President Obama recently > remarked how programs like Social Security, Medicare, Medicaid and unemployment insurance haven't just saved millions from poverty, they've helped secure broad-based consensus that is so critical to a functioning market economy.
In reality there is no such consensus or> safety when it comes to the safety net. Trustees estimate the long-term unfunded liabilities of Social Security and Medicare at roughly $106 trillion, twice the nation s total private net worth.
Those alarming figures naturally prompt one to ask: How safe is> the safety net? The health-care system of Greece, for example, guarantees free medical care for all Greek residents and citizens.
But a government can only provide free care if the money needed to purchase it can be produced by individuals and then reapproriated. Greece is broke, meaning the recipients of that free care are now scrambling to find other alternatives.
Two weeks ago, Novo Nordisk, the leading maker of anti-diabetes insulin, announced it would stop sales in Greece after the government said it would slash payments for it by 25%. The company, which is already owed $36 million by Greece, said the cuts would prompt it to operate at a loss. While a compromised price was ultimately reached, suddenly, the life-dependent medicine of 50,000 Greek diabetics has been thrown into disarray. Does that sound safe?
A similar story for LEO Pharma, a Danish drug company, which announced it was suspending sales of a blood thinner and a psoriasis medication in response to the government cuts. We see no other solution than to withdraw some of our products from the Greek market, as a price reduction on our products of up to 37% will have severe consequences on our total business announced the company, which Greece owes $300 million.
In Spain, the generous safety net allows unemployed to receive jobless benefits for up to two years, an entitlement which has contributed to a 20% unemployment rate (40% for those under 25), the highest in the developed world.
And just this week, the French government announced plans to raise the legal retirement age from 60 to 62 and increase the years needed to qualify for benefits, inciting protests and strikes in a country where a secure retirement is seen as a right.
The U.S. s Social Security system has been anything but secure. Tax rates have risen from 1% in 1937 to 12.4% today, as has the retirement age, where private-sector workers born after 1960 must now work until age 67 to gain full benefits, which is almost certain to be pushed back again.
The point is that, unlike private savings or even a 401(k), there s no ownership of anything when it comes to the safety net. At what age you retire, the amount and frequency of your benefits, the availability of life-saving drugs, medical procedures or even education rests on a bureaucrat s whim.
In effect, the safety net is simply a promise from a politician, along with a bill you re obligated to pay regardless if that promise is ever delivered upon.
That s exactly the unraveling now underway in Europe. Can you imagine why it couldn t happen here?