Will the United States become more or less like continental Europe? That's one way to frame the central question of domestic policy. In Europe much higher percentages of gross domestic product are absorbed by government; welfare state protections and restrictions on labor markets are greater, health-care and pension provisions are dominated by the central government. The result, say advocates of the European model, is greater leisure and greater protection against risk. The result, say advocates of the American model, is economic stagnation and high unemployment. Over the last 25 years, the number of jobs has increased by 57 million in the United States. The figure for Europe is 4 million. Unemployment is around 5 percent in the United States. In France and Germany it tops 10 percent.
Given those numbers, Americans, through the workings of the political marketplace, are not likely to choose the European model. But certain features of our society -- the aging of our population, the increasing percentage of gdp any affluent society will spend on health care -- move us in a European direction, unless some effort is made to counter that trend. One question to ask, as we approach the end of the fifth year of the Bush administration, is to what extent it has countered that trend.
Taxes -- The Bush tax cuts have reduced government's share of gdp, but they are temporary, and Congress has just balked at extending them. One reason is that the Republican Congress has not held down spending correspondingly. Another is that Democrats no longer see political risk in raising taxes -- it was not a liability in the 2005 Virginia election, for example. Yet Democrats have a political interest in preventing the Alternative Minimum Tax from becoming the norm for high-income families in Blue states. This is an issue that will be fought out in continuing trench warfare.
Pensions. Democrats' unanimous opposition, the qualms of House Republicans and the response to Hurricane Katrina have combined to defeat George W. Bush's attempt to introduce individual investment accounts to Social Security. The result is that, as the number of elderly grows, an increasing percentage of gdp will have to go to public pensions: We go some distance toward Europe. Democrats today like that result, and Republicans are prepared to live with it. But when Bill Clinton was president, he was on the verge to backing some investment component in Social Security in 1999. The political stars were in alignment -- lame duck Democratic president, Republican Congress. But Clinton drew back, in deference to the liberal Democrats who backed him staunchly during impeachment. A chance to get off the European trajectory was missed, perhaps for a generation.
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