Libertarian Europe

In American political discourse “European” is used as shorthand for socialism, a pervasive anti-market mentality, and an extensive welfare state. Like most simplifications this stereotype is only part true, as the European policy reaction to the Great Recession has a striking libertarian flavor.

The Economist magazine remarked that there are two competing explanations for the continuing economic malaise:

  1. Aggregate demand was weakened with the collapse of housing prices and has not yet returned to normal levels
  2. Overinvestment in housing caused permanent damage to the economy that has no easy fix. Time is needed for resources to be channeled to other uses before economic growth will continue and unemployment will fall

Between these two competing explanations, the second one is clearly more libertarian. The first explanation suggests that government can return the economy to normal by boosting aggregate demand through large increases in spending. This is the policy path that American officials favor while pundits on the left like Paul Krugman berate them for not taking it far enough.

In contrast the second explanation suggests that aggressive government action will be ineffective at restoring growth and employment to normal. At best government spending projects can treat the symptoms of the recession by offering temporary work and assistance. In addition to offering the more laissez faire policy prescriptions, the second explanation recommends itself to libertarians by tracing its genesis to the traditionally libertarian Austrian school of economics.

European policy makers are firmly lined up behind the second explanation. Not only do they eschew large stimulus bills, they are perfectly willing to cut public programs to cover up budget holes caused by lavish spending in boom times and anemic tax receipts.

America has the reputation of the hardcore market fundamentalist of the world. But it is nominally socialist Europe that is trusting the market to heal itself while the American government eagerly takes on ever more debt for emergency programs. In a few years it is not hard to imagine Europe roaring out of the recession with a firm financial footing while the American recovery is dragged down by its own debt crisis.

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Safety Net and Capitalism

When the social safety net is generous, people can tolerate being fired/laid off more readily. Welfare is expensive, but can support an economy that is freer in other respects. Denmark currently tops the list of best countries for doing business.

In other words, libertarians should not use government budget as their primary metric of liberty. A negative income tax, for example, could show up as a gigantic amount of money going through the government, but the strings attached to that money would be far less than with our current morass of welfare, social programs, subsidies, etc.

Singapore?

WHOA WHOA WHOA here! Sorry to go off-topic, but what's up w/ Singapore's debt?

Free-market-loving (and free-speech-hating) Singapore always clocks in at around 1, 2, or 3 on a list of best placed do to business. After all, their per-capita GDP is huge. So I clicked through the link and, sure enough, Singapore clocks in a 5, and its per capital GDP is still boss. But so is its debt: more than 100% of GDP!

What gives? And moreover, is there any relationship between being mired in debt and being a great place to do business?

You are cherrypicking your

You are cherrypicking your data. There are many countries that do welfare. Picking Denmark as your datapoint is cherrypicking.

America has the reputation of

America has the reputation of the hardcore market fundamentalist of the world.

Among people who don't know anything about it, such as Europeans and Democrats and RINOs. Apart from libertarians, who have long understood that the US is way far away from the libertarian economic ideal of hardcore market fundamentalism and getting farther with each passing year, tea partiers are also well aware that the US is no free market paradise and that our current solutions are wrongheaded.

Still, that Europe does one thing right is no more than a step in the right direction. But okay, let's suppose that maybe Europe might even overall be doing better than the US. So what? The US has moved so far from freedom that being more free than the US has ceased to be an accomplishment worth bragging about. The real news is not some sort of libertarian resurgence in Europe. The real news is the death of American capitalism.

Reality intruding

My guess is that because American rulers have much more to gain by creating dollars to hand out, they are more vested in keeping up the facade of Keynesian economics. The European rulers are starting to worry that the Americans are going to throw them under the economic bus to stop it crashing. Some are so desperate they will actually consider acknowledging realistic economic theories.