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As usual, Walter Russell Mead is full of insight:
The rise of entitlements and transfer payments in advanced countries tends to turn national governments into passive economic spectators. The demographic decline and structural economic changes make those welfare states unsustainable and saddle advanced countries with almost incalculably large unfunded liabilities looking ahead. This means that governments have much less fiscal running room than they did twenty or even ten years ago...
The lack of "running room" has finally caught up with our economic growth. This is a problem. Mead continues:
[W]e are paying an unexpected price for decades of controlled and managed economic performance in the proliferation of moral hazard at all levels of the economy. People have come to believe that governments can and will backstop the economy. This leads them to underestimate and underprice risk, and it has contributed to the series of expensive asset price bubbles of the last twenty years. People have lived in a bubble of artificial safety based on the belief that technocratic Keynesian management of a fiat money system can deliver semi-permanent prosperity without the disorienting booms and busts that made our great-grandparents so cautious and crabbed in their thinking.
We take risks as a country because we believe that the government will "backstop the economy." This decreases the government's ability to backstop the economy. It's a terrible circle. And it's where we are.
The only way out of this is to redefine the social contract. And the only proposal to do so right now is the Republicans' budget in the House. And that has been rejected by the ruling elite in Washington who prefer instead to promote the government's unsustainable capacity for backstopping the economy.
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