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?