Now For the Battle of France
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  • WigWag

    In his column this morning, Paul Krugman points out an interesting fact; in Italy the public debt as a percentage of GDP is approximately 120 percent and the interest rates at which that debt needs to be serviced is sky rocketing passed seven percent. Growth prospects in Italy have been dismal for over a decade which makes markets suspicious that Italy will be able to service its debt.

    On the other hand, Japan is the developed nation in the world that has, far and away, the highest public debt. As a percentage of GDP, Japan’s public debt exceeds 200 percent. Like Italy, economic growth in Japan over the past decade has been dismal. Yet Japan is able to service its debt at rates that rarely exceed one percent. Part of this can be explained by the frugality of the Japanese people; they save with gusto. But can this explain all of the discrepency between Japan’s performance and Italy’s? I don’t think so.

    Krugman points out that one of the main differences is that Japan has control over its own monetary policy while Italy does not. His point is that had Italy, France, Ireland, Spain and Portugal never adopted the Euro they most probably would not be facing the calamity that now stares them in the face.

    Krugman’s article can be found here,

    Krugman also demolishes the argument that Professor Mead and others frequently make; that generous social spending (what Mead calls the “blue state model”) is a recipe for insolvency and economic stagnation.

    Perhaps the two nations with the most generous social safety nets in the world are Sweden and Denmark; it’s hard to think of “bluer” nations than these. Denmark’s debt as a percentage of GDP is 44 percent and Sweden’s is 40 percent. Despite the generous social programs that they offer their citizens, and despite their extremely high marginal tax rates, these nations are not only amongst the most prosperous in Europe, they also sport some of the best results in terms of economic growth. Of course one thing that these nations have that the United States and France don’t is a very tightly regulated banking sector.

    With all due respect to Professor Mead, he has a serious thesis to defend and he should defend it thoughtfully. The idea that the “blue state model” needs to evolve is a serious one and it makes perfect sense to defend that thesis on the merits.

    Clowning around with posts about how social security and Medicare represent a “war on the young” doesn’t represent a serious attempt to defend the argument that the blue state model is collapsing. Pension programs and health care programs in Sweden and Denmark are far more generous than in the United States but both of those nations manage to support those programs without incurring huge public debts that young Swedes and Danes will need to pay off. If Professor Mead wants his ideas to be taken seriously he should explain why the Swedes and Danes can do it while Americans can’t.

    Defending the idea that the “blue state model” is in extremis requires more than a post suggesting that a county in the flaming crimson state of Alabama represents proof that blue state social spending is unsupportable. None of the municipalities in Sweden or Denmark are on the verge of collapse; none of the counties in Canada are either. Yet all of these local areas provide a level of social spending far greater than Jefferson County, Alabama. How does Professor Mead explain this?

    Mead is a brilliant commentator with provocative ideas. But when it comes to posts about the war on the young or how red state calamities can be accounted for by blue state failures, he’s just phoning it in.

    He should do better.

  • Jacksonian Libertarian

    “The battle of France is the battle for Europe and the battle for Europe is the battle for the world.”
    Please, Europe has been in welfare state stagnation for a long time, and has become an increasingly smaller part of the world economy. Unless there are fundamental changes away from the welfare Blue state model, the EU will continue its decline, no matter how much financial tweaking is performed. If the Europeans are ever going to get back on the Capitalist bus, they are going to have to suffer the Blue Model meltdown. Cultures change with glacial speed, so don’t expect Europe to turn around anytime soon.
    America is the engine of mankind’s advance, not Europe. So to say that “the battle for Europe is the battle for the world” isn’t true, and hasn’t been for a very long time.
    When the TEA Party gains greater traction after the 2012 elections, America will once again be leading mankind’s advance in showing the world how to dismantle the Blue Model, and the Europeans would be wise to follow.

  • Larry, San Francisco

    So a county in red Alabama goes bankrupt mainly because of corrupt government officials. Are you are saying that the right response is to increase the size of the government and let more people feed from the trough? As to your comparisons to Sweden and northern Europe. Let’s see small countries that are ethnically homogenous and have high social solidarity and little government corruption can pull off a welfare state (although you should read for a dissenting view). Alabama is not Sweden, throwing more welfare or other government money at it, won’t make it Sweden. The money will make it like the Mezzogiorno in Italy or like Greece stagnant, corrupt and significantly poorer than it is now. If you compare Alabama and Mississippi to those areas (which it more closely resembles), our southern states don’t look so bad.

  • WigWag

    Thank you for the link, Larry. I followed it to the blog that you referred me to. The blogger makes the same point you do; that social capital is critical.

    Specifically the blogger says,

    “…the welfare state is not the only thing which sets Scandinavia apart. Swedes and other Scandinavians have a homogenous population with one of the world cultures best adapted to success. They have high cooperativeness, trustworthiness, work ethic, civic participation, family values and individual responsibility (Scandinavians are politically liberal but personally conservative). You notice this if you live amongst them and think about the importance of norms and culture for economic outcomes.”

    It seems to me that the abundance of social capital that characterizes the Scandinavians also characterizes Americans. Professor Mead can speak for himself; but I presume he agrees. After all, he’s written extensively about how the English speaking world is uniquely suited to thrive under a capitalistic economic system.

    While we certainly don’t have the ethnic homogeneity of the Scandinavians, the motto E pluribus Unum still characterizes our nation in a way that it does in few others.

    Americans are trustworthy; don’t you think? Americans enjoy high rates of civic participation; don’t they?

    The American work ethic stands up well when compared to most other nations in the world; doesn’t it? Americans certainly work as hard as Swedes and Danes; after all, Americans are far less likely to be paid for taking off of work for sickness and they get far less paid vacation time.

    Don’t you think American family values look quite good compared to the family values of the Danes and the Swedes? The number of out-of-wedlock births is lower in the United States, divorce rates are lower and so are abortion rates. American fertility rates are higher than they are in Sweden and Denmark and far more Americans attend religious services than Swedes or Danes do.

    My question is, how exactly can anyone claim that the Scandinavians possess the social capital that makes a welfare-state economically viable while the United States doesn’t?

    One difference is that most Scandinavians want a strong welfare state while most Americans do not. That’s fine.

    But Professor Mead’s thesis is that the “blue state model” is no longer economically viable. If he’s going to make that claim with credibility and if he’s going to make the absurd suggestion that the calamity facing Jefferson County, Alabama exemplifies the failures of the “blue state model” than he needs to explain why nations like Canada, the Netherlands, Germany, Sweden and Denmark have been able to weather the recent financial storm better than the United States has.

    If the “blue state model” is leading to calamity in the United States, how does Professor Mead explain why it’s led to prosperity in Canada and Northern Europe?

    If Professor Mead has an explanation, he hasn’t shared it with his loyal readers yet. Perhaps that’s because he’s been so busy writing about how disturbing it is that older people tend to have higher net worth’s than younger people.

    One other thing, Larry, you say,

    “So a county in red Alabama goes bankrupt mainly because of corrupt government officials.”

    But that’s not what Professor Mead said. Speaking about a bankrupt county in the Crimson State of Alabama, he remarked,

    “The Blue edifice is crumbling, and it hurts.”

    Is it the “blue edifice” that’s crumbling or it is Professor Mead’s thesis?

  • AOL power

    “Krugman also demolishes the argument that Professor Mead and others frequently make; that generous social spending (what Mead calls the “blue state model”) is a recipe for insolvency and economic stagnation.
    Perhaps the two nations with the most generous social safety nets in the world are Sweden and Denmark; it’s hard to think of “bluer” nations than these. Denmark’s debt as a percentage of GDP is 44 percent and Sweden’s is 40 percent.”

    You have to see the big picture. Social spending is or isn’t a burden depending on the social, cultural, and economic context of a society. Danish and Swedes work pretty diligently, are honest, maintain a trust culture, are relatively uncorrupt, pay their taxes, and have a sense of social cohesion and unity. So, while people do get generous benefits from the state, they also pay generously into the state. People give and take, not just take and take. Under such conditions, generous social spending policies can work.

    But Italy and Greece are different cultures. Greece is known for laziness, corruption, culure of distrust, tax evasion, nepotism, and etc. Greeks demand generous social benefits but don’t wanna pay taxes into the system and have done everything to avoid doing so.
    Also, while Swedish and Danish governments are reasonably meritocratic and hire good people and spend funds efficiently, Greek government has been run by incompetents and their cronies/relatives; needless to say, much of state funds are lost or stolen, which is why Greeks have had to keep borrowing from OTHER nations to fund their social spending.

    Swedish and Danish work, create wealth, and pay taxes; so, their social spending is paid for by themselves. Greeks, lazy and corrupt, cannot afford lavish social spending, and so they lied and cheated for the past many yrs to keep getting loans from other nations like Germany.

    Same is true of Italy. Corruption is rife, especially in the southern part of Italy. People avoid paying taxes because of culture of corruption and/or distrust of politicians and bureaucrats(who also operate, as in Greece, extensively through cronyism and nepotism, again, especially in Southern Italy). Some Northern Italians want to break away from Italy because their wealth and taxes are being bled and drained to pay for the lazy bums in the South. So, you see, there’s less unity and goodwill among Italians than among the most homogeneous, disciplined, and trust-oriented Swedes, Germans, or Danes.

    Same is true in America. Some blue state areas are prosperous because most of the people are highly educated, disciplined, intelligent, responsible, create wealth, and pay taxes. In such a community, lavish social spending is not a problem since people pay into the system and get back what they pay for from the system. There is also a shared value system that says one should work hard, pay taxes, be responsible–stay in school and not have kids out of wedlock–, and be good citizens. This is why places like Seattle and Portland do pretty well even with generous social spending.
    So, for a society to be able to afford social spending, it has to create wealth, uphold a culture of responsibility, and practice a culture of trust.

    But take a place like Latino parts of LA, almost all of Detroit, south side of Chicago, black areas of Philadelphia. You have a lot of people who have kids out of wedlock, beat up teachers, rob and steal, listen to rap music all day, cheat any chance they get, and act like leeches and louts. They don’t produce much wealth, they don’t pay much in taxes(if anything, they leech off the taxes of other communities), and they cause all sorts of social problems–and there is no culture of trust.
    Such people take away far more than they add to the system. So, governments run out of money and go into debt. And since such communities cannot generate their own wealth–what with such poor human capital–, they have keep borrowing more money to fund all the social programs. Or, they must try to funnel more tax dollars from communities that are productive.
    If you look at blue state cities, the divide between whites and blacks–or between whites and Hispanics–can be just as striking as in the Deep South. Whites pay into the system, blacks take from the system.

    Now, what I’ve said is usually forbidden because the culture of political correctness informs us that it’s ‘racist’ or ‘xenophobic’ to say that some peoples and cultures are more industrious, honest, trustworthy, and effecient than others. So, we are not supposed to notice the difference in the ‘national character’ between Germans and Italians, or between American whites and American blacks.
    But cultural differences are important. Why do Jews do so much better in school than Christian Evangelicals? Other than the fact of higher natural IQ among Ashkenazi Jews, there is the fact that Jewish culture stresses the love of education far more than many Evangelical communities down in the South that prefer the culture of hunting, race car driving, and Bible thumping.

    So, if Sweden or Denmark were to be flooded with lazy Greeks, corrupt Southern Italians, or American blacks or Mexican illegals, their system would also go under.
    Just look at California. When it had been a solidly white majority state, it produced so much wealth that it could afford generous social programs. But with so many third-rate immigrants from Mexico pushing productive whites out, it has become the most indebted and dysfunctional state in America.

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