A new article from Acton Research Director Samuel Gregg published today in Acton News & Commentary. Sign up for the free, weekly email newsletter here.
A Tale of Two Europes
By Samuel Gregg
The word “crisis” is usually employed to indicate that a person or even an entire culture has reached a turning-point which demands decisions: choices that either propel those in crisis towards renewed growth or condemn them to remorseless decline.
These dynamics of crisis are especially pertinent for much of contemporary Europe. The continent’s well-documented economic problems are now forcing governments to decide between confronting deep-seated problems in their economic culture, or propping up the entitlement economies that have become unaffordable (and morally-questionable) relics in today’s global economy.
While some European governments have begun implementing long-overdue changes in the form of austerity-measures, welfare-reforms, and labor-market liberalization, the resistance is loud and fierce, as anyone who has visited France lately will attest.
No-one should be surprised by this. Such reforms clash directly with widespread expectations about employment, welfare, and the state’s economic role that have become profoundly imbedded in many European societies over the past 100 years. Yet it’s also arguable this is simply the latest bout of an on-going clash of economic ideas which goes back much further in European history than most people realize.
Certainly the contemporary controversy partly concerns the government’s role during recessions. From this standpoint, Europe (and America) is rehashing the famous dispute between the economists Friedrich von Hayek and John Maynard Keynes in the 1930s about how to respond to the Great Depression. Should we, as Hayek maintained, react by giving markets the flexibility they need to self-correct? Or do we prime the pump à la Keynes? (more…)
At MercatorNet, Sheila Liaugminas looks at the bank regulation push — enshrined in another 2,000 page document that few of the legislators behind this effort will actually read. In “Social Order on the Surface” she recalls an Acton conference where she heard this from Rev. Robert A. Sirico:
Politicians are not our leaders in a rightly ordered society, they are our followers … Not all views of culture are equal. but we can’t engage socially on our disagreements because everything becomes political … There is no legislature that can govern the human heart … A correct understanding of who the human person is is important to social ordering. Man is prior to the state. You can’t have a ‘common good’ if the good of the individual is not taken into consideration first.
“Statism is expanding in the U.S. right now under the guise of ‘the common good,’” Laugminas said. “Acton is only one institute engaging the debate about how Washington is handling the moral and ‘economic dimension of human reality,’ but we’d better pay attention.”
Advancing the “common good” behind the banner of statism has turned out to be an exercise in reckless selfishness and rapidly advancing insecurity. Where the gospel of redistribution of wealth was advertised as a way to ensure social equality, it now threatens to impoverish great masses of those who bought into the glittering promises. And promises are still being made. Recall President Obama telling Joe the Plumber that “spreading the wealth around” would be good for everybody (see video above).
Culture matters, much more so than politics. In “End of the European Siesta?,” Guy Sorman on City Journal explains why the financial fix for Europe’s debt problems are really superficial and temporary. Europe, he contends, needs to throw off the socialist ideologies — now embedded in cultural attitudes — that are at odds with its founding free market philosophy.
… the European Union is based on a free market. It was so conceived in political philosophy and in economics, and the only possible way to govern it is in accordance with such economic freedom. Yet all the national governments, even those of the right, have in fact created gigantic welfare states inspired by socialist ideology.
The fact is that, at the origins of Europe, Jean Monnet, a Cognac entrepreneur with strong American connections, concluded that European governments had never succeeded and would never succeed in making Europe a zone of peace and prosperity. He thus replaced the diplomatic engine with an economic engine: free trade and the spirit of enterprise, he envisioned, would generate “concrete areas of solidarity” that would eliminate war and poverty.
The “fatal drift” away from economic freedom, Sorman explains, inevitably led to the EU project going off the rails. Is America headed down the same path? Is the culture of free enterprise, for so long integral to what it means to be an American, now in permanent decline? More from Sorman on Europe:
Unfortunately, the national governments thought it possible to reap the economic benefits of a free Europe and the electoral delights of socialism. By “socialism,” I mean the unlimited growth of the welfare state—the accumulation of entitlements and jobs protected by the state. This de facto socialism, this sedimentation of electoral promises and acquired rights, grew in Europe at a much faster rate than did the economy or the population. It could thus only be financed by loans, which seemed risk-free, since the euro appeared “strong.” The euro’s strength drove its holders into a frenzy: suddenly, anything could be bought on credit. The result was a remarkably homogeneous indebtedness in all the countries of Europe, on the order of 100 percent of national wealth—ranging between Germany’s 91 percent and the Greeks’ 133 percent (a relatively modest difference), all reflecting a common socialist drift. Germany, Greece, Spain, and France differ less in their levels of debt or modes of administration, which are in fact quite similar, than in their debtors’ capacities to repay. All European states are run socialist-style, in contradiction with the European Union’s free-market principles. Some will be more able than others to deal with defaults, but all have drifted off course.
How shall we explain this fatal drift? The true cause lies in ideology. Socialism dominates minds across Europe, whereas liberalism—which has retained its original free-market meaning in Europe—is under attack in the academy, in the media, and among intellectuals generally. In Europe, to support the market against the state, to recommend modesty on the part of the state, is taken for an “American” perversion. And socialist ideology is sufficiently engrained that it’s almost impossible for a non-suicidal politician to win election without promising still more public “solidarity” and still less individual risk. These welfare states, through their financial cost and the erosion of ethical responsibility that they foster, have smothered economic growth in Europe. We are the continent of decline, albeit decline with solidarity.
At Public Discourse, Acton’s Research Director Samuel Gregg examines why many European governments are so hesitant to engage in much needed but painful economic reforms – especially reforms that involve diminishing the size of expansive welfare states. The causes are many, but in “Fatal Attraction: Democracy and the Welfare State,” Gregg zeroes in on a potentially damaging linkage between democratic systems of government and the growth of large welfare states that seek to provide economic security to ever increasing numbers of people. Substantive economic reform becomes extremely difficulty in these circumstances. Gregg writes:
No doubt, this reflects a disinclination of many European politicians—on the left and right—to concede that the post-war European effort to use the state to provide as much economic security as possible has encountered an immovable obstacle in the form of economic reality. Yet it is arguable—albeit highly politically incorrect to suggest—that it also reflects the workings of a potentially deadly nexus between democracy (or a certain culture of democracy) and the welfare state.
One justification for democracy is that it provides us with ways of aligning government policies with the citizenry’s requirements and of holding governments accountable when their decisions do not accord with the majority’s wishes. But what happens when some citizens begin viewing these mechanisms as a means for encouraging elected officials to use the state to provide them with whatever they want, such as apparently limitless economic security? And what happens when many elected officials believe it is their responsibility to provide the demanded security, or, more cynically, regard welfare programs as a useful tool to create constituencies that can be relied upon to vote for them?
In recent months, the European social model has been under the spotlight following Greece’s economic meltdown and the fumbling efforts of European politicians to prop up other tottering European economies. To an unprecedented extent, the post-war European model’s sustainability is being questioned. Even the New York Times has conceded something is fundamentally wrong with the model they and the American Left have been urging upon America for decades.
Western Europe’s postwar economies were shaped by an apparent concern for the economically marginalized and the desire to realize more just societies. This inspired the extensive government economic intervention, high-tax rates and generous welfare states now characterizing most contemporary European economies. After 1945, Communists and Christian Democrats alike rallied around these policies. For Marxists, it was a step toward realizing their dream. For non-Marxists, it was a way of preventing outright collectivization.
Even today, words like “solidarity” and “social justice” permeate European discussion to an extent unimaginable in the rest of the world. If you want proof, just switch on a French television or open a German newspaper. The same media regularly contrast Europe’s concern for justice with America’s economic culture. America, many Europeans will tell you, embodies terrible economic injustices in the form of “immense” wealth-disparities, “grossly inadequate” healthcare, and “savage” competition.
But while such mythologies dominate European discourse, it’s also true that Western Europe’s economic culture is characterized by a deeply unjust fracture. Modern Europe is a continent increasingly divided between what Alberto Alesina and Francesco Giavazzi called in The Future of Europe (2006) “insiders” and “outsiders”.
The “insiders” are establishment politicians of left and right, trade unions, public sector workers, politically-connected businesses, pensioners, and those (such as farmers) receiving subsidies. The “outsiders” include, among others, entrepreneurs, immigrants, and the young. Naturally the insiders do everything they can to maintain their position and marginalize outsiders’ opportunities for advancement.
So how do Europe’s insiders maintain the status quo?
Over at Public Discourse, a new article by Acton’s research director Samuel Gregg examines the deeper reasons behind the problems of the euro. In “Europe’s Monetary Sins,” Gregg points out that many of the euro’s present difficulties reflect a basic refusal of Europe’s political class to acknowledge some of the unpleasant economic realities associated with the EU’s social model, as well as a tendency to say one thing while really doing another. In short, Gregg argues that many of Europe’s economic predicaments flow from a crisis of truth, an unwillingness to recognize it, and the subsequent formulation of policy on the basis of untruths and half-truths. The most recent result of this process, Gregg says, is that the independence of the European Central Bank has been severely compromised:
Ever since its foundation in 1998, the ECB has been a whipping boy for European politicians from the left and right who argue that the ECB’s legally mandated priority of maintaining price stability has kept productivity and economic growth rates in the EU far below those of America. In reality, these problems have little to do with monetary policy and everything to do with low rates of entrepreneurship, unsustainable levels of welfare expenditure, an aversion to competition, high rates of public sector employment, and structural rigidities associated with some of the world’s most inflexible labor markets. Indeed, it is probable that the ECB’s avoidance of the low interest-rate policies adopted by the Federal Reserve in the 2000s may have made the 2008 recession in Europe more bearable than it might otherwise have been.
Against considerable political pressures, the ECB has hitherto doggedly defended its independence. All that, however, changed when the European Union decided to set up its 750-billion-euro bailout fund in early May 2010 to stabilize financial markets and rescue the holders of not only Greek government debt, but also, implicitly, the holders of any EU government debts that seemed shaky.
Witnesses said that protestors marching past the building ignored the bank employees’ cries for help and that a handful even shouted anti-capitalist slogans. [ ... ] It took a statement from President Karolos Papoulias to best sum up Greece’s dire situation and the frustration that many people are feeling with the political system. “Our country has reached the edge of the abyss,” he said. “It is everybody’s responsibility that we do not take the step toward the drop. Responsibility is proved in action, not in words. History will judge us all.”
Now we have an intelligentsia that is hooked on patron-client exchanges and mediocrity, and a political establishment whose biggest concern is keeping its piece of the pie safe. On the flipside of the same coin we have a culture of protest in which anything goes and which tries to justify every “accident,” like yesterday’s murder of three working people by a hooligan who flipped them the finger when he saw them choking on the smoke of his firebomb. Now that we have succeeded in running the country into the ground, it is time to either rise to the occasion or kneel to the developments. The deal with the IMF and the EU will bring a lot of pain to a lot of people who are not to blame for the situation. We can’t throw money at the problem because we have none.
The chief beneficiaries of the welfare state ethos are the organized interests on whose behalf most government interference with the economy is undertaken. These interests receive the lion’s share of the subsidies which, drawn from general tax revenues or imposed by government-enforced restriction of competition, are our major means for redistributing wealth. As a result, the net effect of government manipulation of the economy is negative for the poor. That is, one clear result of the expansive activism of our expanded government is a lower living stand for the poor.
News reports today on the Greek debt crisis are packed with scary terms like “implosion” and “financial doomsday” and “ebola” and “contagion.” The anxiety has ratcheted up considerably this week, and not just for EU heads of state but also for President Obama. He should be worried. As I pointed out in a previous post, “Die Hard — The Welfare State,” the United States awaits its own day of reckoning for the sins of mounting government debt, a bloated public sector and a lack of political will — by both Democrats and Republicans — to come to grips with the problem. The day of reckoning will come. The only question is when. A roundup:
The financial figures are devastating and, even by the most optimistic forecasts, repaying our debt will be extremely hard. The EU and the IMF are willing to lend us money for 2010, but hesitate to make any commitment for the years to come – first because they also have domestic issues and, second, because they fear they may need an additional 450 billion euros for Spain or Portugal. Moreover, Greek politicians have made a very bad impression on them, so they think that even if Greece were to sign an EU-IMF deal, the risks are high. They see no social and political consensus down the road, nor any sign of professionalism or political will among the political elite.
Edmund Conway, economics editor of The Telegraph, looks at a new analysis of government debt by Dylan Grice of Societe Generale. The charts are eye popping. It’s not just a Greek, or EU problem. It’s also something that Americans must come to grips with, and soon. You might call it a moral issue — too long living beyond our means.
Conway quotes Grice, and then sums up:
“The most chilling similarity between the Greeks and everyone else isn’t in the charts above showing that their various debt metrics are in the same ballpark, it’s in the realisation that we too are subject to the same iron-clad laws of budget sustainability and that we too are as helplessly vulnerable to any reassessment of sovereign risk by the famously fickle Mr Market.”
In the end, all Western nations face a long-term dilemma (which has been the case since before the crisis, but is more front-and-centre of everyone’s minds now). Over the past 50 years we have committed ourselves to massive welfare states which our economies are simply not generating enough cash to finance.
Sign up for Acton News & Commentaryhere. This week, I contributed a piece on Jim Wallis’ new book.
This class of the very poor – those who are just on the borders of pauperism or fairly over the borders – is rapidly growing. Wealth is increasing very fast; poverty, even pauperism, is increasing still more rapidly. – Washington Gladden, Applied Christianity (1886)
For three decades, we have experienced a social engineered inequality that is really a sin – of biblical proportions. We have indeed seen class warfare, but this war has been waged by the wealthy and their political allies against the poor and the middle class. – Jim Wallis, Rediscovering Values: On Wall Street, Main Street, and Your Street (2010)
One of Jim Wallis’ long running aims at Sojourners is to cast himself as a moderate or centrist (God is not a Republican. Or a Democrat). This is howling nonsense to anyone who pays attention to his policy prescriptions or watches the progressive/liberal company he keeps. With his new book, Rediscovering Values: On Wall Street, Main Street, and Your Street (Howard Books, 2010), Wallis drops all pretense to holding the center as he piles on with the horde of religious left activists and others now demonizing Wall Street. The book, a clip-file pastiche of easy eat-the-rich moralizing, relentlessly pushes for the sort of collectivist policies that even the Obama administration is reluctant to take on directly (to Wallis’ chagrin).
The Wallis publicity machine casts him in the tradition of the Hebrew prophets with their fiery visions and passion for the social application of faith. Alas, he can only scold: “It’s clear that Wall Street has learned nothing, wants to learn nothing, and instead just wants to go back to the same old behaviors.”
With this new book, Wallis has ventured into the nation’s economic life with his cheap outrage. There, he has exposed himself as utterly ignorant of even the most basic economic principles. Not even a disinterested undergraduate halfway through a compulsory Econ 101 would make these mistakes. Case in point:
The market’s fear of scarcity must be replaced with the abundance of the loving God. And the first commandment of the Market: “There is never enough,” must be replaced by the dictum of God’s economy: namely, there is enough, if we share it.
Well, no, wrong. You cannot wishscarcity away. It is one of the most fundamental realities of economic life, involving everything from raw materials to money to the very time we have on God’s green earth. Still less can you wish away scarcity with shallow sentiment and decree that all of humanity will have enough (what is enough?) if we follow the “dictum” of “God’s economy.” Scarcity is not a Republican or a Democrat issue, you might say.
A good back-and-forth at in character on health care reform between Karen Davenport and Heather R. Higgins. Question: Will the implementation of the health-care bill passed by Congress improve the character of our country?
Davenport says “yes”:
While we cede some rights, we also assume new responsibilities. First, we assume the responsibility to obtain and maintain coverage for ourselves, and acknowledge that we cannot wait to purchase health insurance until we are sick. We also take on greater responsibility for others, particularly by helping individuals and families purchase coverage if they cannot afford to do so on their own.
Higgins says “no”:
In contrast, the health bill is premised on the idea that people should expect to be taken care of. This law is more aligned with the sentiments of a European social democracy where hard work is devalued and income inequalities condemned. In the health bill, personal freedom and individual choice are replaced with bureaucratic dictates, one-size-fits-all parameters, and the removal of responsibility and consequence from individuals. Citizens are infantilized as wards of the state. But that’s only the beginning of the adverse consequence that this travesty will have on our national character.