If Only We Were More Like Europe

Another Scott Sumner gem:

Let’s say the center of power in America is in the center. In that case neither liberals nor conservatives will be able to construct the sort of society that they dream about. In frustration, they will demonize the other side, and take some extreme; and perhaps unrealistic positions. In particular, liberals will be able to indulge in the very satisfying sport of capitalism–bashing.

Now let’s assume that in Northwestern Europe (especially the Nordic countries (including Holland), but to a lesser extent the other countries north of the Alps and west of Poland) the center of the political spectrum is “liberal” as the term is defined in America. So they are successful in erecting a large welfare state. Once they achieve this success, however, they start running into problems. The heavy tax and subsidy burden starts slowing growth in the 1970s and 1980s. Unemployment rises sharply. In response they frantically cut away at all sorts of non-essential statist interventions, anti-market policies that don’t seem to have much egalitarian benefit. In particular, they do the following:

1. Adopt tax systems biased toward consumption, not capital. I believe that many of the countries in that region have no capital gains taxes. Sweden has no inheritance tax. All have lower corporate income tax rates than the U.S., often by a wide margin. And their corporate rates are falling rapidly, whereas ours is stable.

2. Institute a policy of openness toward trade and investment. Many of those countries are more open than the U.S.

3. Most importantly, privatize everything in sight. Not just Conrail, like we did. But also passenger rail, postal services, highways, water systems, air traffic control, airports. In other words exactly the sort of public services that if I told my liberal friends should be privatized, they would call me a reactionary. Indeed our Hollywood movies actually demonize those who favor such policies. The new Bond movie replaces SPECTRE with an evil businessman who wants to privatize water distribution in Bolivia.

4. Improve education through school vouchers programs, as Holland has done, and Sweden has begun to do.

5. Encourage saving (to offset the disincentives to save in a welfare state) through fully-funded private social security accounts.

What would a responsible American liberalism look like? In my view it should look a lot like a country such as Singapore, except with much higher marginal tax rates on high levels of labor income. (This obviously refers only to economic policy. I’m not for petty authoritarianism.) But at the very least it should look a lot more like Denmark, which excluding size of government is arguably the most free market country on earth.

What would a responsible American liberal press look like? At a minimum it would not use venues like the NYT editorial pages to constantly bash privatization, deregulation, and tax cuts for coupon clippers, at the same time it exalts the Northwest European model as near ideal. Even better it would not engage in fantasies such as that an expensive welfare state could be erected here with taxes on the rich and by squeezing out money from drug companies and insurance companies.

If the above are examples of the much ballyhooed social democracy, then all I can say is: if only we were more like Europe.