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Posted by on Feb 8, 2008 in At TMV | 2 comments

Trans-Atlantic Contrasts

The economic situation in the United States – namely the upcoming recession – is attracting much attention in the foreign press. Of particular interest is the way in which the most important economic decision-making institutions – the Congress and the Fed – are seeking to stave off the downturn.

By all accounts, American economic aggression, in the form of tax cuts and dramatic rate cuts are being widely held up in Europe as the kind of pro-activity from which the Europeans could learn.

One of the most interesting articles on this, from France’s Le Monde, was recently translated by Watching

The perspective comes about from the Continental European perception of its own economic and political timidity, which contrasts with American action, including, most impressively to Europeans, the cross-aisle agreement in Congress to implement a large tax-cutting stimulus package.

Much of Europe wonders why it cannot get its act together in the same way. Certainly Europe is not facing the kind of recession on the brink of which the USA is poised, but it is facing a distinct slowdown.

What makes the Le Monde article particularly interesting is the historical context in which it puts differences between America and Europe in dealing with economic slowdown.

Here’s the crux:

For Americans, to guarantee the boat’s stability means being ready to jump on the mast and change the direction of the sails at any time. For Europeans, on the contrary, it is more important to avoid using too much sail and to minimize movements that could contribute to the boat’s capsizing. These different philosophies are surely the result of differing historical experiences, one marked by the memory of the Great Depression, the other by the memory of inflation. However, the philosophical differences result largely from the nature of the institutions themselves.

Most interesting, perhaps the U.S. – the country that is commonly regarded as having the purest form of capitalism on the planet today – is more willing to use external jolts from institutions that lie outside the free market, than is Europe, which is traditionally more comfortable with governmental and institutional intervention. Could it be that economic policy derives more from temperament (American assertiveness vs. European easy-goingness) than the political system?

Read the whole Le Monde article here on WATCHING

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Copyright 2008 The Moderate Voice
  • DLS

    Europe needs huge amounts of tax and regulatory reform, but they need the spending reductions, too. That’s going to be a problem because Europe’s future demographics will make its retirement-welfare-program problems worse than ours will be, while dependence on government for a living in Europe is much greater (much worse) than here in the USA. (The English-speaking nations hold most of the private retirement-savings wealth in the world.)

    NOTE: CSIS’s Aging Vulnerability Index report is being revised and should become available later this year.

  • DLS

    “Dependence on government benefits varies a great deal among the developed countries. It is relatively low in the English-speaking world, and in two countries — Australia and the UK — it is projected to drop steadily in the future. In 2040, according to CSIS projections, public benefits will make up 33 percent of the after-tax income of the elderly in Australia, 37 percent in the United States, 39 percent in the UK, and 46 percent in Canada. In every continental European country, the share exceeds 50 percent today and will still exceed 50 percent in 2040, suggesting that the countries that most need to cut benefits may find it the most difficult to do so. Japan is an exception among high-burden countries. The public
    benefit share there is relatively low today and will still be low in 2040: just 38 percent, about what it will be in the United States.”


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