The United States of Europe -- A Failure GOP Candidates Would Love to Emulate in the U.S.

12/02/2011 04:22 pm ET | Updated Feb 01, 2012

For any aspiring GOP candidate, prepwork for running for the presidency involves coming up with bold new ways to say how they would shrink the power of the office they seek to hold. This year's GOP crop have been no exception, with various candidates putting forward hit lists of departments and agencies they would eliminate (a list so fluid that during a debate, candidate Rick Perry forgot which departments he had advocated cutting). The full list includes HUD, the EPA, the Energy, Education, Interior, Commerce, the IRS, and the Federal Reserve. Imagine then, how happy these candidates will be to discover that there is a big developed economy in the world today that they can use as an example of how a society fares without oppressive government agencies and powers!

I'm talking, of course, about The United States of Europe. Although the EU is only slightly smaller than the U.S. in GDP, it is a libertarian's dream in terms of the limitations on its governing policies. The European Central Bank cannot monetize debt (something the U.S. Federal Reserve Bank occasionally does that Texas Governor Rick Perry has described as treason). State's rights rule the day, with any EU-wide action requiring approval of all the member states. As for taxes, the EU's central authorities are funded on less than 1% of the EU's GDP.

Indeed, with no centralization of power to make decisions stick, EU-wide government is small enough that Grover Norquist, the GOP's favorite anti-tax activist, could probably achieve his memorably-phrased dream of shrinking government to the point where it might be drowned in a bathtub. In Europe's case, however, Mr. Norquist doesn't need to drown anything because the EU is doing the job itself - to some degree because it has none of the institutions that Rand Paul, Rick Perry, Michelle Bachman, and other conservatives would love to eliminate here in the U.S.

That's one reason the GOP presidential aspirants might not rush to embrace the EU as an example of slimmed-down government. Another is that the states that make up the European Union have gone in the opposite direction, embracing safety nets and worker friendly policies that are anathema to libertarians.

Conservative pundits love to heap scorn on socialist absurdities such as Greece's infamous enhanced retirement benefits for news readers because the risk of getting germs from a microphone makes it a "dangerous" occupation. But the inconvenient truth for those on the right is that the northern countries have relatively rich safety nets too, and in these cases respect for workers' rights has not undermined competitiveness and economic power.

German workers for instance, weathered the crisis of 2008 much better than their counterparts in the U.S. Instead of laying off employees as was the case in the U.S., German employers shortened hours, and the government supplemented worker pay, which had the effect of muting the damage to consumer demand inflicted by the recession. As for competitiveness, Germany is in a virtual tie with the U.S. as the world's second largest exporter, despite being roughly one quarter the size of the U.S. in population. Perhaps because workers have representation on corporate boards, Germany also has not suffered the pernicious wage gap that has transformed the U.S. into a "winner take all" economy.

I first heard about the twilight of northern European competitiveness in the late 1970s when the then head of J.P. Morgan's international division told me that worker protections and other socialist programs would lead to the ruination of northern Europe. After thirty-five years, I'm getting impatient. By chance, a few years ago, I ended up sitting next to Alan Greenspan at a dinner. I mentioned this long-ago conversation, and asked when Germany was going to implode because of the weight of its safety nets and worker friendly policies. His answer, "just wait -- soon!"

And what has been happening in the U.S. while libertarians have been waiting for economic calamity in northern Europe? Wages have been stagnant for decades, and workers face a future of ever increasing insecurity. At the same time, the U.S. is busily selling its bonds, its corporate assets, and even its roads and bridges to foreigners, including those lazy soft Germans. Given the rate that foreigners are buying up U.S. assets, a World Bank report described the U.S. as being headed for "an ownership society with others doing the owning."

The European Union and its common currency were conceived by honorable politicians who wanted to create a structure that would minimize the chances of another great power conflict on the continent. In a case of exquisitely bad timing, however, they adopted a strict, free-market economic model in creating the structures of their economic union even as the experiences of Europe's most successful economies undermined the premises of that model. GOP candidates are unlikely to bring up the United States of Europe as an example of what small government looks like, but voters might want to take a look.

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