Will Our Economy Turn Into Hungarian Goulash?

A recent article on WSJ.com by Charles Forelle entitled “Pension Glut Lies at Heart of Crisis Wracking Hungary” foreshadows the long-term negative consequences of entitlement spending and government social programs, both on the rise in the good 'ol USA even beyond the financial bailouts.

Although Hungary has prospered immensely since Communism fell, many holdover Soviet-era welfare programs have created a huge financial obligation on the state, with over three million pensioners now collecting benefits in a country of just 10 million people.

"Besides writing checks for regular retirees,” Forelle explains, “the government gives special benefits to accident victims, the disabled, military and police veterans, mayors, widows, farmers, miners and “excellent and recognized” artists.” Pensioners can receive up to 70% of their wages by not working…so what's the incentive to actually go out and get a job?

The upshot is that the average Hungarian retires at age 58 and unlike the majority of older Americans, virtually nobody over the age of 60 in Hungary actually works. As a result, its economy is in shambles: The annual tab for pensions now surpasses 10% of its gross domestic product, it has already received a $25 billion loan from the IMF and the value of its currency, the forint, has fallen some 20% against the dollar this year. (For those interested in trading the forint, WisdomTree has filed for an ETF to track the currency. No word on when it is likely to start trading.)

Ray Kroc began developing McDonald's (MCD) into the empire it is today when he was 59 years old, an age when most Hungarian men are quitting their jobs rather than creating new ones. Hungary’s entitlement state, like all welfare programs, not only bankrupts the public, but essentially castrates them as well, incentivizing otherwise industrious men to abandon their brains rather than use them.

Last month we told you about the Nasdaq Government Relief Index. Launched on Jan. 5 of this year, the index started at 1000 and now rests near 685, meaning that even with the market’s historic gain, which included the best 10-day stretch since 1938, the index of bailed-out companies is still down 31% in just the last quarter alone.

Ethisphere TARP Index:

In millions of U.S. dollars.
Source: Ethisphere.com

Another measure shows an equally depressing return. Created by the Ethisphere Institute, a nonpartisan research think tank, the Ethisphere TARP Index tracks the government's return on investment for the capital purchase portion of its Troubled Asset Relief Program.

From the original investment principal of $306 billion, the value has dropped approximately $103 billion as of last week. Citigroup (C) alone accounts for over $34 billion of that total. To wit, each taxpaying household has lost $963 of its investment.

As we are totaling up the losses from the businesses the government has recently bought, let’s not overlook the ones it has owned. It was reported this week that the U.S. Postal Service, which enjoys a total monopoly on first-class mail, is exempt from state and federal taxes and has never reduced the price of its services, will run out of money altogether without aid. In an attempt to save cash, it is considering eliminating Saturday delivery altogether.

New York’s Metropolitan Transportation Authority, the nation’s largest mass transit system, is hiking prices and slashing service to close a $1.2 billion hole in the budget. Subway fares will rise 25%.

The case being made now in Washington is that the government lacked oversight of these errant financial institutions—but nothing could be further from the truth. The government has owned and operated them outright for generations. So as we debate further expanding government’s role as asset allocator and business operator, please consider its abhorrent track record in these tasks throughout history.

Those in the Midwest are invited to join me at the Sammies, a contest held by the Sam Adams Alliance which recognize bloggers, filmmakers and other government watchdogs committed to advancing individual rights and economic liberty. Prize money ($40,000) will be awarded to activists who live by Sam Adams' notion that “all might be free if they valued freedom, and defended it as they ought.”

The event takes places on April 18 in the Chicago suburbs. Also appearing will be best-selling author Michelle Malkin, Stephen Moore and John Fund, both of the Wall Street Journal, and radio talk show host Vicki McKenna, among others. Hope to see you there!