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.
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Comments:
Mar '11
Re: The US and the EU: Different Structures, Common Problems
Strong federal government?
Oh, and Mr Obama and the Democrats ignore the constitution and individual rights.
Next question?
Jul '10
Re: The US and the EU: Different Structures, Common Problems
Aside from that, Mrs. Lincoln, how did you find the play?
I'm sure that a Romney Administration remisorganizing 310 million people's health care from that cute little White House will make the booboo all better.
Are we sure the first 400 people in the Boston phone directory are otherwise committed this cycle?
Oct '11
Re: The US and the EU: Different Structures, Common Problems
"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"
See the WSJ today regarding the Labor Department's proposed new rules for hiring quotas for disabled workers.
Jul '11
Re: The US and the EU: Different Structures, Common Problems
We have perhaps 20 years before economic collapse here. No one has the stomach to deal with the issues. When the crisis hits, the statists will be the dominant force and control the reaction to the crisis, ensuring our permanent economic doom. Get your popcorn folks. The EU collapses first and it will be good theater.
Re: The US and the EU: Different Structures, Common Problems
Doubling down is key. Just when you think they've learned something about over spending for no results, they double down and do it again.
Nov '10
Re: The US and the EU: Different Structures, Common Problems
Sort of along these lines, I'd be curious to get anyone's comments or denunciations regarding Paul Krugman's most recent article propounding the thesis that the welfare state is not at all to blame for Europe's economic woes. (His comment about Sweden seems rather a howler, since, from what I gather, the country has undergone not insignificant liberalization of its economy in the last decade or so).
Feb '12
Re: The US and the EU: Different Structures, Common Problems
The premise of Dr Epstein's post is that both Europe and the US are equally in a mess and then offers reasons. The premise is not quite right though. Parts of Europe are doing just fine. Unemployment is only 5.5% in Germany, the economic engine of Europe, compared to 8.5% in the US. (See the OECD unemployment statistics using a harmonized definition, here.) It is less than 5% in places like Netherlands and Austria. In other parts of Europe, like Spain, Italy etc, unemployment is much higher. Yet, broadly speaking, most of the European countries have fairly highly regulated labor markets and high levels of redistribution. So it is unlikely those factors can explain the big differences in unemployment within Europe, or between Germany and the US.
I have great respect for Dr. Epstein's body of work. But this post and the Defining Ideas piece on which it is based, which contain not a single reference to any economic facts or data, are examples of the sort of purely ideological arguments that conservatives will need to get far beyond if we are to have any hope of combating the likes of Krugman.
May '10
Re: The US and the EU: Different Structures, Common Problems
Richard, The EU does not have weak control over the economy. Individual Govt.s play a huge role in their markets, and the EU has a lot of power with those governments - look at the Italian and Greek PMs.
The Obama administration is philosophically in lock step with the European elites - and have made huge progress in coming together in the last few years. Both the EU/ECB and the Fed have succeeded in creating a fundamental control role for their financial industries. Essentially finance absolutely requires central bang largess and so will largely fall into line. Crony capitalism is pervasive in both systems. I would put to you that there are many more similarities than the opposite.
Doc Jay, I hope you are right but think you to be wildly optimistic in you doom & gloom time frame. I believe it will come much sooner. I also do not believe that the EU will be the first to implode. thats not to say there won't be serious issues, trials and tribulations. The Union will survive but probably in somewhat different form. I would guestimate Japan for the big bang that really gets things moving.
Oct '10
Re: The US and the EU: Different Structures, Common Problems
For well over 100 years the "Progressive" movement has used existing governments, having a history and a constitutional basis, as the vehicle to gain their own objectives. Doubtful, many progressives believe that theirs is a vision of a humanity led by those who can best secure a prosperous and happy future.
Their willingness to entrust power over their own lives into the hands of others has always betrayed a naivete that defies rational understanding. One can only understand it by accepting G.K. Chesterton's aphorism; "When people stop believing in God, they don't believe in nothing — they believe in anything."
Progressivism is the application of this truth. The Enlightenment produced a skepticism of the Creator God's existence that had profound implications. We are now seeing the culmination of that skepticism.
Richard is dealing with the pathological outworkings of that belief system, leaving out the actual deliberateness of the movement. Marx, with communism, and Hitler with Nazism, both worked towards the progressive finale, but neither one recognized that he was a part of a larger zeitgeist held by much of the population of the Western world.
We are about to see the climax, and it's bad.