One of the fascinating aspects of the growing debt crisis in Europe is that the solutions being pursued by leaders in France and Germany are, by almost every measure, fiercely conservative.
Much of the commentary in the US gets this horribly wrong, suggesting that the Europeans are flagrantly libertine when it comes to fiscal matters. They are a continent of wine-sippers, dominated by bloated unions.
But especially when contrasted with the approach here in America, the European treatment of countries like Greece and Portugal is downright severe.
It’s not just that the Europeans are demanding harsh austerity measures from their member states. In that respect, we’re more or less on par.
Many US states are also cutting back sharply, laying off hundreds of thousands of workers and curtailing social programs.
No, the place where the Continent is more conservative comes in their fiscal treatment of poorer, less productive states.
In our country, it has been the tradition for decades for big, urban, highly productive states — California, Florida, New York, Texas — to subsidize smaller, more rural, less developed states, helping to build their infrastructure, developing their industries.
According to the most recent available statistics (for 2005), Kansas was receiving $1.50 in Federal spending for every $1 that Kansas taxpayers paid in Federal income taxes.
Alaska receives more than $1.80 back for every $1 paid to the IRS.
These massive subsidies aren’t viewed as a “bailout” or a “loan” or a “subsidy.” This didn’t just happen once, as a “stimulus.” It happens every year, year after year.
And small, less prosperous American states aren’t expected to pay that money back, as poorer states in Europe are required to do.
Indeed, if forced to “borrow” that money, states like Mississippi (which in some years receives back twice as much money from the treasury as its citizens pay in Federal income taxes) would have collapsed long ago.
Just as Greece is on the verge of collapse now.
Here in the US, this steady transfer of wealth between members states has been internalized as a standard part of American political life.
Indeed, much of the American West and South — interstate highways, hydro dams, vast military bases, the education infrastructure around Silicon Valley, and on and on — was built with wealth generated in the Northeast and the Upper Midwest.
Taken in sum, I think it’s arguable that this “liberal” American approach — wealthy states helping poorer states — has proven itself to be the wiser and more sustainable than the one being pursued in Europe.
While France and Germany demand that their less productive member-states shoulder massive loans, relegating them permanently to the status of debtor-partners, the United States has pursued a policy of building up all fifty states.
Imagine if we had pursued a European model.
If forced to go it alone, in fiscal terms, Alaska and Kansas would be far less stable. During the recent Great Recession, any number of American states would have toppled into insolvency without huge amounts if aid from Washington.
They would likely have been forced to withdraw from the “dollar union.”
And economic downturns aren’t the only threat. Imagine if Louisiana had been forced to recover from Hurricane Katrina solo.
Or if the drought-stricken states of the Southwest lacked a massive Federal reservoir system, built to sustain their cities and their farms.
Obviously, there are weaknesses to the American system. Big urban states grumble mightily as dollars flow away year-after-year, decade after decade. But in the long run, it has proved to be a great investment.
Following this model, America emerged in a single century as the biggest, most productive, and most stable economy on earth.
In Europe, by contrast, fiscal conservatives who feel that they’re being hoodwinked by their lazy, bumbling neighbors insist that member states must sink or swim separately — while also trying to use the same currency.
As a result, the whole experiment of a European Union is imperiled.
As the technocrats in Bonn and Paris squeeze Greece and pummel Portugal and Spain, they would be wise to look at the relative success, prosperity, and stability of America’s member states, places like Alabama and and Arizona and Louisiana.
(NOTE: This essay was first published in February 2012)