America-as-Europe Argument Might Resonate

Posted June 26, 2012 at 1:32pm

Until about a month ago, if you put a gun to my head and made me predict this year’s election outcome, I’d have said, “Shoot.”

Now, I say “Romney.”

It’s not mainly because of lagging job growth, tightening polls, GOP super PAC money advantages or President Barack Obama’s “the private economy is doing fine” gaffe.

And it certainly is not because Mitt Romney has become a more likable candidate or has a compelling vision for the country’s future.

It’s Europe. The Eurozone’s daily flirtation with economic collapse cannot continue much longer.

And when the collapse comes — whether it’s because countries abandon the euro, there’s an unstoppable run on banks or nations default on their debts — it’s going to trigger a global recession (or worse) that will cascade into the United States.

Though Obama won’t be responsible for the decline of growth and the spike in unemployment, he’ll be blamed politically.

It seems unfair, but there will be some rough justice if Obama loses this way.

The key factors causing Europe’s crisis — huge public debts, unaffordable social welfare benefits, over-leveraged banks — also plague the United States, albeit in lesser measure.

And Obama has done little to lead this country away from Europe’s model.

To the contrary, he is on his way to doubling the national debt. He refuses to reform Medicare, Medicaid or Social Security and sought to add a huge new benefit with the 2010 health care law.

The Dodd-Frank financial services reform passed with his blessing is horrendously complicated but does not solve the basic problem of banks growing too big to fail, taking excessive risks and expecting taxpayers to bail them out.

Europe’s crisis is unfolding because Germany — the continent’s one efficient, productive large economy — does not want to endlessly prop up Greece, Italy and other countries where people do not pay taxes, where governments lie about their indebtedness and citizens expect cradle-to-grave public support.

In a similar vein, Obama says he wants to keep teachers, policemen and firemen working in cash-strapped cities and states — a worthy enough aim.

But the reality is that much of the money he’d dispense would go to entities (such as California and Illinois) that have refused to reform public employee benefit plans that represent Europe-like sinkholes.

Liberal commentators, including Princeton economist Paul Krugman of the New York Times, contend that what Europe and the U.S. need is not more “austerity” but more public spending and monetary easing to induce “growth.”

That would make sense if the spending and easing actually led to sustained growth. But the record under Obama and Ben Bernanke’s Federal Reserve suggests that both fiscal stimulus efforts and money-printing produce only “sugar highs” that don’t last.

It might make sense for Germany to launch a “Marshall Plan” to save Europe if the other European countries would reform to become more like Germany.

But France, for one, elected a new Socialist government that lowered its retirement age instead of raising it. Greece wants to loosen the terms of its bailout package without instituting wholesale financial reforms.

Similarly, it would make sense to help cities and states keep teachers and police working if they all instituted Wisconsin- or Indiana-like reforms.

And it would make sense for the federal government to launch an infrastructure-building stimulus program if it were designed as a public-private enterprise and if projects were freed (by repeal of the Davis-Bacon Act) from paying prevailing union wages.

The best recent overall analysis I’ve seen of how America needs to reform itself for a healthy future was written by Yuval Levin, editor of the journal National Affairs, in the Weekly Standard in late May.

Levin is right to say voters are anxious about their children’s prospects because they fear economic and social stagnation — a failure of the traditional American growth and opportunity machine.

The next president’s focus, he argues, should be on making America productive again by making the public sector leaner and more efficient and encouraging the private sector to innovate and grow.

The specifics include:

• Health care (including Medicare) reform based on a “premium support” model — government subsidies for people to buy their own health insurance — and tax reform that eliminates breaks and loopholes, lowers rates and encourages investment for maximum return, not tax-avoidance.

• Immigration reform that attracts highly skilled foreigners and education reform that rewards excellent teaching, makes higher education more efficient and affordable and offers apprenticeships and continuous training opportunities for the non-college-bound.

• Regulatory reform requiring Congress to approve all regulations with more than a $100 million effect on the economy and encouragement of a do-it-all energy policy, especially for exploitation of natural gas reserves.

“The problem is that America is unprepared for the future,” Levin writes, and that Obama, dedicated as he is to an old welfare-state model, “is not so much the cause of the problem as the embodiment of it.”

Levin argues that Romney has proposed some elements of the necessary reform agenda but has not come close to making the case for it.

My question would be: Does he even “get” what ails America and have a comprehensive plan for reform?