It seems that every day the economic news grows more gloomy and depressing. Some of this is caused by the sensationalist mainstream media, but other times it is caused by our own unwillingness to learn from our mistakes. Though I would hope that the human species could evolve with the understanding of its own needs, sometimes I wonder if this is really the case. Currently, the political system is caught in a paralysis between two extremes, both of which are unwilling to give ground.
These two extremes can be best illustrated through the major social and economic policy debates like healthcare and financial reform. Instead of discussing in an adult fashion the intricate policy arguments at hand, the two sides resorted to middle school antics using stigmatizing labels from calling the left a socialist/Marxist/Hitler reincarnate to the right as a greedy capitalist fatcat that sees regulation as the way to a Stalinist paradise. My question is: can’t we all just get along, and possibly learn from each other?
If one were to sketch a brief history of the U.S. economy from the beginning of the 20th Century to present day, it would look something like this. In the 1900s, the American economic system was a true free market system and all was well, expect for the monopolies and political machines. Then, the progressive era came along with regulation to weed out the irregularities. Next there was The Great Society reforms and more regulation. Finally, the Reagan years brought began the process of deregulation that went all the way up to present.
On the other side of Pacific, China also saw an economic revolution. Although, instead of going from a open market system to more regulation, they started from the opposite pole and moved towards a more capitalistic system, with authoritarian variations. This begs the question, which side will dominate the global economic sphere? Black and white as this debate may seem, I think that we can meet somewhere in the middle of the centrally planned to a totally free market axis.
So, how should the U.S. proceed to navigate this alien terrain? One can start by looking at how we can adapt, and by that I mean moving slowly towards more regulation without feeling left out. My suggestion would be that the U.S. gravitates towards a Scandinavian model, which advocates a larger welfare state without total government control of the public sector. This combines the elements of close regulation with the free market elements that the U.S. citizens know and love.
Most people will complain of higher taxes and the entrepreneurial spirit sucked out of the economy. The latter at least is simply is not the case.
Robert L. Bradley Jr. and Roger Donway in the Independent Review said this, “Denmark, according to the Heritage Foundation and the Wall Street Journal’s Index of Economic Freedom (2010), has the world’s ninth freest (most capitalist) economy, even though government spending consumes more than 50 percent of gross domestic product – and much of that goes to welfare.”
Yes, there will probably be higher taxes, but my argument would be that there is a greater chance for happiness and well being with a stronger social safety net.
Nobel Prize winning economist Paul Krugman argued it this way, “Since 1980, per capita real G.D.P. — which is what matters for living standards — has risen at about the same rate in America and in the E.U. 15: 1.95 percent a year here; 1.83 percent there,” Krugman continues, “Taxes in major European nations range from 36 to 44 percent of G.D.P., compared with 28 in the United States. Universal health care is, well, universal. Social expenditure is vastly higher than it is here.”
Now, this not to say that authoritarian states cannot learn from the U.S. about how to give citizens greater social freedoms and more civil liberties. The U.S. by no means should move away from its own system of freedom. My purpose here is to demonstrate that a middle way towards a compromise is possible. I also say that it is easier for the U.S. adopt European economic principles over the Chinese authoritarian ones.
This is not to say that the European system is perfect by any means, but it should be part of the conversation. It is important to always think long-term about our problems. Defining another way for an economic system is hard. With all the social and economic problems facing this generation, it is inevitable that both sides will have to grow up and learn from one another to find the middle path.
Paul Krugman on Europe
CATO Institute on Nordic States, some pros and cons