British Foreign Secretary Sir Edward Grey famously remarked, upon the German invasion of Belgium which started World War I: “The lamps are going out all over Europe. We shall not see them lit again in our time.”
Nearly a century later, it seems pretty clear that the neverending European financial crisis similarly signals that the flames of economic energy that made Europe part of the advanced economic world is flickering, not to spark again in our time. The question is whether America’s fading light will revive or die out.
About three decades before Europe’s lights began to fade in 1914, the New York City poet Emma Lazarus wrote of a different kind of lamp beckoning “huddled masses yearning to breathe free.” Said Lady Liberty: “I lift my lamp beside the golden door.”
Europe and the U.S. historically represented two distinct economic models. The Europeans took a dirigiste approach, where government elites decided the distribution of economic resources. The U.S. system, in contrast, allowed for regulation, but was otherwise content to let the economic chips fall where they may. This laissez-faire approach is what enabled huddled masses to breathe free—and change their social and economic status.
Whereas those at the top of society and those at the bottom of society tended to remain constant across the generations, the American approach enabled poor immigrants to rise according to their efforts, enriching the whole of society through their contributions.
All this should be fairly obvious and well-known to Americans, who need only look at their own family trees to understand this principle. Indeed, the American system generated wealth in such abundance that in the postwar period the American government had enormous tax revenues to dispose of.
A classic question of political theory is how to balance freedom with security. It’s a very good question, and a compelling case can be made for a free-market-oriented society to intervene in the economy to alleviate the ill effects of capitalist dynamism, as the U.S. has done since early in the 20th century.
But in recent times U.S. elites have tilted in the direction of the European model, and the result appears to be a protracted stalling of the economy. Many influential Americans understand and say all the time that what the U.S. needs is economic growth. Indeed, there are many Europeans who say this too.
But it remains unclear whether America can return to a growth path because American culture itself has moved in a more European direction. And ultimately politicians respond not just to lobbyists but also to what resonates culturally.
European political life has long given expression to class resentment. Whereas Europeans have resented the wealthy, Americans have tended to admire the wealthy. (And, historically, America’s wealthy have tended to return the favor by endowing museums, symphonies, gardens, foundations and charitable institutions.) In recent years, the idea that the wealthy act in a parasitical way—that they don’t pay their fair share in taxes, for example —has gained currency in U.S. political discourse. This week the IRS released an analysis that makes that widely held view hard to defend. Blogger Mark Perry shows that the 400 wealthiest Americans, who earned $81 billion collectively, paid nearly as much in taxes as the bottom 50% of U.S. taxpayers—69 million Americans who together earned more than $1 trillion.
Ironically, it may be that the poor are not paying their fair share in taxes. The problem with such a large disparity in tax payments is that it reflects a certain moral hazard. If 50% of Americans are paying little or nothing in taxes, but are receiving a lot of government largess, that creates an instant electoral majority in favor of permanent spending and inadequate fiscal discipline. Which is exactly the path that has launched Greece, Spain, Italy and most of the rest of Europe on its current path of economic extinction.
The American political and economic tradition has the answer to today’s economic problems. We know how to do economic growth. It will take nothing more than a return to those traditions, with a decent measure of respect for the genuinely poor, to resume our role as a beacon of liberty and economic opportunity.