Friday, November 11, 2011

Sustainable Social Democracy?

Like most boomer liberals, I came of age politically presuming that our political economy was substandard because our social safety net was pitched lower, and had more holes in it, than the safety nets in European social democracies. That progressive presumption got progressively weaker in my mind as I became more impressed by the disparity in growth rates between the American and European economies. If I was becoming less beholden to the model of European social democracy, it was less a matter of my commitment to economic equality waning than my contemplating the possibility that, over the long term, people near the bottom of the economic pyramid would end up being better off in absolute terms in a higher-growth economy. After economies across the west collapsed in 2007 and 2008 I didn't know what to think.  But my doubts about the viability of the welfare state have been exacerbated by the sovereign debt crisis in the EU.  How could they not be?

Paul Krugman is telling me, once again, that I can relax.  There’s no reason liberals can’t have their cake and eat it too. As usual, he has a point:
“It’s true that all European countries have more generous social benefits — including universal health care — and higher government spending than America does. But the nations now in crisis don’t have bigger welfare states than the nations doing well — if anything, the correlation runs the other way. Sweden, with its famously high benefits, is a star performer, one of the few countries whose G.D.P. is now higher than it was before the crisis. Meanwhile, before the crisis, “social expenditure” — spending on welfare-state programs — was lower, as a percentage of national income, in all of the nations now in trouble than in Germany, let alone Sweden.”
You can always count on Krugman for a macro-economic snapshot that vindicates liberal presumptions about the desirability and viability of the welfare state. Let’s grant that there’s currently no impressive correlation between the extensiveness of a political economy's social safety net and the level of public spending, on the one hand, and its growth rate or its ability to access debt markets on the other. Indeed, let’s concede that every symptom of welfare state instability that we’re now experiencing is the result of an avoidable public policy mistake. There’d be no sovereign debt crisis had European countries not entered a misconceived trans-national monetary regime; we wouldn't still be in the Great Recession at home had the 2009 stimulus been bigger; we can generate enough tax revenue to fund Medicare and Social Security in something like their present form without retarding economic growth if we just apply the right macro-economic theory; and etc. In fact, let’s go all the way by stipulating that all would be right with the macro-economic world if policy makers had the good sense to take Krugman's advice at every turn.

How robust is the modern welfare state if fallible elected officials answering to shifting democratic mandates and subject to all sorts of unwholesome political pressures have to thread every public policy needle to Krugman's satisfaction to avoid destabilizing crises?

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