Matt Yglesias

Race in America and Europe

Pat Buchanan says, of white people, “America was once their country. They sense they are losing it. And they are right.” I affiliate myself with what Adam Serwer has to say about this, but it also seems like a good jumping-off point for something I’ve been meaning to write about since I came home from Europe.

There’s often a kind of conventional idea on the left that the United States is an unusually racist society. And I think there’s also often a kind of image of Europe as a place where more of the progressive agenda has been achieved than in the USA. But I think that you’ll find if you look at Europe through the eyes of the liberal agenda that while the German left has certainly been more successful than the American left at securing universal health care, it’s been much less successful at promoting a tolerant, integrated, multicultural society. And allowing for the errors implicit in making any kind of sweeping generalization, I’d say that’s pretty generally the case across Europe. This Swiss People’s Party campaign poster would, I think, make Jesse Helms blush. And I’m not even sure which of the Northern League posters from Italy is the most egregious.

In the US, in other words, racial problems have been more salient for a long time since we’ve been a racially diverse society for a long time. But by the same token, for all the problems we have with us today, we’ve made enormous progress over the years. Racial and ethnic tensions are a common problem in the world, and the United States manages diversity pretty well in comparison with other places (not just in Europe) even if we fall short in some absolute terms. Just look at Barack Obama. I think we’ll be waiting a while yet before someone of non-European ancestry is elected head of government in a European country. Denmark has some great public policy ideas, but it’s also kind of made itself into the gated community of nations in a way I don’t find particularly appealing.

At any rate, in some sense it’s probably true that white America has “lost” “its” country, but that’s a good thing. It’s everyone’s country!

Europe’s Immigration/Assimilation Problem

Schaerbeek Town Hall

Fascinating find from The Economist:

There can never be full integration of the migrants “swarming” into Brussels, according to a report by the Royal Belgian Geographical Society—at least among the current generation of adults. The immigrants are too different in their religious beliefs and customs, and their impact is too overwhelming. “When they are sufficiently numerous in a neighbourhood” they open their own hairdressing salons, grocery shops and bakeries, the report notes, not to mention “butcher’s shops where they sell meat from ritually slaughtered animals”. They have large families and cram twice the agreed number of tenants into flats, creating “deplorable” living conditions, annoying landlords and disturbing their neighbours. Perhaps “partial assimilation” may one day be achieved, it concludes, but it will be hard: the newcomers’ religion and language “do not ease any attempts at contact.”

The report in question? It dates from 1933 and describes the panic caused by Jewish immigrants from Poland, when they moved into Brussels neighbourhoods like Schaerbeek. It was recently unearthed by Anne Morelli, a professor of history of the Université Libre de Bruxelles. Prof Morelli reproduces a long extract from the report in this thoughtful essay for KVS Express, an excellent trilingual journal published by the Royal Flemish Theatre in Brussels. The report is in English on page 18 of this pdf file.

And of course you see this in the United States, too, as anti-immigration rhetoric tends to very precisely parallel what was said about the un-assimilability of Jews and Catholics before the first world war. There’s even a parallel between the very real problems associated with violent strains of Islamist ideology among European Muslim Communities and the only quite real problem of anarchist violence that was associated with U.S. immigrant communities. I assume that if Nicholas Sarkozy were to be shot and killed by a French Muslim tomorrow, we’d never here the end of talk about “Eurabia” and so forth yet Leon Czolgosz didn’t prefigure the destruction of the United States at the hands of mass wave of Polish political violence.

Tyler Cowen’s European Vacation

Discussing the contrasting vacation models of the United States (little vacation) and Europe (lots of vacation), Tyler Cowen sees a tight link to family size with the European approach fitting well with smaller families. Maybe so, but I have some doubts that there’s an actual causal relationship here. There’s quite a lot of variation between OECD countries in terms of paid leave policies. This is the mandatory number of paid vacation days in different countries (the United States is zero):

Leading the pack are Finland, France, Norway, and Sweden all of whom have birth rates that exceed the European Union average. In general, if you compare the United States to Europe you see a more statist economic model on the other side of the Atlantic going with lower birthrates. But if you look within Europe you see more statist economic models going along side the higher birthrates in France and northern Europe, while the relative-less-statist economies of southern and eastern Europe are associated with very low birthrates.

Personally, I’m more a fan of policies to introduce paid family leave than to mandate paid vacations (as I’ve said before, there’s really no such thing as a paid vacation).

European-Style Socialism is Pretty Awesome

Here’s some diavlogging with Matt Continetti in which I make the case for European-style social democracy:

Henry Farrell and Daniel Drezner also did a BHTV discussion of some related issues. I also wrote on a similar theme for the Daily Beast this week.

I did, however, want to clarify that with regard to the Daily Beast headline I don’t actually think Obama’s budget proposals are tantamount to a full-bore social democratic agenda. They move somewhat in that direction, but are still quite a bit more moderate than would-be proposals to give the United States a Northern European social model.

Learning to Love the European Welfare State

Russell Shorto has an excellent article in The New York Times Magazine about how he found himself living in the Netherlands and after at first rebelling against the high tax rate he learned to love the European welfare state:

In fairness to Europe’s critics, the Netherlands is one of the highest performing countries and things don’t look as great in Italy or Spain. Still, it’s a crucial point. The average standard of living enjoyed in the top European countries is better than the average standard of living in the United States and while we almost certainly can’t just copy Dutch practices, we can certainly learn from them and stop telling moronic scare stories.

I might add that one thing that tends to give a distorted picture of the situation is that the kind of Americans likely to travel to the Netherlands and other European countries are hardly socioeconomically representative. Shorto is writing from the perspective of a college educated professional, but the biggest contrast is probably found in the standard of living enjoyed by people in the bottom 25 percent of the wealth/income distribution.

The Cultural Contradictions of Capitalism

I’ve heard it speculated, and even done some speculating myself, that the reason “socialism” is growing in popularity is that you have so many hideously unpopular right-wingers saying the broadly popular Barack Obama is a socialist.

An alternative hypothesis is that this Amstel Light ad is leading some to conclude that socialist Europe is not quite the dystopia Mitch McConnell’s been warning about:

I’m not really an Amstel fan, but there’s no denying that Amsterdam is great. Beyond the obvious, they’ve got some very interesting early childhood policies there and delicious Indonesian food.

Conservative Anti-European Rhetoric Reflects Distinctive Southern Attitudes

The fascinating finding in this dKos polling data on people’s attitudes to various locations that frequently serve as right-wing bogeymen is to some extent obscured by the presentation of all the cross tabs. This chart I made boils down the key facts that San Francisco, New York, Europe, and even the dread France are popular among the public at large and even Republicans at large but held in low esteem specifically in the South:

Way back in his 1998 Atlantic article “The Southern Captivity of the GOP”, Christopher Caldwell was warning that “the Republicans have narrowly defined ‘values’ as the folkways of one regional subculture, and have urged their imposition on the rest of the country.”

Like most articles describing why political parties are suffering from deep, structural flaws, Caldwell’s was ultimately undermined by the basic reality that events matter. A combination of poor ballot design, a compliant Supreme Court, and America’s moronic election system put George W. Bush in the White House despite the fact that most people didn’t want him to be president. Then 9/11 changed which issues people care about and led to GOP wins in 2002 and 2004. But you do see that pattern Caldwell identified coming into play a lot nowadays. It’s not really clear why you would think that “disdain for cosmopolitan cities and Europe” should be constitutive of conservatism, but it does seem to be a widespread element of the southern worldview, and it’s increasingly been adopted as the overwhelming posture of conservatism as such.

Social Democracy as Recession Insurance

Ezra Klein channels Laura Tyson:

“Think of this from the perspective of individual citizens,” she said. “We’re the ones who are going to see a huge increase in homelessness, in people without health care, in people without unemployment benefits, and in people not getting the education they need. The Europeans are right to say that they have strong automatic stabilizers in effect. From the perspective of Americans, it’s worse for them. They’re undercapitalized, overleveraged, and they don’t have a serious safety net protecting the key things they need to worry about.”

This might, she implied, help explain why America has been so much more aggressive about countering the crisis. They are much more vulnerable to recession than the Europeans. As evidence, she brought up every economist’s favorite bugaboo: Japan’s lost decade. It was bad for growth, she argued, but not particularly devastating to individuals. “The Japanese households, in the last decade and a half, they never experienced the economy the way economists experienced it,” she said. “The economist saw the economy as in dire shape. You asked the average Japanese person if they were in dire shape, they didn’t see it that way.”

James Surowiecki makes a similar point in The New Yorker. Another issue that I think needs to be considered is the direction of political change. Political conversation in recent years in the United States has mostly been about expanding the social safety net (usually in the form of health care reform) and improving the quality of public services (usually education or infrastructure) whereas debate in Europe has predominantly been about paring back the safety net in the name of greater growth. Consequently, I think it’s difficult for European elites to pivot in the direction of additional spending no matter how bad the recession gets.

Meanwhile, it is worth keeping in mind that all the Europeans I’ve spoken to are expecting a U.S.-led or Asian-led recovery; they’re just kind of laying low and figuring that they’re well-positioned to weather the storm.

EU President’s Outburst Highlights the Need for Institutional Reform

You’ve probably heard by now some version of the story in which the President of the European Union said that American economic policy is putting us on “the road to hell”. What’s not always made clear in these accounts is that the EU Presidency is a rotating, ex-officio office. Each EU country gets a six month term during which its head of government becomes EU President. I think it’s been clear to observers for a while now that this is not an especially viable system. It sort of works when the EU Presidency is in the hands of one of the big European countries, but the office doesn’t carry enough power or legitimacy to really do anything in the hands of a small country leader.

And it’s also vulnerable to things like this. Mirek Topolanek is basically a nobody; he just lost a no-confidence vote in parliament, and though the Czech Republic is a great place to visit it’s not a particularly significant country. Its main geopolitical role is that right-wing Czech politicians tend to be much more further-right than you see in other European countries, they’re more like American or Australian right-wingers, so they can be counted on to do things like headline global warming denialist conference or say Barack Obama is leading us on a road to hell. In almost any conceivable other institutional arrangement, the person who winds up speaking for the EU would have to be someone whose point of view is much more reflective of mainstream European opinion. This probably isn’t at the top of the list of institutional reforms the EU needs, but compared to other proposals it ought to be relatively uncontroversial.

Glacial Melting May Force Redrawing of International Borders

I know people on the right who are aware that climate change is real and problematic, but who somehow don’t really feel that engaging with the denialists on their side and trying to educate people is an important thing to do. It seems like an odd point of view to me. Meanwhile, in the alps:

Melting glaciers in the Alps may prompt Italy and Switzerland to redraw their borders near the Matterhorn, according to parliamentary draft legislation being readied in Rome [...] “This draft law is born out the necessity to revise and verify the frontiers given the changes in climate and atmosphere,” Narducci said. “The 1941 convention between Italy and Switzerland established as criteria [for border revisions] the ridge [crest] of the glaciers. Following the withdrawal of the glaciers in the Alps, a new criterion has been proposed so that the new border coincides with the rock.” [...] Narducci said the same negotiation will be proposed to France and Austria.

Fortunately, boundary adjustments between Western European countries are almost certain to be handled in an amicably bureaucratic manner rather than a violent one thanks to the success in turning international relations within Europe into a rule-governed enterprise. The rest of the world, however, doesn’t have these kind of luxuries and as de-glaciation unsettles established patterns of land- and water-use we’re going to see some very serious political problems.

Commercial Republics and Public Policy

“In short,” writes David Brooks, “the United States will never be Europe. It was born as a commercial republic. It’s addicted to the pace of commercial enterprise. After periodic pauses, the country inevitably returns to its elemental nature.”

And it’s true, the United States will never be Europe. Among other things, I find it doubtful that we’re going to build any Gothic cathedrals or Versailles-style palaces over here. But at the same time, before the United States was born as a commercial republic, the Netherlands (pictured above) was a commercial republic. For that matter, Venice was a commercial republic even before that. These days, the Netherlands is a constitutional monarchy. But it’s still pretty commercial in nature. Which doesn’t stop the Netherlands from having universal health care, a robust public transit network, and relatively strong labor unions. For that matter, I don’t think anyone could deny that Dutch-derived New York City has a pretty commercial nature. And yet New York has a “European-style” brand of walkable urbanism, relatively strong labor unions, and if federal policy where made by New York’s elected officials you can bet we’d have universal health care.

Now I doubt Brooks would deny any of that. But the point is that “Europe” is a very strange and shifting signifier in the discourse of the American right.

Lack of Eurostimulus: Political or Structural?

It’s hard to visit Spain and not become alarmed about the economic situation in Europe. Certainly I became alarmed when I visited, and now Paul Krugman’s alarmed too. Of course what’s scary is all right out there in facts and figures, but walking around the streets and seeing massive discounts in every single store window as the country faces “a grinding process of wage cuts” that “will be almost inconceivably painful if, as seems all too likely, the European economy as a whole is depressed and tending toward deflation for years to come.” It’s doubly alarming because whatever you think of the Obama administration’s response to the situation, they certainly seem alarmed by it. The key European leaders, by contrast, are much more focused on the medium-term issue of regulatory reform than on short-term rescue measures.

At first glance, I agreed with Krugman that the problem here was fundamentally structural and institutional in nature. The EU has created a very integrated economic unit whose political institutions are far too puny to respond rapidly and effectively in a crisis. It’s as if we were running the modern-day United States under the Articles of Confederation. As Rick Hertzberg says, it’s conservative precepts of “states’ rights” and “small government” run amok.

More recently, I’ve started to have some doubts that this is the whole story. Krugman says that “to hear anything in America comparable to the know-nothing diatribes of Germany’s finance minister you have to listen to, well, Republicans.” Precisely because of that factor, and because Chancellor Angela Merkel is from Germany’s conservative party, I’ve heard several people mistakenly say that he’s a rightwing politician. In fact, he’s a Social Democrat—part of the national unity government in Germany is that the two most important ministries are in SPD hands, even as Merkel runs the show. The fact that Steinbruck has opinions on fiscal stimulus that would count as far right in the United States even though German political culture is generally less market-oriented than American points to a substantial difference of opinion on the merits about this sort of thing. And, indeed, though Steinbruck’s remarks about “vulgar Keynesianism” are well-known, it’s worth observing that Germany has hardly been the most stingy country on the continent in terms of fiscal stimulus. The French, who don’t shy away from state intervention in the economy, prefer to put their faith in more targeted ventures than in broad fiscal stimulus.

Meanwhile, the small European economies appear to me to be less interested in participating in a German-led coordinated stimulus than the Germans are in leading such a stimulus. Long story short, though it’s true that European institutions would make it challenging to put a Krugman-sized stimulus together, I’m not at all sure that this is the actual reason it’s not happening. In the United States, I think it’s pretty clear that were the institutional hurdles to stimulus smaller (i.e., majority rule in the Senate) the administration would have preferred somewhat more stimulus. In Europe, I think national government leaders are, except for Gordon Brown, more-or-less getting what they want.

I don’t have any real knowledge of the deep roots of this difference in political culture except to offer the customary tip ‘o the cap in the direction of German fear of hyperinflation. I would say, though, that Europe’s stronger welfare states mean that people don’t necessarily have the terror of economic downturn that exists in the United States. Recessionary conditions tend, in the U.S., to reduce inequality (the rich, having more money, stand to lose more) but cause the most intense suffering at the bottom because people slip through the cracks of our tattered safety net. In Europe, perhaps the downside risk to the working class is much less, reducing the pressure for stimulus, especially if the European business class shares the American business class’ evident (see, again, the Republican Party’s) distaste for Keynesian measures.

That said, Americans stopped paying attention to European politics on September 12, 2001 and are now waking up to find that we live in a world in which Jean-Claude Trichet rather than Ben Bernanke is arguably the world’s most important central banker. It’s also a world in which a revival in global demand probably needs to come from China rather than from a cuddly democratic ally.

Voting and Income in the U.S. and Europe

I wrote over here that “[i]n the US and in Europe, income level is fairly predictive of voting behavior.” That’s broadly true, but as Andrew Gelman pointed out to me in an email, it obscures some major differences. His book Red State, Blue State, Rich State, Poor State includes this graph summarizing international differences in the extent to which high income leads to conservative voting:

I think it’s probably better not to think too much about the Eastern Europe and Latin America cases here and limit our attention to the rich countries. As you can see, it’s generally true that in Western Europe, as in the United States, being rich seems to make you favorable to parties of the right. But there are some exceptions to this rule. And in general, the rich-poor gap is not as sharp as in the US. This is intertwined with the fact that the economic gap between rich and poor is not as large and the fact that the ideological gap between the parties is not as big. In some of these countries, though, I would be interested to know how the parties are being coded. Based on my understanding of the Swiss party system, for example, I’m not sure which party I would label as the “conservative” one—they basically seem to have one left-wing party and then three different flavors of conservative parties.

Crippling Poverty is Not Service to Family

I agree, broadly speaking, with Ross Douthat’s point that the grand economic argument between left and right is not something that you can “resolve” with “proof” or better empirical results. But I think this conclusion is garbage:

How much do you prize equality and ease of life? The more you do, the more you’ll favor a European approach to the relationship between state and society. How much do you prize voluntarism, entrepreneurship, and the value of lives oriented around service to one’s family, and to God? The more you do, the more you’ll find to like in the American arrangement. Where this debate is concerned, I’m proud to stand with Charles Murray – but I don’t think that we should labor under the false hope that scientific advances are going to tilt the argument dramatically in our direction.

Left out of here is what the right always loves to leave out of discussions of economic policy choices: interest. If you’re poor in the United States and you live in a neighborhood where poor people can afford to live, you will almost certainly be living in a neighborhood that’s much more dangerous than the neighborhoods in which poor Dutch people live. You’ll also find yourself living in a country that’s much less friendly to the interests of people who can’t afford a car than is the Netherlands. Conversely, if a European executive meets an American executive and feels a twinge of jealousy, it’s not for the American’s greater level of “entrepreneurship” it’s for the fact that the U.S. social model leaves top executives much richer than European executives. In Finland, low-end wages are higher than they are in the United States. This is great for relatively low-skill Finnish people. But it also means that there are many fewer mid-price restaurants in Helsinki than in a typical American city, which is bad for the sort of upper middle class professionals (or Americans on a trip) who are likely to patronize such restaurants.

In the US and in Europe, income level is fairly predictive of voting behavior and this is neither a coincidence nor the reflection of an abstract disagreement about the value of “voluntarism.” It reflects the fact that politics is, among other things, a concrete contest over concrete economic interests. In a broad sense, both the American and European models work quite well compared to living standards enjoyed in other parts of the world. But in comparison, the models work differently for different kinds of people because different people have different interests. I don’t think, for example, that America’s high child poverty rate reflects American preference for “service to one’s family” over “ease of life.”

Do European Labor Market Rigidities Cause Global Imbalances?

Steven Dunaway has a report for the CFR called “Global Imbalances and the Financial Crisis” which, as you can tell from the title, makes the case that global imbalances are key to understanding the crisis. He makes the case that these imbalances have been permitted to grow out of a kind of political laziness and that that trend must stop:

The United States has taken advantage of its position as the primary issuer of reserve assets to finance a growing current account deficit
during the 2000s. East Asian emerging market economies in general, and China in particular, have taken advantage of the second feature of the system. They have resisted upward pressure on their currencies and run large current account surpluses. Japan and Europe have made use of the third feature. Weaknesses in the value of the yen and the euro in the late 1990s and early 2000s contributed to the slow pace and inadequacy of structural reforms in labor and product markets, slowing economic growth and contributing to global imbalances.

I want to focus specifically on his claims about Europe. That Europe needs substantial labor market reforms is one of those things that “everyone knows.” Consequently, a tendency develops to say that substantial labor market reforms are the answer to every problem. So you’re worried about global imbalances? As far as the US and China are concerned, the story is pretty clear—unsustainable American consumption and a badly unbalanced Chinese economy. But what about Europe? Labor market reforms! But note right here that the timing is off. If I were to say “I’m thinking of a trend that came into being in the late-1990s and early 2000s but faded by the middle part of the decade” you wouldn’t say “he’s talking about global imbalances!” The growth of global imbalances doesn’t track the fluctuations of the euro at all.

And look at his own chart on page 15 of the report, which shows that current account surpluses in Europe don’t track the deficit in the United States:

I would further note that running a small current account surplus is exactly what you would expect a wealthy and rapidly aging region to do. Europe is both wealthy and rapidly aging. I’m not sure what else they’re supposed to be doing. Yes, yes, they’re supposed to be undertaking structural labor market reform. But what are they supposed to be doing about global imbalances? They seem to have things just right. It’s America and China that are out of whack.

Delving into the text:

Consumption-fueled growth in the United States fostered economic recoveries in Japan and Europe on the back of higher exports. Particularly in Europe, corporate profits rose. But problems in the structures of these countries’ economies—especially rigidities in product and labor markets—limited investment opportunities. The combination of high corporate savings and sluggish investment led to rising national savings and external surpluses (Figure 4)

Figure 4 is the bottom figure I reproduced above and, as I said, I don’t really know why you would characterize that as “rising . . . external surpluses.” I also have to say that I don’t think this “weak currency —> export-led growth —> reduced pressure for labor market reform” holds up very well to country-by-country analysis. It’s true that “Europe” has a current account surplus, but look at individual countries. These are the top ten current account surpluses in Europe:

– Germany: $254.5 billion
– Switzerland: $72.35 billion
– Norway: $64.07 billion
– Netherlands: $47.31 billion
– Sweden: $37.97 billion
– Austria: $12.03 billion
– Finland: $11.4 billion
– Luxembourg: $4.921 billion
– Denmark: $4.28 billion
– Belgium: $3.3 billion

Now note a couple of things about this list. One is that these aren’t just the top ten current account surpluses in Europe, it’s the only ten current account surpluses in Europe. And of them, two (Norway, Switzerland) aren’t in the European Union at all and a third (Sweden) doesn’t use the euro. More to the point, look who’s not on the list: France. The poster boy for European labor market regulations! Also Spain and Italy. Indeed, this list contains some of the countries with the most flexible labor markets in Europe (Netherlands, Denmark) while leaving out some of the most rigid labor markets. It’s true that Germany has inflexible labor markets and a large current account surplus, but there’s no wider pattern to that effect.

Long story short, there’s a case to be made that greater labor market flexibility in continental Europe would boost growth rates in the large continental economies. And that would be good for the world. But I don’t see any compelling reason to think this is particularly related to global imbalances.

Things Go From Bad to Worse in Spain

I probably won’t have a ton of occasion to link to individual posts simply because it’s a bit far afield from my core areas of interest, but if you ever want to get an in-depth understanding of the economic crisis unfolding in Europe, then put the newspaper down and hurry to read Edward Hugh’s posts at A Fistful of Euros.

As I was just over there recently, this post on Spain where the recession is extremely bad due to enormous dependence on tourism and the construction center (it’s the Florida of Europe) is biting employment deeply.

Missing Productivity and the Rise of Social Production

A couple of days ago, I was discussing Michael Mandel’s Fake Productivity Hypothesis. In response to this, Tyler Cowen countered with the No Profits Here Hypothesis holding that:

[T]here was some productivity growth but much of it fell outside of the usual cash and revenue-generating nexus. Maybe you will live until 83 rather than 81.5 and your pain reliever will work better. In the meantime you will read blogs and gaze upon beautiful people using your Facebook account. Those are gains to consumer surplus, but they don’t prop up the revenue-generating sectors of the economy as one might have expected.

Good examples of this would have to include Wikipedia (which is hugely useful but doesn’t make anyone any money at all), Craigslist (which has revolutionized the way people do a lot of things but has done far more to destroy other firms’ revenue sources than to make money for itself), and much open-source software (where the absence of copyright-enforced monopoly profits make the product more useful, but less lucrative, than closed-source products). John Quiggin has been pondering the rise of social production for a while and has the following bullet points on the implications:

• If monetary returns are weakly, or even negatively correlated with the value of social production, there’s no reason to expect capital markets to do a good job in allocating resources to supporting innovation. (This point seems rather less controversial than when I made it in 2006.)

• As a corollary, it seems unlikely that large inequalities in income are beneficial to anyone except the recipients of high incomes (this issue is being discussed, in a much more abstract setting, at Crooked Timber)
• If improvements in welfare are increasingly independent of the market, it would make sense to shift resources out of market production, for example by reducing working hours. The financial crisis seems certain to produce at least a temporary drop in average hours, but the experience of the Depression and the Japanese slowdown of the 1990s suggest that the effect may be permanent.
• Creativity, broadly defined, seems likely to become more important, while markets, particularly financial markets, become less so. Firms that want to survive and prosper will have to behave quite differently from the way the did in the past. Google is an obvious example of a firm that is trying to do this, if not always succeeding.

I see two clear areas where the rubber may hit the road on this. One is in terms of working hours. Consider this chart:

Clearly, we’re going to be able to produce more market-value of stuff than the barely-working Dutch are. At the same time, if you visit the Netherlands it’s not as if people are starving in the street. They have plenty of stuff. And, obviously, they have more free time. That can be nice in its own terms, or it might just mean more washing dishes by hand. But in the brave new digital world where it’s possible to engage in endeavors that are useful to other people on a pretty large scale on a hobbyist basis, it also means they have more time to do non-market work—write open source code, record an album and have people download it on BitTorrent, improve Wikipedia entries, etc. Obviously, you couldn’t base an entire economy on this kind of thing, since you can’t produce any tangible goods this way. But 1,357 hours per year isn’t nothing, it’s just a lot less than 1,824 hours per years. And these days, more-and-more of what people are interested in are non-tangible goods.

It’s a bit of a cliché in politics to talk about the need to move from an “industrial age economy” to an “information age economy” but there’s relatively little thought given to what this might actually entail. But it might entail a lot! Among other things, it might entail that certain economic metrics developed for the industrial age are less-relevant, and therefore that appropriate tradeoffs aren’t what they once were. A friend of mine just twittered:

tinyurl is down. these URL shorteners are a real problem: essential but not a viable business, it’s a surefire recipe for tons of lost data.

The real “problem,” though, is broader than TinyURL. And the solution may be hoping that people have free time and, if bored, will be inspired to do something useful. It’s the vision of Marx’s early thought, or Star Trek.

A potentially related issue has to do with broadband infrastructure. My understanding is that the internet is radically faster in some Asian countries, notably South Korea and Japan, than it is here in part because the state has intervened in a more heavy-handed way to ensure that this is the case. Clearly, though, South Korea and Japan are not crushing the United States economically. One potential explanation for this is that all this talk about the Internet is way off-base, and digital communication isn’t actually all that important to the modern economy. I don’t find that especially plausible. Another explanation is the Cowen/Quiggen explanation—the consumer surplus associated with digital communication is only very partially captured as profits. That will predict that absent heavy-handed government intervention, capital markets will underfund broadband infrastructure and you’ll have less of it than would be socially optimal. This is, I think, a fairly reasonable interpretation of the broadband gap.

All that’s very left-wing, but there are also less left-wing implications for fiscal stimulus and the like. Although in either case “be more like Western Europe” turns out to be the prescription.

The Need for Eurostimulus

Lest you think my concerns about Jean Claude Tricet’s too-tight monetary policy are just more left-wing lack of thrift, check out Megan McArdle agreeing with me. Meanwhile, as Felix Salmon observes the Europeans aren’t just being laggard on the monetary policy front. Laggards on monetary policy are naturally going to be laggards on fiscal policy, too. The issue, as best one can tell, is primarily Germany where they’re paranoid about inflation. German sluggishness about this is triply damaging. First, Germany is one of the world’s largest economies. Second, Germany has a huge current account surplus, so they’re much better-positioned to do stimulus than is (say) the United States. And third, Germany’s central position in Europe makes it difficult for Europe’s small countries (who collectively add up to a pretty major economy) to engage in any meaningful stimulus absent Germany leadership.

Kevin Drum remarks:

I don’t have any brilliant suggestions for getting Europe to become a little more proactive on the let’s-avoid-another-great-depression front. Just one more job for the Obama economic team to work on, I suppose. Maybe someday Treasury will actually hire someone besides Tim Geithner and we can start pushing on this a little harder than we are now.

I think it’s important to move beyond dry wit and really ring the alarm bells on this. The economy is very global, and it’s extremely difficult to see it pulling short of a depression if the European Union and Japan are twiddling their thumbs. Beyond that, if there isn’t meaningful global coordination of stimulus efforts then protectionist pressures are going to become harder-and-harder to resist in China and the United States to prevent free riding. That, in turn, would buy some short-term assistance at the cost of really hobbling the prospects for recovery down the road. Under the circumstances, it really would be nice if we had an Undersecretary of Treasury for International Affairs. In the past, the job has been held by such figures as Lawrence Summers and Timothy Geithner, so they must know some people who work in this field. And it would also be nice to see the President and the White House team more focused on this. They seem primarily interested in doing domestic political battle with the GOP over their budget proposal, which is understandable but they need to recognize that their political prospects are closely tied to the fate of the global economy and for better or for worse Trichet, Angela Merkel, Taro Aso, Nicholas Sarkozy, and Hu Jintao are more relevant to this than is Rush Limbaugh.

On a related note, a hobbyhorse of mine over the past couple of years has been the relative neglect of Europe in foreign policy conversations. There’s not that much thrilling bloodshed in Europe, but the immense wealth and productive capacity of the E.U. nations means that, in practice, the everyday lives of Americans are more impacted by political events in Europe than by events in Baghdad or Teheran.

The EU and the Crisis: Beginning of the End, or End of the Beginning

Adam Blickstein comments on tensions within the European Union over how to grapple with the economic crisis:

On the one hand I want to say the financial crisis is the first major test of the post-enlargement, modern EU and will help determine how Europe will grow institutionally in the future. But on the other hand worry that European integration may have moved too fast too quickly without a truly robust structure so that when real hard times like now hit, it threatens the stability of the entire system. In other words, while this test will tell us a great deal about the present and future of the EU, it might not only merely be a test of pan-European harmony but also reveal a destructively discordant note in the basic structure of the European project.

Whereas even up to two years ago, fuller integration was seen as mutually beneficial to both the”net givers” (Britain, France, Germany) and “net takers” (Poland, Bulgaria, Spain), that ideal has clearly been disintegrated in the current financial climate. The growing divisions in Europe and the across the board economic suffering of countries from west to east may be exposing the mutually destructive nature emanating from the lack of protective economic compartmentalization in the basic political and financial foundation of the EU. It will be interesting to see if Britain’s greater economic autonomy allows it to weather the economic storm more adroitly than their continental counterparts, despite of course ostensibly a more dire economic reality.

Nobody is talking about it, but you could definitely sketch a scenario in which the crisis leads to the breakup of the euro and a substantial collapse of the European Union and the entire European “project.” On the other hand, you can also sketch a scenario in which the reverse happens. Public opinion in most European countries has been hostile to deepening European political integration but also unwilling to try to undue European economic integration. That’s created the current scenario in which Europe needs more policy coordination than the formal institutional structure in Brussels permits. That could be a recipe for disaster. But it could also be a recipe for statecraft and the creation of a stronger, more consolidated Europe.

A big part of the history of the past 100 years has to do with the fact that the logic of the situation in Europe points to some kind of large, integrated, German-dominated political and economic unit on the continent. But other countries haven’t liked that idea, and some—primarily England and France—have been in a position to do something about it. We’re now reaching a point, however, where the bulk of the European “periphery” would probably welcome their new German overlords, insofar as the Germans are willing to do some bailing out. Similarly, I’m sure the British, would be perfectly happy to see such a thing happen with them just sitting on the sidelines. It sort of becomes a question, at this point, of whether or not the Germans really want to play leader.

Since the movie’s coming out Friday, I’ve got Watchmen on the brain and this seems to be the choice facing the Germans:

[A]ll the whores and politicians will look up and shout “Save us!” —and I’ll look down and whisper “No.” They hade a choice, all of them. They could have followed in the footsteps of good men like my father or President Truman. Decent men who believed in a day’s work for a day’s pay. Instead they followed the droppings of lechers and communists and didn’t realize that the trail led over a precipice until it was too late. Don’t tell me they didn’t have a choice. Now the whole world stands on the brink, staring down into bloody hell, all those liberals and intellectuals and smooth-talkers—and all of a sudden nobody can think of anything to say.

Well, okay, Angel Merkel almost certainly won’t start referring to her Spanish and Irish counterparts as whores or lechers. But you could see her adopting this basic attitude.

Jean-Claude Trichet and the Coming Depression

Brad DeLong wrote an excellent article several months ago titled “The Republic of the Central Banker” about the vast and often underappreciated power wielded by central bankers. His focus, naturally, is on the U.S. Federal Reserve system and its chairman. But the central banker who holds sway over the largest economic unit is no longer the Fed Chair. Rather, it’s the head of the European Central Bank, Jean Claude Trichet. His decisions have vast influence over the fate of the entire global economy. And he seems to not be doing a very difficult job, arguing confidently that there’s no risk of deflation and maintaining the ECB’s lifelong obsession with inflation.

This is a problem for Europe. But it’s a problem for us, too. American households are increasing their savings rates which is macroeconomically counterproductive in a downturn. Counterproductive but probably unavoidable considering the past years of dissavings. But the world needs someone to be reducing savings and generating demand. And many of the people in a position to do that live in Germany. But absent a central bank that appreciates the gravity of the situation and is interested in stimulating demand, it won’t happen. And all of us around the world will suffer for it. I think confidence had developed over the past few decades that whatever might come to pass, policymakers wouldn’t just repeat the blunders of the Great Depression era. But that confidence seems to some extent misplaced.

Defending Countries that Don’t Defend Themselves

Iceland Review reports that “Former Minister of Justice Björn Bjarnason described the Iceland Defense Agency as ‘remnants of times past’ and said it might even complicate defense relationships with other nations. The Coast Guard should be focused on instead.” Doug Bandow responds:

It may well be true that Iceland doesn’t have many enemies. But if the Europeans don’t believe they need defending, then isn’t this another good reason to bring home America’s troops? Certainly there’s no reason for the U.S. to defend countries which don’t bother to field militaries themselves!

This seems wrong on a number of levels. For one thing, it’s odd to leap from an observation about Iceland—population 320,000—to broad conclusions about “the Europeans.” Iceland is not only tiny, it’s not really located on the European continent, and it’s definitely not a member of the European Union. In fact, overall European defense spending is quite robust:

I don’t think anyone would characterize China or Russia as countries that “don’t believe they need defending” and Europe commits substantially more funds. Meanwhile, much as you could use Europe’s alleged unwillingness to defend itself as a reason to withdraw from our NATO commitments, the reasoning works equally well the other way around—if Europe is as well-defended as I say, then why do we need to help defend them? But if the argument works equally well either way, then it also works equally poorly. At the end of the day, the issue of the advisability of our multilateral defense relationships doesn’t hinge on this issue. I would say that the partnerships are valuable, well-worth maintaining, and that ultimately it makes more sense to see the existence of the partnerships as a reason that we could afford to be more restrained in our defense spending rather than as something that we ought to eliminate in the name of restraint.

Specifically with regard to Iceland, I think the main thing that a large country (the United States) ought to ask of a small country (Iceland) with which we have a defense relationship is precisely not to try to field a full-scale military. A full-spectrum Icelandic military would necessarily be far too small to ever be useful to the United States. And given the existence of the U.S. defense commitment, it’s also unnecessary. Far better for us to have Iceland specialize in the hopes of developing some useful capabilities. A small island nation of 320,000 people, for example, really might be able to raise a reasonably robust Coast Guard capable of performing services in a portion of the North Atlantic that are useful to a variety of nations—Ireland, the United Kingdom, Norway, Canada, the United States—whose shipping lanes pass through the area.

Indeed, in general this is the kind of thing we would do well to see more of from our European allies. More specialization, especially among the smallest NATO members.

Linda Chavez Sees Social Democracy Around the Corner

Dave Weigel gets an intriguing quote from Linda Chavez in his article on Employee Free Choice Act opponents:

“This is basically about a 40-year struggle to bring the social democratic model to America,” said Linda Chavez, the president of the Center for Equal Opportunity and President George W. Bush’s first nominee for Secretary of Labor, on Thursday. “Unfortunately, I think it’s going to succeed. Having 58 or 59 Senate seats, instead of 55 seats-that makes a big difference.”

I wish I shared Chavez’s pessimism (or optimism, or whatever you want to call it) about the right’s odds of blocking a social democratization of the United States. Even if EFCA were to pass in its strong form, which I’m not at all certain it can, I think that would still leave us with a long way to go. I suppose the rhetorical function of this sort of right-wing rhetoric about “Europeanizing” America or a “social democratic” model is to get progressive to swiftly disavow any ambitions of changing the country in a serious way. But while of course it would be foolish to try to model U.S. social policy precisely on what exists in any foreign country, I actually think it’s quite important for progressives to sketch a view on the horizon of what sort of society progressive governance is supposed to create. And I think Chavez’s nightmare scenario of a country in which the middle and working classes earn a larger share of national income, in which educational attainment is rising rather than flat, in which people are healthier and live longer, in which crime is lower and fewer children grow up in poverty isn’t such a terrible place to start.

The European Bogeyman

Hendrick Hertzberg has a great item in the latest New Yorker that touches on many points, including the right-wing’s new habit of issuing constant dire warnings that we’re about to plunge into the sort of social democratic dystopia pictured below:

After the Senate passed the stimulus, which Sean Hannity, on Fox News, denounced as “the European Socialist Act of 2009,” Mitch McConnell, the Senate Republican leader, pronounced it “a dramatic move in the direction of indeed turning America into Western Europe.” Whether or not greater income equality, better health, and fewer prisons would really be a dystopian nightmare, McConnell’s vision of “the Europeanization of America” has already come true in a way that bears directly on the question of “bipartisanship”: what might be called America’s parliamentary parties have come to resemble their disciplined European counterparts. As recently as the nineteen-sixties, for reasons of history and origins, the Democrats were a stapled-together collection of Southern reactionaries, big-city hacks, and urban and agrarian liberals; the Republicans were a jumble of troglodyte conservatives, Yankee moderates, and the odd progressive. Ideological incoherence made bipartisanship feasible. The post-civil-rights, post-Vietnam realignment, along with the gerrymandered creation of safe districts, has given us—on Capitol Hill, at least—an almost uniformly rightist G.O.P. and a somewhat less uniformly progressive array of Democrats.

In a followup item on his blog, Rick says “[t]he problem is, too many Americans have actually been to Western Europe, and it didn’t scare them.”

I’m not sure this is right. I suspect that only a distinct minority of Americans have been to Europe. What’s more, the minority of Americans who’ve been to Europe are disproportionately drawn from the upper-echelons of the U.S. income distribution. And rich people have it pretty good here in the land of the free. By contrast, take a look at a “bad” neighborhood in Helsinki and compare it to a “transitional” neighborhood in DC—to say nothing of a genuinely down-and-out American ghetto—and it’s almost laughable. But the beneficiaries of something like that aren’t going to Europe. Among what you might call America’s “traveling class,” the European alternative is going to look good to city-loving cosmopolitans (i.e., me and Rick Hertzberg) but pretty bad to your typical businessman. In other words, it just replicates the cultural divide that already exists among the American elite. The people who would be the main beneficiaries of a more social democratic policy dynamic—a couple of non-college parents who could really use some free child care and and guaranteed health care and pension, for example—are relatively unlikely to have personal experience that cuts one way or the other regards to how terrifying Europe is.

McConnell Warns of American Dystopia — More Equality, Less Poverty, Longer Life Expectancy

Just saw Mitch McConnell (R-Kentucky) on TV warning that the stimulus plan will “turn America into Western Europe.” Terrifying. I just hope we get some nice public gardens like this one I saw in Barcelona:

Western Europe has its pros and cons relative to the United States and since it represents a diversity of different policy environments it doesn’t even really make sense to talk about adopting “European” policies. Still, it strikes me as odd that conservatives seem so convinced that a set of countries whose populations are healthier and longer-lived, and where dramatically fewer children grow up in poverty, is somehow obviously a dystopian nightmare. Indeed, even at the time when living standards really were clearly higher in the United States and tons of Europeans were eager to move here, the people of old continent were hardly clamoring to get into the glamorous world of Kentucky.

Here’s Amsterdam:

Beware!

Social Democracy as a Recession-Fighter

Megan McArdle surveys the scene:

We are not even close to the bottom of the job market, much less the return to the halcyon days of low single-digits. And with the contraction of the credit markets, American consumers have lost the last safety line between them and disaster.

Of course there’s always the social safety net. And one major advantage the United States has in 2009 versus 1929 is that we have a much more substantial one than we used to. But we have a much less substantial one than do most of our peer countries in the rich world. It’s never pleasant to be laid off from your job, but in Europe such layoffs won’t generally have major implications for your ability to acquire health care for yourself and your family or for your ability to pay for your children’s schooling.

That’s nice for the unemployment, of course, but beyond that it can help maintain a certain level of confidence in the future. By reducing people’s downside risk exposure, a welfare state helps better mobilize the fact that even in a recession a large majority of the population is still gainfully employed, reducing the extent to which the employed majority starts making fear-driven financial decisions. Similarly, a large welfare state acts as an “automatic stabilizer” in fiscal policy terms. Since revenues go down during a recession but social outlays go up, a large safety net ensures that fiscal stimulus will be delivered in a timely manner without all the problems of program design and sausage-making that we’re seeing in our current congressional debate.