Dan Gardner is the New York Times best-selling author of Risk, Future Babble, Superforecasting (co-authored with Philip E. Tetlock), and How Big Things Get Done (co-authored with Bent Flyvbjerg). His books have been published in 26 countries and 20 languages. Prior to becoming an author, Gardner was an award-winning investigative journalist. More >

The Conservatives' "Welfare Queen": Europe

The Conservatives have found their Welfare Queen. Her name is Europe. The original Welfare Queen, you will recall, was a stock character in Ronald Reagan's speeches. "There's a woman in Chicago," Reagan said in 1976. "She has 80 names, 30 addresses, 12 Social Security cards and is collecting veterans' benefits on four non-existing deceased husbands. - Her tax-free cash income alone is over $150,000." She drives a pink Cadillac. Reagan didn't name the woman and reporters couldn't find anyone who matched his remarkably precise and vivid description. But Reagan kept telling the story, over and over, for years. So did his supporters. Millions of people were convinced there really was a Welfare Queen and she became the symbol of government social programs that allow deadbeats and bums to rip off hard-working taxpayers. Of course, today's deadbeats and bums drive Peugeots. Europeans "have taxed to the max, borrowed to the brink, and are seeking a bailout to continue spending what they do not have," Conservative MP Pierre Poilievre fumed in the House of Commons. "They will not get it from Canada." On June 7, when Poilievre spoke those words, Spain's banks teetered at the cliff's edge and the International Monetary Fund was soliciting funds for a possible bailout. Every developed nation agreed to kick in. Only Canada and the United States refused. There were reasonable arguments to be made against contributing, but the Conservatives did not make them. Instead, they launched a calculated rhetorical offensive. Europe would be their Welfare Queen. "The indulgence of one becomes the burden of another through excessive taxation," Poilievre fulminated. "The excess of one generation becomes the yoke of the next through government borrowing. The profligacy of one nation becomes the hardship of another through international bailout. Everybody takes, nobody makes, work does not pay, indulgence does not cost, money is free and money is worthless. Such is the sumptuous Euro welfare state that has led nine euro currency countries to be downgraded. - The NDP's policies have led to the kinds of consequences we see in Europe. Canada acted responsibly with low-debt, low-tax and low-cost government. That is why we are not in that situation. Canadian dollars will stay in the Canadian economy to create Canadian jobs." Stephen Harper says "nein!" to European deadbeats and bums! Vote Conservative! As a domestic political tactic, this is probably as smart and effective as Reagan's Welfare Queen fabulation. It's about as accurate, too. "Profligacy is not the problem" was the headline on a lengthy examination of Europe's financial woes published in The Economist. Ask almost any informed observer and you will hear some variation on that statement. The causes of the crisis are complex, and while debt-financed government spending may have contributed around the margins, in a few countries, it is not the full story, nor even the main story. "The cause of the euro crisis is not primarily profligate fiscal policies by the countries principally affected," said Edwin Truman, a former high-ranking economist with the United States Treasury, in a speech earlier this year. "Look at the data." Good advice. Using IMF figures, let's look at "general government gross debt" the year before the meltdown began in 2008. Canada's debt: 66.5 per cent of gross domestic product (GDP). Some European countries that had a greater debt burden: Belgium, Greece, Italy and Portugal (barely). Some European countries that had less debt than Canada: Austria, Denmark, Finland, Germany, Ireland, Netherlands, Norway, Spain, Sweden, Switzerland and the United Kingdom. (Some had dramatically less debt. Denmark's was only 34 per cent of GDP.) But then came catastrophe on Wall Street. By 2011, Canada's debt burden had risen to nearly 85 per cent of GDP. European countries with worse debt than Canada in 2011: Belgium, France, Greece, Ireland, Italy, and Portugal. European countries with a lighter debt load than Canada's: Austria, Denmark, Finland, Germany, Netherlands, Norway, Spain, Sweden, Switzerland and the United Kingdom. Already, the Conservative story is starting to look like a fairy tale. But it gets worse when we take a close look at the critical countries. Start with Spain. In 2007, its gross government debt was 36.3 per cent of GDP, compared to Canada's 66.5 per cent. Since the crisis began, Spain's debt rose to 68.5 per cent in 2011, still far lower than Canada's 84.7 per cent. It is simply fantasy to suggest that Spain is suffering for the "profligacy" of the Spanish government. In fact, when the storm struck in 2008, the Spanish government, like the Harper government, was running a small surplus. No, Spain is in trouble because a massive, privately funded real-estate bubble popped, producing an immense dead weight of private debt that threatens to pull the country's banks underwater. The story is all but identical in Ireland. With one difference: Until 2008, Ireland was the darling of North American conservatives because it had cut corporate taxes and done everything else that simple-minded free-market ideologues like Pierre Poilievre said they should do. (Conservatives seem to have forgotten that distant history, which is most convenient.) Italy and Greece are a different story, however. Both have carried very high public debt loads for many years and these debts have been a factor in their current difficulties. But that hardly is a sufficient explanation for why they are in trouble. Just consider that Japan has long had a far greater debt burden than either Italy or Greece and yet Japan is coping quite satisfactorily. Another key fact Conservatives ignore is that spending on the "sumptuous Euro welfare state" varies widely from country to country. According to OECD data, it's middling in Italy, lower in Greece, Spain, and Portugal and lowest of all in Ireland (where social spending is actually slightly less than in Canada). Germany and the other countries of northern Europe tend to be on the high end of the scale. The most "sumptuous Euro welfare state" by far is Sweden's. See the problem? The countries in trouble tend to be on the low end of social welfare spending while the big spenders are in much better shape. And that's not only relative to other European countries. From Germany north, every country has a lower debt burden than Canada and an unemployment rate roughly equal to or lower than Canada's. In some cases, the disparities are startling. In Sweden - Pierre Poilievre's Mordor - the debt burden is less than half that in Canada. But these are mere facts. They're powerless against a good story like the Welfare Queen, as Ronald Reagan understood intuitively and Stephen Harper's Conservatives have learned by experience. Expect to hear more of this drivel in the future.