Why is Europe a dirty word?

The NYT columnist Nicholas D. Kristof published an article under the above title in reaction to complaints made by Republicans in the present American election campaign. The Republican side warns that President Obama wants to "Europeanize" America and that "to make America more like Europe would poison the very spirit of America".

Mr. Kristof invited comments to his article and my comments are below.
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Dear Mr. Kristof,

I am Austrian, but half-American in the sense that I was educated at Harvard and spent half of my adult life with Chicago as my home base.

Your insights are very good. If there is one mistake, it’s that there are no “Europeans” just like there are really no “Americans” but I guess we all know what you mean when you refer to “Europeans”.

I had returned to Austria at age 41, after having lived in 6 other countries. It was like landing on a different planet. The shared belief that the collective good was of greater value than individual freedom. A society where the individual learned from his early years onwards that someone owes him something: the parents, the teachers, the school, the university, the employer, society at large, etc. etc. but where the individual was not taught that, first and foremost, he owes something to himself.

The differentiation between the “Old Europe” and the “New Europe” is very fitting (with all the bad things Rumsfeld said, this was one of his better expressions). Personally, I would list under the “New Europe” the Scandinavian countries and the former communist countries (except Russia). Switzerland is neither old nor new; it is simply a completely rational society where even politicians act rationally.  No surprise that Switzerland shows top results in key economic areas (infrastructure; unemployment, health and old age insurance; high defense spending and yet a budget surplus with a declining sovereign debt; etc.). The surprise is that Switzerland accomplishes all that with very low taxes!

And then I would also list the UK as part of the “New Europe”. Margaret Thatcher was not so wrong when she said that “in my lifetime, all the problems have come from Continental Europe and all the solutions from the English-speaking world”. Compared with the British, members of the “Old Europe” often behave like they had never experienced the Period of Enlightenment.

Having identified the “New Europe”, the “Old Europe” is that part which is left over. Taking Romney’s statements word-by-word, they are of course silly but his general message is not wrong. The “Old Europe”, with all its intellectual arrogance and feelings of god-given superiority, with all its self-focus and self-orientation, has been trying to outlaw the basic economic principle that there is no such thing as a free lunch. Instead, in “Old Europe” one believes that the best way to provide lunch for all is to provide it free of charge; that social welfare will only come about when the government organizes it; that betterment of society can be achieved even without reasonable competition of thought and performance.

The result of all of this can be found in the following prevalent traits: strife for consensus even if it means meeting at the lowest possible denominator; a virtually non-existing leadership culture; never-ending analyses but no decisions; limited development of personal potential and creativity; etc. The dream of many people is to become a public servant, or any other position which offers security of career and income and excludes risk as much as possible. Security is a virtue and risk is a danger. Or even: security should be rewarded and risk be punished.

Arnold Schwarzenegger, had he stayed in Austria, would today be a small-town policeman, a construction worker or something like that. Before he reached social standing by marrying into the Kennedy Clan, Austrians thought of him as a kind of proletarian muscle guy who was lucky to have gone to the US because “only in the country of unlimited opportunities was his success possible” (making it almost sound like his success was not deserved). Austrians would never put the question as follows: “Should it not be one of the foremost goals of a society to provide unlimited opportunities to everyone?”

“Old Europe”, deep down, dislikes America; there is significant anti-Americanism. Because of oversocialization, one tends to dislike people and/or societies who stand for strength. One is suspicious of charismatic leaders because “we already had such a leader before and that worked out terribly”.

To this very date, countries like Germany and Austria still use the funds of the Marshall Plan to support their economies (ERP-funds). One could reasonably argue that those funds, instead of supporting some of the strongest economies in the world, should now be transferred to the Southern Periphery so that they can reconstruct those economies the same way Germany and Austria reconstructed theirs after WWII. Well, make that suggestion and be prepared for the reaction you will receive!

That is one, of many, differences between “America” and the “Old Europe” and it would indeed be a shame if Americans as a society started behaving like “Old European Societies” behave.

After about 5 years back in Austria, I unloaded my frustrations into a paper titled “The unintended consequences of the welfare state”. It was submitted to the "1st International Gary S. Becker Competition” and was awarded the first prize. Below is a link to it.

http://tinstaafl-kleingut.blogspot.com/2011/07/prologue.html

Prof. Krugman on the welfare state

Prof. Paul Krugman argues in the NYT that it is not the excessive welfare state which is causing the debt problems. My answer to that is the following:

If societies are prepared to pay taxes equivalent to 60% of GDP in order to enable their governments to spend 60% of GDP, that should be acceptable to everyone. The problem begins when societies only want to pay taxes equivalent to 45% of GDP but want their governments to spend 50% of GDP.

Is there a mistake in my math?

Welfare State - Prologue

„Young man“, asked the seasoned manager the Doctor of Business Administration on his first day of his first job, „did they teach you the definition of TINSTAAFL at university?“ The ‘young man’ became nervous. He had been a brilliant student, indeed, but the term TINSTAAFL had never come up anywhere. If TINSTAAFL was an important theory, how could he possibly not have heard of it? The seasoned manager waited a few seconds while keeping a stern expression on his face, then he blurted out: „It means: There Is No Such Thing As A Free Lunch, and you better remember that!“ The ‘young man’ felt sure that he had lost his first job before he had even started it. But then the seasoned manager put on a grin, reached out his hand and said: „Welcome to the real world, young man!“

Welfare State - I: TINSTAAFL and the Welfare State

The principal thesis of this paper is that, in reality, there is no such thing as a free lunch and that the major problem with the Welfare State, as it is being understood in many European countries, is that it tends to create the illusion as though there were such a thing. By creating this illusion, the Welfare State impedes those forces that have historically worked for the betterment of society, namely: the reasonable competition of thought and performance.

The idea of a ‘free lunch’ is not part of natural human expectations (in primitive society - one can safely assume - it was simply accepted that one had to hunt in order to get food on the table, and in modern society one simply accepts that one has to pay for a meal in a restaurant). At the same time, the fear of not being able to have lunch at all is still very much an issue for many people even in today’s advanced civilization. Symbolically speaking, the Welfare State, as understood in many European countries, tends to suggest that the best way to provide lunch for everyone is to provide it free of charge. Where that happens, the basic reality of there not being such a thing as a free lunch is being ignored. That way - this paper suggests - the alleged cure becomes part of the problem because it creates expectations which cannot be fulfilled on a sustained basis (i. e. the expectation that there can always be free lunches). At the same time, those forces that are necessary for the betterment of society overall (i. e. the reasonable competition of thought and performance) tend to become impeded.

In primitive society - one can safely assume - there was no debate about the fact whether it was right or wrong that one had to struggle for survival; it was a necessity. In modern society, the struggle for survival seems to be unevenly distributed: the „have’s“ need to struggle less and the „have-not’s“ are expected to struggle more.  The question is, however, whether the term „struggle“ is an adequate term at our present stage of civilization. „Struggle“ does imply in one sense or another that success comes at the expense of someone else; that there is only one deer to shoot and that it is „either him or me“ to shoot it. Modern thought should convince us that there is enough deer for all and that we will shoot the most for all if we marshall our resources towards that common objective. Or, as the proverb says: „If you give a hungry man a fish, he eats once. If you teach him how to fish, he eats forever“. Fishing can be fun, provided that one is allowed to fish where the fish are. Being given a fish (when unable to catch one) is a tacit admission of defeat, and it makes the recipient dependent on the donor.

Human potential is best observed when it is being the most tested. The post-World War II period provided for an unparalleled challenge for mankind to rebuild. And when modern mankind was forced to focus its attention on obvious (and undebatable) challenges, it succeeded. It was not government that achieved those successes; it was the marshalling of resources by the people to one common goal, it was the effort and undertaking of individuals that made it possible. Government only provided the framework for allowing that to happen. And in those instances where government did not provide for an adequate framework (such as in East European communism), the results did not happen.

„There is nothing that I can give you“, an Austrian leader told his people shortly after the end of World War II. „Except I ask you,“ he added, „believe in the future of your country!“  (Editorial comment: „Believe in your own abilities!“). Less than 2 decades later, another political leader phrased it differently by saying: „Ask not what your country can do for you; ask what you can do for your country!“ These are classic examples of the themes that Welfare Government should put forth. To misunderstand that is the classic foundation of present day’s Welfare State.

History tells us that nothing comes free of effort: neither the pyramids, nor medieval castles, nor the Autobahns were built without effort. The question is not whether effort is required to achieve results but rather, whether the targeted results are appropriate ones and whether the effort to achieve them is fairly distributed. There is no free lunch! The questions are: who should pay for it and who should eat how much of it? If the Welfare State answers those questions adequately, then the Welfare State is the objective to aim for. This paper does not suggest that the Welfare State can under no circumstances answer those questions adequately. It does suggest, however, that - over time - the Welfare State tends to be poorly suited to solve the problems that had lead to its creation in the first place because it tends to impede those forces that are necessary for the lasting betterment of society: the reasonable competition of thought and performance.

Welfare State - II: Lassez-faire - the Answer to Everything?

Dynamic young Europeans, frustrated by overregulated societies that prevent them from realizing their personal and professional objectives, may dream about the unlimited opportunities that the American Way of Life offers. Unemployed Americans - or Americans who fear that they may soon be without a job - may dream about the benefits and protection that European Welfare States offer. Which of the two is right?

Both are right in principle: The entrepreneurial American who believes in risks and rewards (and who can live with the consequences of that belief) would probably suffer from depressions in a European Welfare State. The traditional European, accustomed to stable and well-understood structures, might consider suicide in an environment where the only thing that is permanent is change.

„Let the markets rule!“, is the slogan of many today. „We have to control the speculators!“, is the slogan of others. Both are very good slogans; neither is a universally applicable solution.

Two of the important elements for the sustained success of a society are: first, it needs to have clear its ‘basic rules of the game’; and secondly, it continually needs to adjust these rules to the changes taking place in society and in the world. It needs to be dynamic and not static. Political and economic models tend to explain the functioning of society in a static way. They tend to suggest that a certain political and economic structure has permanent validity and applicability. The result often is a society of diminishing ability to adapt to changes taking place in the world; a society of diminishing ability to self-correct.

It would be the subject of a dissertation in the field of Political Science to discuss the question of how the ‘basic rules of the game’ of a society (in other words: its perceived or real value structure) evolve. If a national President pronounces, for example, that „the business of America is business“, and if he remains popular after having pronounced that, one can conclude that by having made that pronouncement he struck a familiar cord, a generally accepted value structure. By contrast, if a head of government pronounces that „we“, the government, that is, „have to provide welfare to everyone“, and if he gets applauded and reelected for that, then we are witnesses of a different value structure.

„Laissez-faire“ represents the value structure of a certain society at a certain stage in its development. There is ample historical evidence that a complete „laissez-faire“ approach leads to many undesirable consequences. The answer, however, cannot be a „ne pas laisser-faire“ approach because its major - and most damaging consequence - is the de-emphasis of competition of thought and performance in the process of achieving results. In its stead move the regulation of thought and performance and the power of regulators.

„Laissez-faire“ should, therefore, be considered as a mindset, a basic way of thinking in the process of determining what - within the context of the basic rules of a society - should be assigned to the category of „ne pas laisser-faire“. In theory, a „laissez-faire-mindset“ and the Welfare State should not have to be mutually exclusive concepts: there is no compelling reason why a Welfare State would not continually reexamine actual results against the original intentions. In practice, however, it does not tend to work that way.

Welfare State - III: The Welfare State - Its Intended Consequences

The arguments in this paper do under no circumstances question the positive human intentions and motivations underlying the evolution of the Welfare State (or rather: the Welfare-State-Mentality). Believers in Christian faith could (and probably would) argue that the Welfare State is the assertion of Christian commandments: Support the weak! Reign-in the strong! Provide for general well-being of all!

The Welfare State tends to blossom where the ‘basic rules of a society’ are not perceived to honor the principles of supporting the weak, reigning-in the strong, and providing for general well-being of all as prominent themes of everyday-life. The origin of the Welfare State is not the proposition to provide for the dream of a better world. Instead, the origin of the Welfare State is the disappointment that the dream of a better world might never materialize unless its achievement is organized.

If the Welfare State blossoms in societies where the above noble principles are not sufficiently respected, why, then, is the Welfare-State-Mentality not widely spread in the United States? In the country, where many Europeans believe that the law of the jungle still rules? Where the strong are the heroes and the weak are the outcasts? Where there is little by way of social protection to provide for the general well-being of all?

The answer lies in the degree of social awareness and social responsibility that is part of the society’s basic rules. The American culture may well respect the principles of supporting the weak, reigning-in the strong and providing well-being for all in no lesser degree than a good European Welfare State. However, the American culture may propose that there is more than one road to happiness and that the organized and programmed system of Social Welfare is perhaps not the most efficient way to achieve desired results. That, however, does not necessarily mean that the results are viewed any less desirable and as long as that kind of social awareness and social responsibility is felt, a Welfare-State-Mentality is unlikely to blossom. Again, a Welfare-State-Mentality is not necessarily a noble proposition per se. Instead, it could be viewed as an admission of social defeat, as the admission that Social Welfare will only materialize if it is organized by the state.

Still, the Welfare State - as it is being commented here - is the result of some form of social consciousness of a society, of a shared belief that a reasonable equilibrium of well-being is the basic foundation for the lasting success of a society. From that standpoint, the original intentions of the Welfare State are absolutely honorable and noble! This is not what the debate should be about. What the debate should be about is to what extent the actual consequences of the Welfare State correspond to its original intentions.

Welfare State - IV: The Role (and Consequences) of Entitlements

In a well-developed Welfare State, the human being is greeted at birth by the Welfare State in the form of a „child bonus“ (which, actually, the parents receive). The young person begins grammar school and learns that he/she is entitled to free transportation, free education and free literature. Around the age of 10, the young person learns that he/she is entitled to move on (again totally free of charge) to „Gymnasium“ provided that the grades are adequate. Meanwhile, the parents have become accustomed to the fact that they are entitled to receive monthly „child support payments“ from the state. 

Around the age of 18, the young adults learn that they are entitled to move on to a university of their choice to study a field of their choice (again provided that the grades are adequate). Of course, the attendance of university is free of charge, the parents continue to receive the „child support payments“ and in all likelihood one finds subsidized student housing (perhaps with the help of the recommendation of an „influential person“). The student is under no requirement to deliver academic results in order to retain the benefits of free education (and in order for the parents to retain the benefits of „child support payments“). And when the student completes his/her university education, he/she may even feel entitled to be provided with a job that adequately corresponds to the level of education received. A well-developed Welfare State will normally provide ample employment opportunities in the public and semi-public sectors for young academics. It is safe to assume that the performance requirements in such careers are less stringent than in a comparable private sector career: income levels and promotion intervals are prescribed and equal for all, and after a certain number of years the employee is entitled to be ‘pragmatized’, i. e. total job security for a lifetime. And, of course, at a reasonably young age that person will be entitled to retire in order to be able to enjoy retirement while still being physically strong. In short, that prototype of a citizen of the Welfare State will never experience in his/her lifetime the supply and demand forces of the real world.

That way, the young person learns from early on that one is entitled to certain benefits. And, of course, if one learns that, then one also learns to insist on receiving those benefits; a mentality of insisting on „well deserved rights“ develops. What does not develop is a mentality of achieving benefits through performance. One accepts the facts that, in order to eat one must be given a fish and that the hand by which one is fed must not be hurt. Thereby, one does not discover the pleasure of catching a fish by oneself (nor the agony if one does not catch fish despite great effort).

Such a system of entitlements is unlikely to develop on its own. Instead, someone has to invent the system and monitor/control compliance with it and that „someone“ tends to be the Welfare State. And whoever monitors/controls the system assumes a level of power and influence that is generally not very much tested by forces of supply and demand: since the Welfare State tends to be the creation of political (and not economic) interests, its implementation and administration tends to also be influenced by political factors. And any system that tends to ignore and/or violate economic realities over time is very much prone to become inefficient.

Critics of a capitalistic economic system can credibly argue that it is not business that responds to consumer demands but rather that it is business that creates those demands (which is subsequently fulfills) in the first place. Critics of a Welfare State could reasonably argue that the Welfare State first creates in the minds of the people the need for those entitlements that it subsequently provides. There is nothing really wrong with a deodorant manufacturer to create a fear of sweating with the aim that people will therefore buy his deodorants: theoretically, at least, the individual consumer still has free choice to buy. There is something wrong with a state that nurtures in the population the fear and the sense of risk associated with not playing by the rules of the state (e. g. the risk of losing „entitlements“ or „well deserved rights“): practically, the citizen of the Welfare State does not have free choice to individually depart from its rules.

One therefore tends to become dependent. Just like a perspiring person tends to become dependent on deodorants (as long as he thinks that the deodorant is the answer to his problems), a good „welfare citizen“ tends to become dependent on the Welfare State. Only a fool would switch jobs at the age of 45 if that means losing accrued severance and pension benefits! Only a fool would relocate to a new residence if he/she is entitled to an adequate job in the place where he/she lives.

Life is full of dependencies and interdependencies: the dentist needs a baker in order to buy bread, and the baker needs a dentist in order to fix his/her teeth. Those are „natural dependencies“; they are driven by supply and demand. The Welfare State tends to create „unnatural dependencies“: they are driven by considerations of who should be entitled to what, often irrespective of economic realities.

The case is being made here that, over time, „unnatural dependencies“ not only tend to create inefficiencies (because they tend to ignore economic realities), but that they also tend to ignore  basic human needs. It may be nice for a civil servant to know that he/she will be promoted in line with procedures regardless of whether the promotion is deserved or not. But will he/she really develop a sense of individual worth if he/she receives everything as a result of a system of entitlements instead of a system of performance? Is it a natural human need to see entitlements fulfilled? Or is „Homo Sapiens“ perhaps a creature that thrives on achieving a sense of worth, a sense of responsibility and independence, on searching for ways to compete through thought and performance?

If it is indeed a basic human need to develop a sense of personal and individual worth, then the Welfare State tends to violate that basic human need. The Welfare State generally does not respond to individual needs. Instead, it tends to respond to the needs of groups and of society at large. And the actual interests and needs of individuals can easily differ from the perceived interests and needs of society at large.