The US and the EU: Different Structures, Common Problems
My most recent post on Defining Ideas addresses a question that all of wish we did not have to answer: which has made a larger hash in handling the recent economic dislocations, the US or the EU? It is a close question as there have been manifold mistakes in both camps. What is striking, however, is that we should expect some greater difference in the type of errors that we see given the very different political structures of these two major systems. The United States is a country with a strong federal government that has powerful control over foreign affairs and strong central control over all aspects of domestic economic activities. It also has a number of explicit constitutional provisions that are intended to diffuse power and protect individual rights. The EU has a weak central government, relatively speaking , in economic affairs, where much of the regulation of internal activities is left to the decisions of the member states. It has few constitutional protections of private rights, and leaves virtually all military issues in the hands of the member states, with no power over that question in Brussels.
One might expect that these differences could generate real differences in the operation of the two systems, but here they run neck in neck for futility. The explanation lies in the dominant ideology that animates both governments.
First, labor. In both the EU and the US there is a deep suspicion of voluntary markets, especially on labor law issues. The EU does worse on this score than the US, but our nation is working over time to displace voluntary labor contracts with strong union protection and major limitations on freedom over the power to hire and fire, and on such matters as the minimum wage and family leaves. The Europeans have long been in that camp, with more disastrous consequences.
Second, taxation and redistribution. In both systems, the view that taxes should be used to provide for public goods that markets cannot supply has become almost quaint. The dominant view is that the systems of public expenditures and taxation should be used for largely redistributive purposes that can easily overshoot their market. The taxation stifles private development. The stimulus often substitutes an inefficient expenditure for more efficient ones. Yet in the midst of failure, there is a redoubling of the effort to use the macroeconomic tools when what is needed is some serious microeconomic reforms in labor (and other markets). Doubling down on error has kept economic growth at a standstill. The situation will only get better, I fear, from economic bed rest—that is, from the inability of both governments to do dumb things, which gives the economy a chance to adjust to the regulations in question. The failure of the Obama jobs bill in implementing its worst protectionist features dealing with both foreign trade and unions is one example of an effective stimulus program. How ironic that the President may gain reelection because the partial setbacks in his economic program have created the gentle economic upturn that may be sufficient to lift him over the top.