From Welfare State to Social State: Individual Responsibility and Compassion

Abstract

In the European welfare states, we enjoy high quality health care, historically unprecedented unemployment and pension benefits, and an otherwise dense social safety net. Yet we know that we pay too high a price and cannot sustain it at its current level. First, many social security provisions are inefficient, as they give rise to moral hazard; regulations and outright central planning, such as in health care, lead to unnecessarily high costs. Second, the total cost of the social security system is higher than what we can bear: in world markets, we can no longer command prices that are generous enough to finance the welfare state, as is evidenced by the loss of jobs. Finally, we will, in the future, not be able to sustain major elements such as the pension system, since its pay-as-you-go financing is conditioned on a sizable future generation, which we, collectively, have not been willing to raise.