Two pieces in Democracy

by Henry on September 16, 2010

I’ve an article on the horrible mess that is EU economic politics in the new Democracy. The bit I’d most like people to take away:

austerity measures will not lead to economic stability. They will never be applied to strong member states, and will fail to address the problems of weaker ones, which are more likely to face problems of overheating in the private sector than over-reliance on public borrowing. They are also extremely crude, and would provide little flexibility for states faced with asymmetric shocks. Most importantly, the emphasis of austerity hawks on fiscal rectitude and nothing but is not politically sustainable. They would reproduce the problems of the early twentieth-century “gold standard” system, in which economies responded to crises with chopped wages and swingeing increases in unemployment. As Barry Eichengreen has emphasized, democracies cannot credibly maintain such a system over the long run. European citizens are suspicious of the EU because they do not understand it. If they come to see it as a set of shackles chaining them in economic squalor and misery, their suspicion will be transformed into positive detestation. EMU cannot survive widespread public loathing. Yet such loathing would be the ineluctable result of enforced austerity programs.

But also (following on from yesterday’s review), you should really read Jacob Hacker’s piece in the same issue on the politics of healthcare reform going forward.

Reformers may have won the war in 2010, but they lost the battle for public opinion: Americans were convinced reform was needed, but not that the federal government should have the authority to make sure it was done right. Reformers cannot afford to lose the second battle for public opinion. Winning it will require organization and narrative. It will also require that progressives coalesce around a broad vision, as they did in the years after the passage of the Social Security Act. That vision should have two sides: the case against insurers and the case for government. … They can begin by resisting insurers’ self-serving entreaties to be freed from the requirement that they spend at least 80 percent of their bloated premiums on the actual delivery of care. … But making a case against insurers is not enough to justify the stronger federal role that is essential. Reformers … should not be afraid … to point out where the law needs to be strengthened, especially when that also means pointing out where private insurers continue to fall short. And nowhere is this more true than when it comes to the public option.

{ 12 comments }

1

bh 09.16.10 at 9:30 pm

They would reproduce the problems of the early twentieth-century “gold standard” system, in which economies responded to crises with chopped wages and swingeing increases in unemployment

I recently finished Lords of Finance, which covers European and American central banking from WW1 through the Great Depression. (I recommend it highly, btw — informative and easy to read, and it covers a lot of material outside the usual econ blog territory.)

It’s revelatory, if depressing, to see how similar the situations really are, and how little the case for austerity has changed over the last 80 years. Montagu Norman and Jean-Claude Trichet would have found plenty to agree on, I think.

2

bh 09.16.10 at 9:30 pm

The first paragraph is quoting Henry, btw — somehow my html tags got eaten.

3

John Quiggin 09.16.10 at 10:05 pm

Unsurprisingly, I agree with you on austerity, and on the need for EU institutions to take a positive role.

But you’ve reproduced a lot of claims about European economic decline that are, at best, out of date. For example “fewer working-age Europeans are employed than in other advanced industrialized countries.”

As I pointed out on CT not long ago, this was once true but is not now.

From Eurostat, the E/P ratio (total employment/pop 15-64) for the euro area was 58.5 in 1997 and rose to 64.8 by 2009 (France 64.2 , Germany 70.0). Over the same period, the US ratio has fallen from 73.5 to 67.6, with the bulk of the decline in the last couple of years. The remaining difference is entirely due to the higher US employment-population ratio for women – the ratios for men are virtually identical.

The EU average conceals some big variation – the Scandinavian countries have the highest E/P ratios in the developed world, other EU countries some of the lowest.

4

Henry 09.16.10 at 10:17 pm

John – happy to accept these corrections, especially the last one. One of the major arguments of the piece is that it is nonsensical to view the EU as a single ‘European’ system, given the dramatic differences across it, and what the EU needs to do is to try to converge upon the labour market approaches of the more productive member states rather than going for a lowest common denominator solution. Thus the example of how the Danish welfare state, through provision of childcare, has huge benefits (or had – I have not seen whether these have been cut back by the right wing government in the latest round) for the employment of women.

5

Jacob Christensen 09.17.10 at 1:33 am

Re:Denmark. The provision of childcare as such has not been affected (but this is linked to some pretty complicated twists and turns around the budgets of local councils.) Child benefits have been cut, though, for child #3 and beyond (The motivation for this has more to do with the dominant anti-immigration sentiment than any real considerations of fiscal or demographic policy)

6

Henry 09.17.10 at 1:55 am

and forgive me for writing a piece of managerial-speak like “lowest common denominator solution.” When I write in haste, my prose style suffers for it.

7

Chris Bertram 09.17.10 at 5:41 am

I had two immediate reactions Henry, both of which may be completely without merit.

1. You say that the stronger members of the EU will never have austerity measures applied to them. I take it this means “imposed by the EU”, since (assuming the UK still counts as one of the stronger states) we have a whole load of austerity measures that our government is about to impose on us.

2. I was bemused by the Americans-are-losing-patience theme, since the combination of relative economic decline and baroque and ineffective system of decision making seems to be a feature of the USA too. Will anything get done between these forthcoming elections and the next Presidential one?

8

Chris Bertram 09.17.10 at 5:44 am

And try a bit of substitution:

_European [American] citizens are suspicious of the EU [Federal government] because they do not understand it. If they come to see it as a set of shackles chaining them in economic squalor and misery, their suspicion will be transformed into positive detestation._

9

P O'Neill 09.17.10 at 12:46 pm

I think that it was a very discouraging few weeks in EU politics, with positions on austerity the least of the problems. Commissioner de Gucht and his opinions about Jews. Commissioner Reding and her Holocaust/Roma comparisons. Whatever row took place between Sarko and Barroso yesterday that the diplomats want us to believe didn’t happen. Whatever Merkel said to Sarko that we’re now supposed to believe she didn’t say. And the seriously incoherent position on Ireland, with the state aid side of the shop doing a better job of policing the fiscal insanity of Anglo than the supposed stability and growth side. But Brian Cowen tells us that M. Trichet et al think everything is fine and no-one contradicts so he must be right. Then off to Kitty O’Shea’s for some back-slapping with the lads. I don’t know if it’s personnel or institutions, but this is a rough patch.

10

Martin Wisse 09.17.10 at 1:54 pm

European citizens are suspicious of the EU because they do not understand it is awkward, as that seems to echo the EU-boosters usual complaint that if only people would understand the need for the latest EU intiative they would not vote against it.

Plenty of people are quite in favour of greater European cooperation and all that yazz, yet not convinced the current EU is all that.

Meanwhile Hacker’s piece is too wonkish, at least in the extract here, as if there’s some rational centre in the US that you can convince by reasoned argument. It seems to ignore the realities of US politics.

11

Henry 09.17.10 at 2:17 pm

1. Yes. This is exactly what I mean. My defense fwiw is that I’m writing about cross-EU arrangements, rather than the individual decisions, lunatic or otherwise, of member state governments.

2. Fair enough – but the primary audience being targeted by the piece is US foreign policy types. Getting them to pay enough attention to figure out what seems to them an incomprehensible system is hard enough, without telling them that their own system is completely weird to foreigners. And in their defense, I think that the EU _is_ more byzantine than the US if only for the simple reason that its institutional development has more or less settled down in a set of broadly understood patterns, while in the EU there is still a lot of dispute about the basic roles that different institutions should play (and efforts by different actors to maximize the powers and competences of their own institutions). I talk about this (in political-scientese) in “this piece”:http://www.henryfarrell.net/governance.pdf written with Adrienne Heritier.

Martin – the key argument here is at the end, where I talk about how the EU is a political space, and ostensibly neutral technocratic decisions are in fact deeply political. On Hacker’s piece – this is a general characteristic of pieces written in the standard idiom of US policy journals – they are nearly invariably written around the assumption that you are directly addressing the policy makers, and can convince them to take action along the lines you want. Most of the time, of course, it doesn’t work and merely becomes a kind of rhetorical trope that you learn to read around in order to get at the basic argument. But sometimes it does – Elizabeth Warren’s consumer protection agency was born in a piece for _Democracy._

12

hix 09.20.10 at 1:09 pm

I dont understand the Bavarian regional election system, just like i dont understand the EU system. So what? Dumping down the decission makeing system would not change the power of drumbeat lie prophaganda as the one done by British tabloids or the interests of those that exploit the EU status quo to use some kind of “oh the evil hegemon” rethoric if other EU members become impatient with their tactics.

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