Can Free-Market Principles Reverse America’s Decline?

Reversing America’s decline is the Gordian knot that preoccupies some of today’s brightest scholars. A national debt soaring past $17 trillion, slow economic growth, and a shrinking middle class have caused much handwringing and anxiety. Samuel Gregg, research director at the Acton Institute, believes that the “real shock” was the weakening of popular support for our free-market system. He reports that, as recently as 2002, eighty percent of Americans surveyed expressed a strong or somewhat favorable view of free markets. By 2010 support for markets had fallen to fifty-nine percent; among lower-income Americans, the figure was another fifteen points lower. This is hardly surprising considering the nation was still suffering the devastating effects of the 2008 economic meltdown.

In Becoming Europe, Gregg calls for Americans to rediscover the cultural habits and economic mores required for a free nation to be morally upright and prosperous. The U.S., he contends, has been on a path that will lead to Europeanization, a scenario in which the social-welfare state grows so large and expensive that it overwhelms the country’s resources. Such a direction, says Gregg, will lead to oppressive new taxes and a crippled economy. Ominously he warns that America’s democratic liberties could be at risk.

Clearly, modern democracies face an uncertain future. Gregg points to the snowballing costs of providing social insurance and entitlement programs: In many European nations, the budget for government can make up as much as fifty percent of the entire national product, which drains resources from the overall economy. For decades, Europeans and Americans have postponed the day of reckoning necessary to reduce debt. According to Jean-Claude Juncker, Luxembourg’s prime minister, “We all know what to do, but we don’t know how to get re-elected once we have done it.” Recent attempts in Great Britain and elsewhere to impose widespread cutbacks in government services and employment in the midst of a continent-wide recession have angered voters. And in some cases, austerity programs have actually lowered economic growth.

Becoming Europe provides a fact-filled and readable primer on the history and evolution of postwar Europe. It presents a thoughtful discussion of the economic reasons why postwar leaders adopted unification through the European Union and strove for social harmony by establishing a social-assistance model. Gregg identifies some important historical differences between the U.S. and our allies across the Atlantic. Europe has an established aristocratic tradition and distinct social classes. People still have memories of the two world wars fought in the past century. Community and social obligations have long been accepted as among the duties of responsible government. This helps clarify why those nations have tended to adopt a more community-based approach that emphasizes social harmony. They are following a moral principle known as solidarity. On the other hand, Americans put more stress on self-reliance and individual effort, something that stems in part from our historical roots in Calvinism.

To stem the economic crisis, Gregg recommends a return to personal initiative and individual self-interest, which he contends is a central and fundamental strength of the American tradition. Such a culture, he argues, is based on the principle of subsidiarity, which he understands as federalism, strictly limited government, and “faith in liberty over security.” Reversing the breakdown of biblical morals and Judeo-Christian virtues would seem to be a prime factor in restoring the economic vitality of Europe and the U.S., but Becoming Europe downplays the impact of secularization and the upsurge in hostility to Christianity, perhaps in deference to modern sensibilities about the separation of church and state.

One of the book’s many persuasive sections is Gregg’s description of the current European Union as a conglomeration of redundant agencies that provides a safe harbor — something like a highly paid Club Med — for career bureaucrats. Gregg is correct about the need to streamline existing social-welfare programs in order to prevent abuse; in too many instances the intended recipients aren’t getting what is needed or promised. He includes a laudable discussion of the harm done by the zero-population-growth movement, which has spawned a host of shameful and coercive schemes to suppress world fertility. Many European countries suffer birth rates so low that they face the negative effects of depopulation. The U.S. birthrate is a bit higher due to the presence of a greater share of immigrant families.

Becoming Europe struggles in an effort to frame two singular and radically different economic outlooks. Gregg argues that the U.S. economic model of recent decades remains a spectacular success while European alternatives have been woeful in comparison. In making his case, however, he sees no need to include any data; he merely assumes that everyone is already persuaded. For a certain group of Americans, his assertion may ring true, but the actual situation is not nearly as straightforward. In the aftermath of the 2008 financial meltdown, the so-called neoliberal, or “free trade,” model has come under increased scrutiny by scholars and economists. As an ideal, pure free trade has few critics; in the real world, however, the model has become closely associated with vanishing manufacturing, crony capitalism, and bailouts for bankers.

There is also the paradox of who benefits from economic growth. Economists have noted that policies of unrestricted markets and deregulation, long favored by both major parties and the Federal Reserve, often mean a shrinking income share for average working people. Since 1979 the overall output of U.S. workers has doubled, but while corporate profits have soared to record heights, the median income for Americans is only slightly above what it was thirty years ago. Indeed, after accounting for inflation, the salaries of working people have actually been declining. Figures as of 2011 show that average workers earned ten to fifteen percent less than they did a decade earlier — the only such decline in U.S. history. Meanwhile, since 2009, two out of three newly minted U.S. jobs are at poverty-level wages. Millions of low-wage employees are now struggling to stay afloat, and the number of formerly middle-class families is exploding. Yet for some reason, Gregg seems to regard low wages as a great leap forward. He takes issue with Europe’s original 1936 accords that “established collective bargaining and required businesses to recognize and negotiate with trade unions” and provided a “forty hour work week, two weeks of paid leave and raised wages.” Apparently he feels that this was overly generous. Gregg also wants to remove any restriction on immigration because, he writes, “Immigrants create competition in relatively free labor markets, not least because many migrants are willing to work longer and for less wages than the native-born.”

Gregg refers often to Alexis de Tocqueville’s observations of the U.S. in the early nineteenth century, which included a ringing endorsement of American democracy and highlighted the solid religious culture of Americans, whom he praised as inventive, hardworking, and inspired by liberty. Like a number of neoliberal scholars, Gregg believes that America has a unique moral culture, manifested by individualism and self-reliance, expressed as self-interest. He believes that certain values found in earlier generations such as thrift, industriousness, and self-reliance have deteriorated but are dormant in America and can be rapidly regenerated — unlike in Europe, where a culture of communalism has become entrenched. He thus offers a list of familiar remedies often heard on popular radio and TV talk-shows and sponsored by a faction of prominent think tanks. Unfortunately, as with many reform plans, the specifics sound repetitive and one-dimensional. For instance, Gregg cites studies by Robert Rector, a senior research fellow at the conservative Heritage Foundation, that suggest that demanding greater sacrifices from lower-income workers and the poor is the proper first step to insure the country’s long-term stability, ignoring the privileges afforded to the affluent. This in a country where the concentration of wealth in the hands of the super-rich is among the highest in the world and has reached a level not seen in America since the 1920s. Any serious effort to restore civic virtue in America surely must recognize a historical truth: As with past civilizations in decline, the problems of rampant corruption, greed, and collapse of character are assuredly linked to the degenerate behavior of our leaders who are blessed with the greatest material and educational advantages.

Gregg puts a high premium on what he calls freedom — but here we should take pause. The way Becoming Europe defines it, freedom (or liberty) seems to mean having the most expansive options to pursue one’s individual goals, whatever they might be. Most social scientists have dispensed with time-honored traditions they regard as archaic, such as the concepts of virtue and vice; much of present economic theory assumes that a capitalist system is geared toward channeling raw impulses such as greed and blind ambition. In these circles, promoting prudent conduct and limiting individual desire is outré. Gregg speaks highly of individual self-interest but at various times dismisses important community and social goals. He believes that common interests are opaque — impossible to discern and likely of no importance. In his assessment of why the European Common Market has been a “failure,” he finds it both disappointing and “remarkable” how European political parties like the Christian Democrats and Social Democrats could have cooperated to accomplish goals like a national minimum wage, capital gains taxes, the right to form labor unions, and pensions for the elderly. Gregg suggests that achieving an accord to benefit business, labor, and farmers while promoting social goals amounts to “collectivism,” which will stifle initiative and lead directly to economic stagnation. These pessimistic conclusions contradict a large majority of authors who have demonstrated how Europe’s Common Market brought about decades of broad-based continental prosperity. In addition, a successful EU was a pivotal factor in preventing a takeover by Soviet communists!

Although Gregg disparages the often unsound moral effects that social insurance programs like Medicare and Social Security have on the lives of those they intend to serve, he does provide details that demonstrate clearly that the idea of the common good is directly linked to Europe’s Christian traditions, which draw upon the papal encyclicals Rerum Novarum (1891) and Quadragesimo Anno (1931). These documents support a fair and living wage for workers, strong labor unions, and the dignity of working men and women, and are highly critical of capitalism’s destructive tendencies and the way it is often dominated by those who lust after wealth and power, or by unscrupulous business practices. It’s surprising that Gregg, a practicing Catholic, is willing to sidestep the teachings of papal encyclicals when they differ from the rigid formulas of economic liberalism.

Few would doubt that social insurance policies, both in the U.S. and Europe, have become overextended and are in need of major restructuring. Yet the book’s claim that they “force citizens to give up economic freedom” and destroy individual opportunity is highly questionable. Catholic University of America economist Jeffrey Muller has pointed out that inequality and insecurity are perennial features of capitalism and have become more damaging due to globalization. “To be made legitimate,” he wrote in Foreign Affairs (Mar. 2013), modern capitalism requires adequate social policies — reliable safety nets, we might say — which serve “an indispensable purpose and must be preserved rather than gutted.”

The growth of the welfare state is clearly unsustainable and constitutes a daunting challenge. Despite some apparent flaws, Becoming Europe serves as a thought-provoker in the ongoing debate on how to achieve justice and prudent social reforms.