blame for the lack of a recovery, says columnist Robert Samuelson. European governments currently spend 40 percent of revenue on social welfare programs. The US spends a third of its income similarly. Even though these programs have become cherished, they may nonetheless prove too expensive. 

What's the Big Idea?

Samuelson compares our current situation to that which preceded the Great Depression, though he is not convinced by all the alleged parallels. Unlike the 1920s, for example, we do not face a global depression thanks to the growth of BRIC countries. To an extent, however, we do face the same exhaustion of economic policy in engineering a recovery. And ultimately, social safety nets at their current levels depend on, “favorable economics and demographics—and both have moved adversely”. These are now deeply ingrained programs, he says, so any recovery will be slow. 

Photo credit: shutterstock.com

 

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