Tag Archives: Safety net

America and Europe: Trading Places

One society is a melting pot of different cultures and constituencies, embracing a philosophy of personal responsibility and limited government. The other is a homogenous society, placing emphasis on social and governmental support systems.

Which one is America? And which one is Europe?

The conventional wisdom is that the first description defines the United States, and the second one defines the European Union. Recent events, though, have turned conventional wisdom on its ear.

All societies, of course, undergo extended periods of evolution and transition. Interestingly, the American and European cultures now appear to be engaging in a game of trading places.

Tolerating Unemployment

Last week, American investors punished their domestic equity markets for an economic employment report that under performed their expectations. Although the unemployment rate in the United States has now declined from its recent peak of 10.2% to a far more moderate 7.6%, many pundits believe that this rate remains intolerably high, and thus investors sold shares in response to the news.

And yet any job growth at all, in contrast, would undoubtedly thrill European investors. Last week, the unemployment rate in the euro zone climbed to 12%, a record high. And in nations such as Spain and Greece, as well as among young workers, the rate is more than double this level.

In the past, unemployed European workers could rely upon a sympathetic citizenry and a generous social safety net to guide their way through economic down turns. In the current era of recessionary Europe, however, such levels of social goodwill and governmental support appear to be unavailable to them.

Building The Safety Net

Consider, for instance, the European system of health care services. In Greece, the birthplace of European democracy and a core member of the euro zone, the public health system is nearing collapse. The medical crisis has become so severe, in fact, that Doctors Without Borders — a nonprofit organization that usually focuses on providing care to residents of emerging nations — has begun to deliver charitable services in the country.

On the other hand, despite a contentious and deeply controversial development and approval process, the Affordable Care Act of the United States — a.k.a. “Obama Care” — is on track to launch a national marketplace of health insurance exchanges in January 2014. Although not a universal program of medical services per se, the new American system will provide for a level of access to health coverage that will far exceed levels found in nations like Greece.

Comprehensive health care coverage in the United States … but not in the cradle of European democracy? It’s a surprising sign that the two societies are in the process of trading places.

Forming Social Cohesion

Furthermore, the economic hardships of the European Union are generating levels of social strife that haven’t been experienced since the darkest days of the Second World War. Protestors are routinely comparing German Chancellor Angela Merkel to her infamous predecessor Adolph Hitler, and her Christian Democratic Union political party to his notorious Nazi movement.

Meanwhile, back in the United States, what are demonstrators chanting on the streets of America’s great cities? Slogans in favor of universal marriage! Apparently, political support for the extension of marriage rights to gay citizens has soared among American citizens during the past decade, including among many relatively conservative demographic groups.

Half a century ago, the assassination of an American president on the streets of Dallas, Texas touched off a firestorm of racial and ethnic strife that plagued the society of the United States for three full decades. Today, Europe appears to be entering a similar period of social disunion, at the very time that American society continues to heal itself.

Choosing Priorities

In the meantime, what are the priorities facing American politicians? Are they focusing on goals and objectives that are likely to bring even greater cohesion to the nation and its citizens? Or do they intend to focus on issues that may tear the nation apart?

A brief review of the political headlines appears to indicate that the former, in fact, is true. Apparently, a bipartisan group of lawmakers is negotiating to guarantee the permanent assimilation of illegal immigrants. Meanwhile, President Obama has invited a group of Republican senators to dinner to discuss a “grand bargain” that ensures the long term stabilization and funding of Social Security, Medicare and Medicaid.

Conversely, European leaders continue to argue about the wisdom of forcing bank depositors to share the fiscal burdens of banking bailouts. And national leaders like David Cameron of Great Britain are authorizing referenda that raise the possibility of the dissolution of the European Union.

One political union is clearly a collection of socially cohesive individuals, whereas the other is (in reality) an assortment of combatively warring interests. Who could have ever predicted that the first is the United States of America, while the second is the European Union?

Income Taxation in France: The 75% Rate!

If you’ve got a business … you didn’t build that!

It was one of the most frequently quoted statements of the 2012 American Presidential campaign, and one of the most controversial as well. President Obama made the comment while describing how entrepreneurs rely on “this unbelievable American system” to build their businesses.

But presidential candidate Mitt Romney retorted that Obama’s comment was “insulting to every entrepreneur, every innovator in America.” He then dedicated an entire day of the Republican National Convention to the theme “We Built It.”

Although President Obama won his re-election campaign, this debate rages on across the globe. Just two weeks ago, for instance, the iconic French actor Gérard Depardieu protested his nation’s new 75% income tax rate by charging that politicians “think success, creation, talent and anything different should be punished.”

Then he turned in his French passport and Social Security card. And then he moved his residence to Belgium.

Trans Atlantic Similarities

Depardieu’s bombastic emigration decision triggered a wave of derision across France. Prime Minister Jean-Marc Ayrault, for instance, referred to him as “pathetic.” And the newspaper Liberation called him a “drunken, obese petit-bourgeois reactionary.”

The son of an alcoholic metal worker, Depardieu represents the very type of self-made entrepreneur that attracted the commentary of Obama and Romney, except for his French (and not American) lineage. Depardieu first arrived in Paris as a destitute teenager, and subsequently achieved prosperity as an actor, director, writer, restauranteur, vineyard owner, and global investor.

Has anything like Depardieu’s emigration decision ever occurred in the United States? On a far smaller scale, bombastic Republican radio personality Rush Limbaugh recently decamped from his New York City home to Florida, a state with no individual income tax.

Mr. Limbaugh claimed that New York’s taxation system was “punishing the achievers for the mistakes and the lack of discipline on the part of a bunch of corrupt politicians.” Governor David Paterson, though, retorted with the quip ““if I knew that (Limbaugh’s departure) would be the result … I would’ve thought about the taxes earlier.”

Trans Pacific Similarities, Too

This debate about our government’s ability to impose financial burdens on affluent citizens appears to bind societies on both sides of the Atlantic Ocean. Interestingly, it is increasingly binding societies on both sides of the Pacific Ocean as well.

This past week, for instance, China’s national legislature passed a bill that punishes children who fail to support their needy parents. The law mandates that adult children must visit their aging parents “often,” and explicitly empowers seniors to sue their children for parental neglect.

The alternative to mandated parental care, of course, is a government managed social safety net that is financed by heightened levels of taxation. But China has recently experienced its own taxation inspired protests, and thus its drive for greater parental support by children has been construed as an attempt to avoid the type of tax policy that has driven Depardieu to Belgium and Limbaugh to Florida.

The Fiscal Cliff

At the present time, American government leaders in Washington DC are spending the New Year’s holiday in a tense dispute over taxation policy. Facing a budgetary deadline of midnight on December 31st, they are striving to find a compromise that would enable American citizens to avoid the expiration of President George W. Bush’s income taxation levels and a reversion to the higher levels that were in place during the Clinton Administration.

The rancorous debate has brought the apparatus of the federal government to a standstill, and is being described as a “fiscal cliff.” But what is the primary nature of the dispute?

Well, the Democratic Party proposes to impose increases in income tax rates on individuals earning over $450,000 per year. But the Republican Party proposes to limit such increases to those earning over $360,000 per year … not very much different than the Democratic Party’s proposal!

And if they should fail to reach an agreement? What happens if America hurtles over the fiscal cliff? Well, the taxation rate on the wealthiest Americans will increase from 35.0% to 39.6%, an amount that is roughly only half of France’s 75% top rate.

The Debate Continues

There is very little chance that this global debate about the role of government will be settled in the near future. The French 75% tax rate, for instance, was recently invalidated on technical grounds, and most American pundits are predicting that any agreement reached on New Year’s Eve will be a “small deal” that fails to resolve the mammoth fiscal imbalances that threaten America’s future.

Nevertheless, there are clearly striking similarities in the public debates that are sweeping across European, North American, and Asian nations. As these debates continue into 2013, governmental leaders from the three societies may come to realize that similar challenges may necessitate common approaches.

After all, common problems are often most effectively addressed through the implementation of common solutions. As we turn the page on the new year, we may hope that our leaders will come to appreciate this message of policy solidarity.

Global Partners: An Astounding Evolution

Last week, the most astounding military integration pact in the history of Western civilization became a reality.

Hyperbole? Perhaps … and yet it’s difficult to name a treaty that has united the military defense systems of a more historic pair of rivals than France and Great Britain. For almost a millennium, these nations have waged some of humanity’s most memorable battles.

Beginning with William the Conqueror’s successful conquest of the British Isles in 1066, each nation has earned its fair share of stirring battlefield victories. In the 1400s, for instance, Joan of Arc’s spirited defense of the French homeland was matched against Henry V’s stirring victory at Agincourt; Joan was later canonized by a grateful Catholic Church, and Henry V was later immortalized by an admiring William Shakespeare. More recently, during the 1800s, the French emperor Napoleon conquered much of Europe, only to be defeated by the Duke of Wellington at Waterloo.

Although Britain and France later became allies during the 20th century, and eventually agreed to a defense cooperation pact with the establishment of the North American Treat Organization (NATO) in 1949, this week’s agreement marks a watershed moment involving the outright integration of sovereign military forces. But why did it occur now? As is often the case with such geopolitical strategies, the timing can be explained with an analysis of global economics.

The Demise of the Safety Net

Although renowned economists like Paul Krugman have won Nobel Prizes and other plaudits by focusing on the immediate effects of the global economic crash of 2008, the long term ramifications of that fiscal catastrophe will continue to emerge for years. Many mature Western democracies, for instance, will need to roll back generous social safety net programs that were developed during the last century.

France, for instance, is still reeling from a series of devastating labor strikes over the roll back of its national retirement age from 60 to 62. Britain is bracing for the most draconian reductions in government benefits since Word War II. And in the United States, citizens have just elected an overwhelming number of conservative Republicans who oppose the institution of a costly national health care plan.

In a sense, the integration of military forces represents a similar cost reduction measure that is designed to address soaring government deficits in mature Western nations. But why are newly emerging economies in regions like southeastern Asia embracing new global partnerships as well?

Good Morning, Vietnam!

U.S. Secretary of State Hillary Clinton, for instance, has visited Vietnam twice within the past three months to extend an ongoing political, security, and defense dialogue between the two nations. A cooperative military dialogue between Vietnam and America? That represents one of the most unusual partnerships imaginable, considering the brutal war that scarred both nations in the latter half of the twentieth century.

Both Vietnam and the United States, though, now consider each other far less of a strategic threat than the rise of the muscular and confident Chinese economic colossus. The nations have thus approached each other to begin a process of reconciliation; for similar reasons, America has also reached out to India (which hosted a visit by President Obama last week) and Russia (which quite literally received a red reset button from Secretary Clinton to symbolize their new relationship).

The Franco-British pact can thus be seen as one of a series of events — albeit an unusually historic one — that have brought former rivals or enemies together to pursue new strategic partnerships. Whether for budgetary cost or trading power considerations, the motivating factors for these activities have been primarily fiscal and economic in nature.

Why Can’t We Be Friends?

Although prognostication is a discipline that is fraught with failure, one can easily predict the expansion of such efforts to develop new friendships on the foundations of old rivalries. In particular, such initiatives will likely continue to be nurtured in situations where the economic interests of former rivals clearly converge.

Russia, for instance, is seeking to diversify its customer base for its energy resources by building new pipelines away from Europe and into Asian nations that were once wary of the Soviet threat. And Turkey is increasingly reaching out to the Arab nations of the Middle East to develop new trading relationships.

When the Soviet Union fell in the late twentieth history, Johns Hopkins University professor Francis Fukuyama famously proclaimed the end of history and the permanent establishment of a relatively cohesive group of liberal democracies in all major nations across the globe. What appears to be emerging in the early twenty first century, though, is a complex web of global alliances that are based on economic interests and that evolve with changing circumstances.

Hmm. That’s the very same type of web, incidentally, as the web of alliances that is widely blamed for dragging most of our nations into the first great world war of the twentieth century.