There is a common misconception about welfare. Welfare is a term that sums up everything that is related to our incomes and the growth of it. It tells us something about the amount of goods that we can buy, and the number of outputs we have produced. It implicitly states how productive we have been, and how big our profit margins are. The more unique (technological advanced) a product the higher the margin.

There is a kind of welfare that is temporary. It brings with it the perception of welfare, though it will not be sustainable. This is the welfare we see in Spain for example. Let me elaborate. Welfare can be increased in two ways: 1.) we buy goods that are technologically advanced, and from which the proceeds will be invested in increasing this technology; 2.) we save our money, instead of spending it, and make it more attractive for companies to borrow and invest in new technologies. Both are only successful when companies are not bothered by third parties, which interfere with investment decisions (regulations and taxation).

So, when we invest capital in housing, we are not very supportive to our future welfare. We take on a loan, which drives up the interest rate. Then we spent the money on building the house. As you can imagine, building houses requires a relatively low level of technology. So, we encourage companies to be more productive in this low value added construction works. In fact, we are buying products that crowd out the production of higher value added products.

In Europe, on average, we lag behind the U.S. in our level of technology. We are ahead of the cheap labour countries like China and India. We are loosing our influence in the world. The accumulation of technology takes place somewhere else, while the making of cheap products is also not done by us. We are left with the industries that deliver medium returns. In the next phase of creative destruction (from the economist Schumpeter), the industries with medium return will become those with sub-medium returns. Furthermore the low cost countries are trying to imitate our technologies. So, the competition among medium-return producers increases and puts even more pressure on profitability and future investments.

Socialism adds to the problem, as it takes money away from the capital market, and redistributes this to people who buy products with low value added (like food, housing and leisure). It is wise for us Europeans to produce products that have a higher value added, and thus are technologically more advanced. In order to do so, we are not to spoil our savings on consuming our (sub-) medium return products, but to make a shift to investing in industries of the future. This will not be without pain in the short run, but increases definitely our survival value in the long run.