The big fiscal debate in the United States is whether the United States should become a European-style welfare state, which is something that automatically will happen over the next few decades in the absence of genuine entitlement reform.
Some people even want to accelerate this process.
My response is usually to ask why the United States should copy Europe when there is a wealth of evidence that living standards are substantially lower on that side of the Atlantic Ocean.
Not only are living standards lower, but there is also lots of evidence that Europe is suffering from anemic growth.
Which means the gap in living standards is getting wider every year.
At the risk of understatement, copying European fiscal policy seems like a big mistake.
If you’re still not convinced, here’s some more evidence. In his column for the U.K.-based Financial Times, Gideon Rachman compares the U.S. economy to what’s happening in Europe.
The US economy is now considerably richer and more dynamic than the EU or Britain — and the gap is growing. …In 2008, the EU and the US economies were roughly the same size. But since the global financial crisis, their economic fortunes have dramatically diverged. As Jeremy Shapiro and Jana Puglierin of the European Council on Foreign Relations point out: “In 2008 the EU’s economy was somewhat larger than America’s: $16.2tn versus $14.7tn. By 2022, the US economy had grown to $25tn, whereas the EU and the UK together had only reached $19.8tn. America’s economy is now nearly one-third bigger. It is more than 50 per cent larger than the EU without the UK.” …Europe may never summon the will to reverse its inexorable decline in power, influence and wealth.
To address the final point in the above excerpt, we know the policies that would enable a European economic renaissance.
But don’t hold your breath waiting for that to happen.
There are some European nations with reasonably good overall economic policy, but only Switzerland has a good track record with regards to fiscal policy.
And all the recent evidence suggests that most European nations are increasing the fiscal burden of government (and overall economic policy also is becoming more dirigiste).
P.S. If you want to read the article Rachman cited from the European Council on Foreign Relations, click here.
P.P.S. Even better than Switzerland, European nations could copy Monaco.
