"The Comeback Continent" - Krugman 1/11/08

I truly am behind the times in getting to this excellent column by Krugman last week.
An all to common belief in America is that Europe's economy cannot compete due to high taxation, social safety net, and too much regulation. As Krugman points out, this may have been true thirty, or even twelve, years ago - but those days are passing away. Today's European Union is a vibrant economic actor on the global stage. The Euro zone's economy is already competing closely in size and scope with America's. So what has happened in Europe over the past ten years?

What European countries definitely haven’t done is dismantle their strong social safety nets. Universal health care is a given. So are a variety of programs that support families in trouble, helping protect Europeans from the extreme poverty all too common in this country. All of this costs money — even though European countries spend far less on health care than we do — and European taxes are very high by U.S. standards...

According to the anti-government ideology that dominates much U.S. political discussion, low taxes and a weak social safety net are essential to prosperity. Try to make the lives of Americans even slightly more secure, we’re told, and the economy will shrivel up — the same way it supposedly has in Europe.

If the EU where to bring the UK into the Euro zone (very unlikely), establish a more integrated (deeper) union via a strong constitution or supplant the dollar as the preeminent global currency a lot of things could change very quickly. I would argue that Europe's economy is in prime position to make a strong surge to the top of the global economy. With a strong social safety net in place, there is a lower risk of severe disruption of a large swath of the population's lives due to globalization when compared to America. Re-training programs, retirement benefits and health insurance are all issues that the majority of governments on the continent deal with in some manner.

Our American blend of exceptionalism has gotten us a long way, but our resistance to accepting the positives of the European model may just be our most exceptional mistake.