Class struggle and the welfare state

Sometimes, SOYMB comes across general newspaper articles such as this one from the business section of the Christian Science Monitor that may not be the 100% socialist case but still have illuminating insights into society.

“I think Marx was basically right. History is largely a class struggle,” said another friend last night.

“Back in the 18th century, people wondered how society could function without divinely-appointed kings to hold things together. But then came the American Revolution and the French Revolution…and then they booted out Napoleon…and turned kings and queens into celebrities. The ruling classes realized they had to find a way to keep a lid on the public.

“Bismarck created the welfare state. He figured he could buy off the public. As long as they were getting money from the state, people wouldn’t revolt.

“There was a long boom in the 19th century. Everything seemed to be going along smoothly. But then came WWI and the Bolshevik uprising; the rich saw that socialism was real…and dangerous. They knew they needed to come to terms with it…to protect themselves – or they’d be ruined.

“Essentially, the deal that Bismarck struck was the one that caught on and endured. The rich agreed to pay a lot in taxes so that the poor would stay in their places. Then, every time this new order was threatened – in England after WWI, in France before and after WWII, in America in the 1960s – governments just gave out more money. They spent money on guns AND butter…military and social welfare programs.

“In France after WWII a quarter of the population voted with the communist party. And the communists were armed. But the government bought them off with more social spending.

“Then they started to run out of money. They tried taxing the wealthy classes even up to 100% of their income. In Britain and Scandinavia, the marginal rate went up above 100%. But that just depressed the state’s revenue. Kennedy proved that you could lower tax rates and still squeeze more money from the wealthy. Reagan tried that too, but the results were less positive. Art Laffer showed that you had to find the optimal tax rate…and once you had it, you could raise it or lower it, it didn’t matter. Either way, you got less revenue.

“But the ruling elites just kept making more and more promises. That was how they were able to hold onto power. And now they can’t make more promises. The welfare state has reached the end of the road.”