November 28, 2005
Will the United States become more or less like continental Europe?
That's one way to frame the central question of domestic policy.
In Europe much higher percentages of gross domestic product are
absorbed by government; welfare state protections and restrictions
on labor markets are greater, health-care and pension provisions
are dominated by the central government. The result, say advocates
of the European model, is greater leisure and greater protection
against risk. The result, say advocates of the American model, is
economic stagnation and high unemployment. Over the last 25 years,
the number of jobs has increased by 57 million in the United States.
The figure for Europe is 4 million. Unemployment is around 5 percent
in the United States. In France and Germany it tops 10 percent.
numbers, Americans, through the workings of the political marketplace,
are not likely to choose the European model. But certain features
of our society -- the aging of our population, the increasing
percentage of gdp any affluent society will spend on health care
-- move us in a European direction, unless some effort is made
to counter that trend. One question to ask, as we approach the
end of the fifth year of the Bush administration, is to what extent
it has countered that trend.
The Bush tax cuts have reduced government's share of gdp, but
they are temporary, and Congress has just balked at extending
them. One reason is that the Republican Congress has not held
down spending correspondingly. Another is that Democrats no longer
see political risk in raising taxes -- it was not a liability
in the 2005 Virginia election, for example. Yet Democrats have
a political interest in preventing the Alternative Minimum Tax
from becoming the norm for high-income families in Blue states.
This is an issue that will be fought out in continuing trench
Democrats' unanimous opposition, the qualms of House Republicans
and the response to Hurricane Katrina have combined to defeat
George W. Bush's attempt to introduce individual investment accounts
to Social Security. The result is that, as the number of elderly
grows, an increasing percentage of gdp will have to go to public
pensions: We go some distance toward Europe. Democrats today like
that result, and Republicans are prepared to live with it. But
when Bill Clinton was president, he was on the verge to backing
some investment component in Social Security in 1999. The political
stars were in alignment -- lame duck Democratic president, Republican
Congress. But Clinton drew back, in deference to the liberal Democrats
who backed him staunchly during impeachment. A chance to get off
the European trajectory was missed, perhaps for a generation.
pensions are another matter. Hugely generous, European-style private
pension plans are being taken over by government and cut back
as airlines, steel companies and auto supplier Delphi have gone
into bankrupty; General Motors may follow. But the private sector
as a whole has moved decisively away from guaranteed, company-financed
defined benefit pensions to employee-controlled defined contribution
pensions. Here we don't seem to be going Europe's way.
-- The key here is that we do not have one health care finance
system, but many. That's why the architects of the Clinton health-care
plan were unable to produce a politically acceptable one-size-fits-all
plan in 1993-94. The Bush administration has increased government
spending vastly with its Medicare prescription drug plan, but
it has also introduced and promoted market-based mechanisms, like
health-savings accounts, which give individuals incentives to
hold down unnecessary costs. These have been fought by Democrats
who want government provision, in which costs will be held down,
if at all, by bureaucratic ukase. Understanding how this battle
is going requires a knowledge of how our many health-care finance
systems are operating -- something beyond my pay grade. We may
be moving toward the European model in some ways and away from
it in others.
-- The Bush administration came into office with plans to get
us off the European trajectory, and has had partial success. At
the moment, it seems inclined to let the Republican Congress set
the course on domestic policy, which means letting the workings
of regulated private markets in pensions and health care determine
our direction. Democrats would like to move us some distance toward
Europe, but how far they neither say nor, so far as I can tell,
know. The Bush years have not produced a crisp decision to get
off the European trajectory. But they have produced some significant
movement in that direction, notwithstanding narrow Republican
congressional majorities and harsh partisan divisions.