by Paul Gregory
President Obama calls for “social justice.” He agrees with the motley “occupiers” that the One Percent gets almost everything.
Reagan and the Bush tax cuts burdened us with a tinderbox of inequality, he lectures us. The rich should pay their fair share. “Enough is enough.” We must create a “just” society that guarantees the poor a dignified life.
In a word, we must become like Europe, for whom Obama expresses open admiration.
Obama apparently does not know that the European countries that have become “fairer” over the past two decades are now basket cases of debt, social unrest, and an unaffordable welfare state. Those European countries that have had the discipline to become “less fair,” are, in the words of a sympathetic liberal columnist (The GOP scrambles for a bogeyman) “doing well economically, both in absolute terms and in contrast to us.”
We should be like Germany or Sweden but not like Greece, I guess. But Germany and Sweden are recovering from too much of the social justice that Obama wishes to impose on us, while Greece is falling apart in a sea of equality and justice.
Buried in OECD statistics is an innocuous table entitled “Gini coefficients (after taxes and transfers).” Gini coefficients are the most widely used measure of income inequality. A zero Gini means everyone has the same income. A unitary Gini means one family has all the income. Ginis therefore fall between zero and one. The higher the number, the greater the inequality.
The table shows the percentage increase (or decrease) in income equality for European countries after redistribution by the state through taxes and benefits. (The more positive the number, the greater the increase in inequality. Negative numbers show a reduction in inequality, as Obama would like.)
|Percent Increase (decrease) in Inequality|
Hold the presses! The OECD income-inequality statistics show the basket-cases of Europe – Greece, Ireland, and Spain – are the ones that increased their “fairness” over the past quarter century. France, on its way to becoming a basket case, has also become more “socially just,” but less so than its fairness addicts to the South. The only exception is Italy, which has become marginally “less fair,” but belongs among the basket-cases of Europe. Those countries in Northern and Central Europe, praised by the Democrat elite as doing so well – Sweden, Germany, Norway, and Netherlands — have become “less fair.”
Sweden, Germany, Norway, and the Netherlands are doing well because they are going about the difficult process of correcting the excesses of the runaway welfare state.
Sweden fell from the world’s fourth richest country to eleventh place after it adopted its “solidarity wage model” of universal health, early retirement, permanent unemployment coverage, seventy percent marginal tax rates, and four of six million Swedes living from the public purse. The Netherlands used its North Sea energy windfall to create a cradle-to-grave system that eventually placed fifteen percent of the generally-healthy able-bodied Dutch population on physical or mental disability. Denmark moved from a welfare to a workfare state, making it and the Netherlands “model cases of welfare reform in Western Europe.” Germany erected a system of long-term unemployment insurance and welfare payments that made public assistance more profitable than work for many. They had to recruit someone from private industry to tell them how to make work pay again.
Each of these countries has fought back, despite vociferous opposition from the Left, to create a “less fair” but better functioning social and economic system.
Europe’s current basket cases will find it more difficult to reverse their runaway welfare states. The welfare constituency of public employees, early retirees, and the unemployed has become the dominant political voice and will not accept a return to sanity.
Europe warns us that the “Road to Serfdom” can be short. Northern Europe may have dodged the bullet at least for now, but it will again face pressure for a restoration of fairness when the political pendulum swings back to the left.
When the Berlin Wall fell, curious West Germans flocked to Wandlitz, the elite compound where the East German leadership lived. The visitors were shocked that they lived as well or better than the “One Percent” of East Germany. Communist East Germany had inadvertently created the type of society the “Occupy Wall Streeters” would get if their demands were met – a fair society in which the top dogs live no better than ordinary people in other societies.
Obama’s liberal concept of fairness is in fact unfair because it leads to less for everyone. If we follow his campaign slogan, we will lose the initiative, self reliance, innovation, and risk taking that constitute the core of all successful societies and from which all citizens benefit.
The 2012 U.S. election will decide whether we will be Greece or Germany, or whether we live within a country-wide Wandlitz or outside its walls.
Paul R. Gregory is a Research Fellow, Hoover Institution Cullen Professor of Economics, University of Houston. Gregory has a regular blog //blogs.forbes.com/paulroderickgregory/at Forbes.com