I'm a big fan of European "socialism." Which, of course, isn't really socialism.
It's a productive public-private partnership where people pay more in taxes than we in the United States do and get a lot back in return: economic growth, more income equality, greater opportunities for the middle class, stronger social safety nets.
The big political lie of the Super Committee is that the deficit must be closed mainly by cutting government spending rather than by raising taxes on corporations and the super-rich. Both parties are complicit. The Republicans want to close the deficit entirely by cutting spending; Obama has brandished the formula of $3 of cuts for every $1 of tax revenues. On either approach, the poor and middle class would suffer grievously while the rich and powerful would win yet again (at least until the social pressures boil over).
What I found most eye-opening in his essay were the statistics about how northern European countries manage to out-perform the United States on a "misery index" that combines the unemployment rate, budget deficit as a percent of GNP, and the current account deficit (basically the ratio of exports to imports).
We're getting crushed on the Misery Index.
When we calculate the Misery Index for the U.S., Canada, and Western Europe, we find that, lo and behold, the U.S. ranks among the most miserable performers, 5th out of 20 countries. The country with the highest Misery Index is Ireland, followed by Spain, Greece, Portugal, and the United States. All five countries deregulated their financial markets and thereby experienced a housing bubble and bust.
The lowest macroeconomic misery is in Northern Europe. Norway has the lowest score, followed by Switzerland, Luxembourg, Netherlands, Sweden, Germany, and Denmark. All seven countries have lower unemployment rates, smaller budget deficits as a share of GDP, and lower foreign deficits as a share of GDP, than the U.S. We look pretty miserable indeed by comparison.
Lots of people mistakenly think that Europe is in poor economic shape. Sachs says this is true of southern Europe, but not of northern Europe. Even conservatives who like to bash European social democracies recognize this. On right-wing talk radio I often hear envious praise of Germany.
So what can we learn from countries who are doing better on the Misery Index than the United States is? Well, we shouldn't be trying to lower taxes, but rather to raise them. Northern European countries collect considerably higher taxes from their citizens and prosper as a result.
Yet, miracle of miracles, these seven countries collect higher taxes as a share of GDP than does the U.S. Total government revenues in the U.S. (adding federal, state, and local taxes) totaled 31.6 percent of GDP in 2010. This compares with 56.5, 34.2, 39.5, 45.9, 52.7, 43.4, and 55.3 percent of GDP in Norway, Switzerland, Luxembourg, Netherlands, Sweden, Germany, and Denmark, respectively. These much higher levels of taxation are raised through a combination of personal, corporate, payroll, and value-added taxes.
The Northern European countries earn their prosperity not through low taxation but through high taxation sufficient to pay for government. In five of the seven countries, Denmark, Germany, Norway, Netherlands, and Sweden, government spending as a share of GDP is much higher than in the U.S.
These countries enjoy much better public services, better educational outcomes, more gainful employment, higher trade balances, lower poverty, and smaller budget deficits. High-quality government services reach all parts of the society. The U.S., stuck with its politically induced "low-tax trap," ends up with crummy public services, poor educational outcomes, high and rising poverty, and a huge budget deficit to boot.
Yes. It's a plain fact: the government often can spend our money better than we can.
Low taxation in the United States is stifling our ability to compete in the global economy. Our infrastructure is crumbling. Our mostly private health care system is wasteful and inefficient. Our citizens aren't being prepared for 21st century jobs.
A Gallup poll conducted about two months ago found that Americans support raising taxes on corporations and the wealthy. They also favor increased spending on public works projects, unemployment insurance, and public employees such as teachers, police offices, and firefighters.
In short, a majority of people in the United States want this country to become more like northern Europe, with higher taxes and more social spending. So why isn't this happening? That's the big question.
Extrication of American politics from the clutches of the "corporatocracy" will require the provision of public money for campaign financing, free media time, a ban on campaign contributions from lobbying firms, and a stop to the "revolving door" between lobbying firms and federal employment. However, Sachs doubts whether effective government can be achieved without the rise of a "credible third party" to break the corrupted Republican-Democratic duopoly.
Makes sense. Hopefully the 2012 election will help get us closer to achieving these goals.