Markets

Don't Buy Niall Ferguson's Bogus Fear That the U.S. is Turning Into Europe

By Carter Dougherty

Updated on: July 11, 2010 / 9:18 AM EDT / MoneyWatch

A large chunk of opinion leaders are returning to Washington, New York and London this weekend from the Aspen Institute's Ideas Festival, having imbibed from Harvard historian Niall Ferguson the warning that the United States is "about to become a European state" -- which he doesn't mean as a compliment. This kind of dire warnings is more evidence of a loopy Washington talking point than anything resembling reality. Ferguson recently published The Ascent of Money, a lucid survey of the financial side of life in the western world, and has been making the rounds of highfalutin' gatherings. His message wraps dire warnings about the U.S. fiscal position and economy in the mantle of a catchy take on history. I've run across him at places like the World Economic Forum in Davos. To some extent, we've heard this story from another British historian, Paul Kennedy, whose The Rise and Fall of the Great Powers told us of the decline of the U.S. twenty years ago. But Kennedy was never as good on the public soapbox as Ferguson.

Ferguson's take is less less that other countries are rising (the Kennedy thesis of "relative decline") than that the U.S. is simply screwing up. From Aspen:

If you're asking if the United States is about to become a socialist state, I'd say it's actually about to become a European state, with the expansiveness of the welfare system and the progressive tax system like what we've already experienced in Western Europe ... The curse of long-term unemployment is that if you pay people to do nothing, they'll find themselves doing nothing for very long periods of time. Long-term unemployment is at an all-time high in the United States, and it is a direct consequence of a misconceived public policy.

I enjoy listening to Ferguson so much that when I hear hooey like this, I fear that he is now more concerned about a tightly-scripted message that can be effectively marketed to the denizens of the Aspen, Davos and Washington circuit. It sounds an awfully lot like he's trimming his sails to the prevailing winds. "European state" is code for socialist or social democratic, or some such permutation of Insidious European Ideology. And we all know, as apparently an awful lot of Americans do, that Obama is a socialist, just like so many commentators have been arguing. And he's anti-business, too, say business leaders who wish he'd help them make more money. Sigh.

The nub of Ferguson's point has been proven wrong, but that doesn't stop it from being repeated constantly. Extended unemployment benefits do not deter people from looking for or taking jobs, the San Francisco Fed told us in an important study a few months ago. (Nor, by the way, does the U.S. system come close to resembling the unemployment compensation system, in, say, France.) The long-term unemployment problem we have in this country stems from -- yep, you guessed it! -- a long-term problem of the lack of jobs. (In the statistics, long-term is defined as more than 6 months.)

More to the point, when I hear something like this, I typically wonder if the person who utters it has even spent time in Europe. (Since I know Ferguson has and does, of course that's not the case here.) But, put bluntly, if you live in continental Europe you'll never mix up its labor market with that of the United States. The state there is a pervasive presence in a way it is not -- and, god willing, will never be -- in the United States. You seldom pass a day without meeting someone who does not have a state-related job. Participation in the labor force is much lower in Europe than the United States thanks to the chunk the state takes from paychecks for social insurance, which deters people from working and employers from creating jobs.

I want to bang my head against the table when I hear comparisons like the one Ferguson has made here. Yet because these memes have become so pervasive in the current discussion of U.S. economic policy, and because Ferguson is so adept at making this all seem like part of a grand sweep of history, otherwise intelligent people just nod pensively when they hear stuff like this. American workers did not suddenly get fat and lazy thank to an extension of unemployment benefits.

The problem of unemployment in the U.S., assuming we all still believe in things like supply and demand, is a lack of the latter. But injecting more demand into a stagnating economy is much harder than thinking grand thoughts about the sudden transformation of the U.S. into a European country, isn't it?

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