Being the son of an immigrant from Hungary, I can’t help but notice stories about that charming country with the notoriously difficult language. As it happens, Hungary has made the news for an unfortunate reason: it is near an Iceland-style economic collapse (Wall Street Journal, March 25). And its plight has a lesson for us.
Central Europe has generally been hit hard by this recession, since its nations had, to begin with, smaller and more fragile economies than the other European countries. This, in turn, was the result of having two generations of economic growth stolen from them by Soviet-imposed socialism. But Hungary is in far worse shape than the other Eastern European lands, and it is begging for help from the EU and the IMF. Its currency has plummeted in value, and although it was able to float bonds to cover its burgeoning deficit, investors stopped buying them late last year.
The cause of Hungary’s financial crisis is its runaway pension system. The numbers are astonishing: there are 3 million people receiving government pensions – in a nation of only 10 million! That’s right: 30% of the country is on government support. Pension outlays are now 10% of the entire GDP.
Why? To begin with, Hungary has a wide variety of categories of people eligible for state pensions. It gives pensions not only to retirees and the disabled, but to ordinary accident victims, military veterans, police veterans, widows, farmers, and miners. And the criteria for receiving a pension in any category are loose.
For example, the average age of people on retirement pensions is only 58. By comparison, more than 50% of Americans between 60 and 64 are working, but only 14% of Hungarians in that age range are.
The Socialist Prime Minister, Ferenc Gyurcsany, has just resigned. Whoever replaces him faces a tough challenge: cutting back the pension system is absolutely essential, but such a huge percentage of the population is on the dole that getting reforms through the legislature will be difficult. As Peter Holtzer (chairman of the panel of experts appointed by the government to study the pension crisis) put it, the ultimate problem the nation faces is that 40 years of communism have left a legacy of dependence on the state.
Our country is headed in the same direction. We, too, have retirement, disability, and healthcare obligations that are exploding at all levels of government, and 70 years of the New Deal have left us also with a mentality of dependence on the state. Our president wants to increase that dependence.