Just as the collapse of communism showed that socialism (the second way) does not work, should Greece and other welfare states (the third way) collapse, is that not proof that social democracy also does not work?
I think that we are seeing a very slow historical progression in the narrative of the justifiability of state revenues and outlays. At the height of socialism's dogmatic power, people accepted almost unquestioningly that common property was more just than private property. Therefore, making all property common would create the most just society. This resulted in the emergence of States with the power to implement naked total confiscation of all property under their control. But this idea has very little currency today in most parts of the world. Instead, the idea that has emerged in its place is that society needs the government to tax us and spend the revenues on certain things to keep things running efficiently. But the government's right to tax and spend is at least subject to popular sentiment (unlike socialism, in which the State has carte blanche to seize all property and use it as it sees fit).
The carrot and stick have been used by politicians to dupe the public into accepting more and more onerous taxes. "Pay us more taxes and we'll guarantee your retirement" "Pay us more taxes and we'll see to it that your medical bills are paid in your old age." "Pay us more taxes and we'll make sure you have health insurance." etc. But the government would not make such deals with the public, in the first place, if it did not believe that it would garner more total revenues (and more total expenditures on its interests instead of the interests of the public). This progression has been ongoing for about a century and a half through the West and has begun to spread, more recently, to other countries, as well. All of these systems have a common feature - they are Ponzi schemes. The early participants benefit at the expense of later participants. The payouts appear to be good but only because they are being subsidized by the payouts that are earmarked for later participants. The spread is eaten up by the State itself in present expenditures. What is left becomes "debt" or "IOUs" from the government to itself. What's really going on is that the government is just collecting more revenues that it otherwise could have and plans to say, "Oops, sorry!" when everything comes crashing down at some point in the future. It's easier to ask forgiveness than permission. And, besides, we're all dead in the long run. That is, these politicians won't have to clean up the mess they've made.
Every welfare scheme, social security scheme, universal healthcare scheme, and so on, is the same in this regard. They are merely excuses for increased State revenue. But as the State spreads into every aspect of life, there is a diminishing return on its efforts. Each new program succeeds in justifying less additional revenue than the last. And the weight that is shifted on to the public by each additional measure is that much greater. As this process follows its trajectory to its logical conclusion, the inevitable result is a secular resistance by the public to any and all justifications for increasing State revenues. If the State pushes the process too far, too fast, it can even result in a backlash, with the public clamoring for an end to supposedly sacrosanct welfare "entitlements".
From a high-level, what is happening in welfare states is the slow, steady, progressive destruction of capital within the country. The State seeks to employ as much of the productive energies of its subjects to its own ends as possible. But the public's energies are finite, so they can only be employed to satisfy the ends of the State (primarily, the waging of war whether foreign or domestic) or to satisfy their own ends. As the public sector expands, we each have to work harder and harder to maintain an ever-dwindling standard of living, despite the marvelous technological developments of the past century which should be making us all wealthier and wealthier for less and less labor. But, contrary to Keynesian/socialist dogma, State property does not contribute to general prosperity. Rather, as more capital is captured and diverted to the public coffers, more capital is being subjected to the tragedy of the commons. "No one cares for the property of others as well as he cares for his own property." (Milton Friedman) The more successful the government is at turning the productive capacity of its subjects to its own ends (usually with the carrot-and-stick routine), the more rapidly this capital destruction occurs.
Sooner or later, the piper will be paid. As the capital stock is depleted, it becomes more and more difficult to find any additional revenues to fund the Ponzi-schemes that pander to the economic fantasies of the public, that wealth can be had for wishing and production can occur without labor, capital and time. These paper games simply re-arrange who owns what but the results of this redistribution are not even neutral, let alone beneficial. They are destructive because they move capital out of the hands of individuals and into the public coffers where nobody has any incentive to see that the capital value is preserved. In the process that capital is inexorably and inevitably destroyed, leaving us all impoverished. The smart money leaves the system, paying whatever bribe money or exit taxes are required to escape complete loss. We are witnessing this process in motion before our very eyes.
Clayton -
"should Greece and other welfare states (the third way) collapse, is that not proof that social democracy also does not work?"
If you hire half the country to do nothing for a few years, then let them retire young on fat pensions, borrowing more money from foreign banks to pay them than YOUR WHOLE COUNTRY produces, and do it year after year after year, why shouldn't that work?
My humble blog
It's easy to refute an argument if you first misrepresent it. William Keizer
If have a friend living in france. He wants to become a theater teacher in french high schools. He will get paid 40 grand a year and full medical/holiday benefits to do this. He is not producing even 20 grand a year... I question how these people can go through life pretending that they deserve what they are payed...