Old Europe becomes new cautionary tale

Many progressives now assume that Hurricane Katrina will nudge American politics toward a more moderate path. Yet politics seldom follows any grand design. Whether Katrina is a catalyst for progressive politics may depend in part on how progressives address the new bogeyman of the American right, the old Europe. A debate this fall on Amy Goodman’s Democracy Now (www.democracynow.org) on the child tax credit highlighted Europe’s pivotal role.

This tax credit provides an actual reduction in taxes as opposed to just a deduction in taxable income. Thus those who are in a lower tax bracket benefit as much as those in higher brackets. In 2001, President Bush increased the credit to $1,000 and made it partly available to families too poor to pay income tax. Nonetheless, the credit still phases out at incomes below $11,000. The poorest families thus receive nothing.

David Harris, president of the Children’s Research and Education Institute, argued that the credit should include even those at very low incomes. Such a change is imperative because the largest number of excluded children live in Louisiana and Mississippi.

Dan Mitchell, senior fellow in political economy at the Heritage Foundation, countered that it was not surprising that very low-income people do not benefit from this program. If you don’t pay taxes, a program that is intended to reduce taxes will not benefit you.

Harris responded quite correctly that low-income people do pay taxes and that even moderate Republicans such as Maine’s Olympia Snowe are interested in this reform.

Mitchell would have none of this. To his credit, he raised a fundamental issue, to which progressives need to give a better answer: “What’s being said here is that we should turn a tax credit into a form of income redistribution, and that is making America more like France or some of the high tax European welfare states that have … double-digit unemployment.” He later went on to add: “Show me any country in the world that has ever prospered … by having higher taxes and more redistribution. That entire model has collapsed in the former Soviet bloc [and] is responsible for the economic stagnation of Western Europe.”

Mitchell’s equation of Western European social democracies with the Soviet Union is laughable. Sweden, the most staunchly social democratic society, has always had a mixed economy with most business being privately owned. Tax policy historically imposed some redistribution, but even Sweden has always had a citizenry with substantial differences in wealth and income.

Mitchell’s chronology is also wrong. Europe thrived during its most robustly social democratic years, 1945-1975. Its economic difficulties in the last decade have exactly corresponded with growing embrace of the pure market model. Throughout Western Europe, business taxes have been reduced and income taxation made less progressive.

Corporations and governments have also forced longer working hours on their workers, though they have not yet been able to achieve the draconian U.S. norms. Corporations have also been free to relocate within a European community that now encompasses low wage Eastern European states. That Germany and France are doing especially badly is hardly surprising. Imagine if in addition to ratifying NAFTA, the United States had then erased its border and extended full citizenship to Mexicans. We would be fortunate if our unemployment rate were a mere ten or eleven percent.

Throughout Europe, the results of market- friendly “reforms” have been anything but favorable to the average European. Over the last decade, wages have fallen from 72 percent of Euro GDP to 68 percent and corporate profits have risen accordingly. In classical market theory these profits should stimulate new levels of investment and job creation, but Europe has stagnated. A consortium of some of Europe’s best progressive economists, the European Memorandum Group, has summarized the current European dilemma: “The assertions that the lack of jobs is the result of excessively high labor costs or reductions in labor time are unfounded.

On the contrary, low wages account for the marked weakness in domestic demand and longer working hours contribute to overcapacity and dismissals.” (www.memo-europe.uni-bremen.de). Low wages and inadequate consumer demand have been exacerbated by the European Union central bank, which has kept interest rates high.

Europe – and the rest of us – are being told that if three-quarters of a bottle of free-market medicine leaves us weak and staggering, swallowing the whole bottle will cure us. Many Europeans aren’t buying that. Social democracy isn’t and has never been perfect. It is an evolving and unfinished agenda always in need reforms. Europe needs a grass-roots effort by labor and left parties across racial and national boundaries to negotiate minimum EU labor and tax standards.

The EU as a whole must also expand infrastructure spending aimed at more effectively integrating Eastern Europe and eventually Turkey into the economic equation.

Both our economy and our political debate have a major stake in our responses to the steady media assault on European social democracy.

John Buell is a political economist who lives in Southwest Harbor. Readers wishing to contact him may e-mail messages to jbuell@acadia.net.