THE BLOG
04/24/2009 05:12 am ET Updated May 25, 2011

What European Fiscal Austerity Is Doing To The U.S.

As the G-20 meeting of the world's 20 biggest economies approaches, the right is cultivating a strategic relationship with the "reformed socialists" of Western Europe. President Obama continues to press our European allies to commit to more stimulus spending, even appealing directly to the public in an op-ed in the International Herald Tribune earlier this week. But Europe, like good classical liberals, won't budge. President Sarkozy of France put it simply: "We do not want to spend more money."

So the Wall Street Journal, stopping just short of apologizing for "freedom fries", basks in the irony that "in our newly upside-down world, it's the French who are warning Americans about runaway spending and false Keynesian stimulus hopes." Truly, a brave new world. Loyalists at National Review's The Corner are horrified that a State Department official would rebuff the British claim to a "special relationship" with the United States.

Meanwhile, at the American Enterprise Institute, Charles Murray worries that the very, in fact the only, institutions through which we humans can achieve happiness are threatened by how we answer the great question of the Obama administration: "Do we want the United States to be like Europe?" His question, posed in a speech just this month, seems to have been answered: Europe, in fact, will become more like the United States.

In this week's New Yorker, James Surowiecki outlines some of the general reasons why Europe is resistant to more fiscal manipulation. Essentially, Europe has a historically ingrained aversion to inflation and, of course, more automatic stabilizers (like unemployment benefits and health insurance) that simply are unavailable in the United States (a big portion of the stimulus package in the U.S. was simply extending unemployment benefits and shoring up Medicaid). To these general reasons, I would add that Europe as a whole has drifted slightly to the right (Sarkozy from Chirac and Merkel from Schroeder in the particularly important EU countries) and that Europe gains a strategic benefit from resisting Obama's calls for stimulus, not only because they can free ride on our stimulus (as Surowiecki notes) but because they might actually think the United States will spend itself over a cliff. So much for that unique relationship.

But it is important not to wonder too long at the irony of the right's "new relationship" with Europe. This is part of the same sleight of hand that rouses concerns about generational theft, about "leakage" of stimulus funds outside the country, and about foreign companies being employed by the American Recovery and Reinvestment Act.

Jeffrey Sachs, who I quoted making a similar point last week, pinpoints why the debate about European/Keynesian/Socialist stimulus versus anti-inflationary/free market classical liberalism is so misguided:

The global economic crisis will be with us for a generation, not just a year or two, because it is really a transition to sustainability.

American and European economic advisers generally believe that a short sharp stimulus will be enough to restore economic growth. This is wrong. What will be needed is an overhaul of the world economy towards sustainability.

While there is much to lament about Europe's refusal to second the United States' commitment to further spending, the message that the right is taking from Europe's refusal is particularly dangerous for the United States. While the European Union has in recent years taken a cue from nations like China and India and committed itself to "retooling and revamping" its infrastructure, the United States, as the Urban Land Institute puts it, has coasted on its prosperity and delayed the investments that lead to sustainable economic growth.

Changing this will require altering how decisions are made about infrastructure investments, as Sachs points out. But, more importantly at present, the United States must recognize that the nation is, in important ways, at a competitive disadvantage to the rest of the world: stimulus spending is not just a helicopter drop.