America’s economic union: surviving “fundamental flaws”

Most of the earliest skeptics of a borderless European union—with 17 member states sharing the same currency—are still alive and enjoying renewed respect. The Euro zone is barely a dozen years old and already its “fundamental flaws” are supposedly tearing it apart. America has proven, however, that fundamental flaws needn’t be fatal.

In the torturous evolution of the American economic union, The Economist finds hope:

“America began life as a fiscal basket-case. The federal and state governments were deeply in arrears on loans taken out to finance their war for independence from Britain; federal debt traded at 50 cents on the dollar, state debt for 20 cents or less. Alexander Hamilton, the first Treasury secretary, considered it vital to America’s economic health to re-establish faith in the national credit. He proposed in 1790 that the federal government assume the states’ war debts and then arrange a new schedule of payments and interest to refinance all of the republic’s unpaid bills. Holders of the restructured bonds would be encouraged to exchange them for capital in a new central bank that would issue a uniform currency to unify the states’ financial systems.”

“Foreshadowing the rifts within Europe today, Hamilton’s plan was deeply divisive. Virginia and other southern states that had paid off their debts resented being asked to pay taxes to bail out the others. Hamilton at one point feared for the future of the union if his plan did not pass: “Our credit will burst and vanish; and the States separate, to take care every one of itself.”

 “For the first century of America’s existence, the federal government’s presence was minuscule. Its total expenditures were usually less than 2% of gross domestic product (compared with 25% now), not much different from the European Union’s expenditures today as a proportion of the EU’s GDP, and the overwhelming share went to national defence. America did not become a transfer union until the New Deal of the 1930s.”

The Economist recalls that the US carried on through the 19th century without a true central bank and as a consequence suffered repeated banking panics and depressions. Nevertheless, it matured as an integrated economy.

“For all the shortcomings of America fiscal and monetary institutions, capital and labour did move freely from state to state. When one state suffered higher unemployment, its people left for better opportunities in another. By one estimate, the north-east and south-Atlantic regions’ share of the labour force declined from 93% in 1800 to 52% in 1860, while the Midwest’s share grew from less than 1% to 23%.”

Click on: www.economist.com/node/21541836

The Economist concludes on an optimistic note:

“Today, Europeans remain far less mobile than Americans, despite the EU’s free market in labour. This is probably the result of linguistic and cultural barriers and of inflexible labour laws. The ultimate lesson of America, then, is that what holds an economic union together has less to do with fiscal and monetary institutions than the desire of its people for closer political cohesion. That is an example that Europe is struggling to emulate.”

Americans learned to trade their labor and their goods and services with one another—to trust each other in the same market—while being divided on their governing institutions and, for instance, on whether women and blacks could be equals, whether children can be sent to work, and whether Roman Catholics or Baptists would go to Hell.

In an age of great and divisive abstractions, America was a jerry-rigged joke. The European Union unites less divided people. It already knows what institutional reforms are needed, and still remembers being bloodied by the alternatives.

Red-Tory-flavored British chauvinism

Phillip Blond is the red-Tory intellectual who coined the phrase “big society.” He imagines that civil society can voluntarily take up many of the tasks modern societies have assigned to big government. As George Bush took up “compassionate conservatism” an amazingly long decade ago, David Cameron has taken up the “big society.” It allows conservatives to be hard on government spending and regulation, and to be more optimistic about people than their more pessimistic left opponents.

Blond has now lent his optimism to British conservatism’s most dangerous proposition: the idea that the 27-member European Union (starting with the 17-member Euro-zone) can be managed down to something less than it is now—that European prosperity and democracy need more independent nation-states, a less bureaucratic federation.

Defending David Cameron’s decision to not participate in building the fiscal machinery necessary to complete the Euro-zone, Blond writes, “Britain can build a Europe outside the Euro.” He concludes his column on a convoluted and utopian note:

“Britain needs to stress that it sees the euro as the great danger to Europe and, rather than bizarrely pushing for its centralization under a German economic aegis – a provision that will ensure permanent proletarianisation for the southern nations – it needs to seek and create a new EU growth pact for those who wish for an alternative outside the euro but in Europe. For the common currency area that might mean separate euro zones or parallel currencies with greater or smaller spreads in relation to the euro. Rather than letting domestic policy-needs trump any international dimension, if Cameron is clever he could utilize one to augment the other and create a euro opt-out for nations for whom saving the euro would mean their own democratic erasure and impoverishment . If Cameron can make the most of this policy opportunity he will have created a vital exit strategy for European nations from a policy and a position that has every chance of failing. And, in time, Europe may thank Britain once again for saving them from themselves.”

Click on:www.guardian.co.uk/commentisfree/2011/dec/15/britain-build-europe-outside-euro?INTCMP=SRCH

So, let’s go back just half way—to when Europe had numerous national currencies and only a few fascist governments, when it was respectable for heads of state to design “pacts” to expand co-operation, reduce national barriers to the movement of goods, services, money, workers, and innovation, and avoid beggar-thy-neighbor currency and fiscal policies, and harmonize their individual efforts to be taken seriously by the super-powers.

Federal states are complicated, difficult to explain, and easy to attack. The EU is famous for its bureaucracy. Progressive nationalists like Blond, however, wouldn’t necessarily lead Europe to less government, more democracy, or healthier markets. Progress requires stability. And European stability requires European unity—and unity is federalism’s core business, not a photo-op or a last resort.  

The German Government and the other Euro-zone members accept the need for greater fiscal integration because their federation is too decentralized, not because they like pushing each other around.

The entire European Union’s central budget consumes barely 1 percent of the public sector of the European Union. The British Conservative’s most favored-neighbor—the United States of America—has one currency, 50 states, and a federal government that manages over a fifth of America’s Gross National Product. Britain’s federal creation—the Dominion of Canada—includes a federal government that holds close to a quarter of that country’s GNP.   

Crisis fatigue—moderates can lose it too

Maybe it’s only further evidence of our world’s diminished attention span. However, it’s extraordinary how easy it is for even cerebral conservatives to rebel against stubborn problems—a long recession and chronic public indebtedness, for instance—with ideas that could make matters worse.

Bravery—and pure-heartedness—is pleasing to the eye. And hesitant management isn’t.

New York Times’ columnist David Brooks doesn’t like what he sees in Washington and in Europe and, so, is tempted by heroic memories of the past. In two recent columns—“The Two Moons” and “A House Full of Strangers”—he rails against minority government in Washington and the embattled European Union. He recalls periods of dynamic, representative, and virtuous national government.

Weary moderates can also be attracted by the élan of radicals and the afterglow of past extravagance.

Brooks remembers kindly the “Sun Party” of FDR and the “Sun Party” of Ronald Reagan. They didn’t have to worry about the views and votes of their opponents. Conversely, he assigns “stagnation” to those periods dominated by “Moons.” Brooks assigns Obama’s moment to the Moonies—presumably, along with Nixon’s and Eisenhower’s.

He concludes with the cry of a petulant child:

“So it’s hard to see how we get out of this, unless some third force emerges, which wedges itself into one of the two parties, or unless we have a devastating fiscal crisis — a brutal cleansing flood, after which the sun will shine again.”

Click on: www.nytimes.com/2011/11/22/opinion/brooks-the-two-moons.html?ref=davidbrooks

Catastrophe being much closer on the other side of the Atlantic, he’s a little more precise about Europe.

“In the short term, the European Central Bank, the stable European nations and even the U.S. will have to take extremely big and painful action to stabilize the situation. But, after that, it’ll be a time for chastening. It’ll be time to discard the technocratic mind-set that created this inherently flawed architecture and build a Europe that reflects the organic realities of those diverse societies.”

Click on: www.nytimes.com/2011/11/18/opinion/brooks-the-technocratic-nightmare.html?_r=2&ref=davidbrooks

Just for now, Brooks concedes, it’s fine to have the “arrogant gray men” around to avoid another global financial collapse. But, once we’re all safe, he argues, it would be best for Europe to get rid of those pan-European technocrats and their “fundamentally flawed” European Union.

He damns too freely Europe’s young federal system, imagining its underlying problems can best be solved by smaller problem-solvers. This is voyeuristic mischief—from an American federalist.

Brooks complains that Europeans don’t all agree on what the word “federalism” means. A union that’s barely two decades old somehow shouldn’t be arguing about matters that still divide Americans, after two centuries.

He complains about elitism, that many in the Brussels bureaucracy don’t trust the people—while he lives in a federation that decided to constrain the people’s will in its founding constitution, and he works in a capital that would secretly love to strike a “grand bargain” against the populist excesses of its democracy.

He ridicules post-war efforts to build governments that were less organic and more transnational, passionless, and safe.

He invents a pretty picture of America—as united, sharing, and committed to one national destiny—to diminish the unity of Europe.

And, yet, Brooks invites Europe to return to the high stakes games that drove its affairs up to 1945. Does he believe, after all he’s said, that Europe is just sufficiently united, reasonable, and passionless to turn its leadership over to the ethnic and language nationalists of the past?

Euro skeptics: reactionaries without memories?

Politicians on the sidelines of the Euro crisis have been relatively free to think out loud. British Tories are having the most fun, getting fresh attention for diehard positions.

They’re didn’t like the century-long decentralization of their amazing empire and never accepted that political federations in North America, Europe, or elsewhere could ever govern as well as unitary states. The success of the European Union and its Euro-zone has been their longest frustration—since the American union climbed out of a civil war and saved their democracy in two world wars. 

Old ideas can look fresh when first brought in from the cold. Prejudice can sound like dogged principle.

The European Union, under the cover of a multilingual bureaucracy in Brussels, is a mongrel federation of tax and work-loving northerners and hedonist thieves along the Mediterranean. The Euro-zone, they exclaim, is “fatally flawed” because it’s incomplete. And, if its flaws are seriously addressed with greater fiscal integration, it will be run by the Germans!

Every whim of the whimsical bond market buoys their contempt.

British Conservative Prime Minister David Cameron has been cowed into vacuity.  He is now concerned that Germany’s Angela Merkel—who must raise additional hundreds of billions of Euros in Germany to calm the markets and save Europe’s commercial banks—may actually want a more accountable and more coherent EU in return.

Here’s Timothy Garton Ash’s summary of Cameron’s concerns:

Speaking at the Lord Mayor’s Banquet in London, Prime Minister David Cameron evoked a Europe “with the flexibility of a network, not the rigidity of a bloc.” “We skeptics,” he averred, “have a vital point. We should look sceptically at grand plans and utopian visions.” This crisis offers an opportunity “in Britain’s case, for powers to ebb back instead of flow away … and for the European Union to focus on what really matters.” In short: less Europe.

Click on: www.theglobeandmail.com/news/opinions/opinion/clarifying-europes-choices/article2238496/

This is the same wordsmith who claims as Prime Minister that he can close the gap between severe austerity and compassionate conservatism by bringing to life a “Big Society” of community activists.

Former British Labour Minister for European Affairs Denis MacShane provides the rebuttal.

“Euro speculators want to claim victory by seeing Greece forced out of the euro zone – followed by Portugal, Spain and Italy. A return to drachmas, escudos, pesetas and lire will be good for millionaire Brits and Germans with villas in southern Europe, where life was so much more agreeable when their neighbours were poor and used “Mickey-Mouse money”, as one British eurosceptic Conservative described the drachma.

“Only one force can stop the speculators from winning. That is the power of the democratic state organized in an unbreakable alliance with other democracies. More Europe is the answer to the disintegrating Europe we now confront.”

Click on: www.ft.com/intl/cms/s/0/86788aea-1048-11e1-8211-00144feabdc0.html#axzz1dy9XhTJY

The pursuit of a European federation is, first and foremost, a political idea. It is not the surest way to make money or the best stage for a Britain or a German politician to play politics like a true Britain or a true German. It is certainly not a utopian idea.

It is amongst the skeptics you are most likely to find rosy memories and little Utopian visions.

The European Union was created to make it less easy and less profitable for nationalists to divide Europeans as they have so often done in the past. That prudential vision obviously still disciplines Europe’s decision-makers. It fends off so-called “skeptics” who would play dice with Europe’s future.