Europe’s Problem And Our Own

On the front page of today’s New York Times , readers encounter this headline: Greece and Italy Seek A Solution From Technocrats. The article chronicles the political transitions taking place in these two debt ridden countries. A sample:

Greece named Lucas Papademos, a former vice president of the European Central Bank, interim prime minister of a unity government charged with preventing the country from default. In Italy, momentum was building behind Mario Monti, a former European commissioner, to replace the once-invincible Prime Minister Silvio Berlusconi as early as Monday.

Can technocrats manage the debt crisis? The Times asks. Politicians failed. Can bureaucrats succeed? And if they do, what does that portend?

The article goes on to chronicle the difficulties of the two countries. While they both have massive debt, they take a different approach to handling the situation. Italy has welcomed technocratic advice and solutions; Greece has resisted “outside interference.” Greece has a small economy (comparable to the size of the Dallas/Fort Worth Metroplex); Italy has the world’s 7^th largest. Roman politicians welcome a unity government; Athens has suffered political polarization for the last forty years.

This article confirms my earlier bias: Italy is a credible member of the EU; Greece is not. While I doubt the long-term efficicacy of “technocratic reforms,” I think they are the most plausible short term remedy for the Europeans. Certainly I don’t see European socialists abandoning Keynesian economics during this crisis. Thus, they may muddle through the current situation, but will not enjoy an economic boom that would come if they implemented laisse-faire, pro-growth policies.

Americans should pay attention to the European debt crisis, particularly the political impotence shown by its political class. Note this Times observation:

Mario Baldassarri, the chairman of the Senate Finance Committee, singled out the political class, saying, “Because in Italy there are 3,000 or 4,000 people who count on waste and theft of public spending and now they are more powerful than 60 million people.”

America has a similar political class invested in the status quo. Making real reforms (entitlement reform/tax reform/eliminating superfluous bureaucracies in the administrative state) limit their power. Politicians understand this. Reducing it is an existential threat to statist officials.

In addition, we see the tendency to tinker around the margins rather than making fundamental reforms to the welfare state — doing just enough to muddle through but not enough to rock the boat.

This is what conservatives fear from a Mitt Romney presidency. He is not a true-blue conservative. He is a technocrat. He won’t stake his presidency on entitlement reform and won’t fight tooth and nail to reduce the size and scope of government; instead, he’ll aim to slow its growth.

We know what President Obama and the Democratic Party want. Omnipotent government. State economic planning. Entitlements for all. A social-democratic state.This is unsustainable, as the European experiment has shown. Yet they want it anyway.

Of course neither side will get everything they want. Some kind of  political compromise is in the cards. Politicians must then implement policies to reform (by that I mean improve/modify it based on 21^st century demographic rates/economic conditions, etc) it.

Austerity alone won’t solve the problem. Pro-growth policies are needed. Fortunately Republicans have spent this primary season articulating these ideas: 9-9-9 and the flat tax immediately jump to mind. A growing economy will solve many of our current fiscal dilemmas.

Will America implement pro-growth policies? Certainly not until President Obama has left office. Or will voters re-elect Mr. Obama and put their stamp of approval on his European trek? Stay tuned.

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