Europe Faces Reality

Derek Scissors / May 12, 2010

The European economic model is dead. Don’t believe us? – Ask The Washington Post. Yesterday’s front-page story reported that the loans being made to stave off the debt crisis come with conditions which, if enforced, would require “European governments [to] rewrite a post-World War II social contract that has been generous to workers and retirees but has become increasingly unaffordable for an aging population.”

There is an obvious and painful connection to the U.S. and our economic direction. Unless we adopt a much better set of economic policies, the American version of Europe’s crisis is inevitable.

What’s worse, the Post and many other commentators have understated the failure of the European model. For two generations after post-war reconstruction, Europe and America have moved in different economic directions. The American model favored growth, income, and vibrancy; the European model was said to favor fairness, equality, and stability. The long-term superiority of the American model with regard to growth was well-established before the financial crisis, but the extent of that superiority may be surprising to some. (more…)