Europe Leads the Way on Dealing With Deficits

Should we to sit on our hands or follow Europe’s lead and make the hard choices to reduce our deficit?

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Rep. Paul Ryan and American Enterprise Institute president Arthur Brooks recently argued that America faces a choice: "Do we still want our traditional American free enterprise system, or do we prefer a European-style social democracy?" Although the answer appears to be neither as clear nor resounding as I had hoped, it is apparent that Americans believe in our unique approach to governance. Which leads me to present another question: in responding to our debt crisis should we remain content to sit on our hands, or do we follow the lead of Europe and make the difficult choices necessary to reduce our deficit.

Don't think that I've missed the irony in wanting to continue our free-market tradition yet encourage us to follow a European debt-reduction prescription to do so. They act, while we dither. Actually, we do worse than dither; we simultaneously demand reform then guffaw at any proposed solution. 

This was evident in the backlash over the recently released recommendations from President Obama's bipartisan deficit commission. Speaker of the House Nancy Pelosi called the proposal "simply unacceptable." Her given rationale for opposing the proposal is the obtuse notion that, "the Commission should do what is right for our children and grandchildren's economic security." Illinois Democratic Sen. Dick Durbin said that he hates many of the proposed cuts "like the devil hates Holy Water" adding "I'm not going to vote for this thing."

[Read more about the deficit and national debt.]

And that's the problem. It's hard to rustle up votes for any debt reduction proposal because they inevitably contain a politically toxic blend of cuts to voter's beloved programs. Nobody wants to talk about Social Security reform for fear of angering seniors, nobody wants to discuss raising the retirement age lest they lose the baby boomer vote, and nobody wants to cut the size of government and incur the wrath of unions. Every cut has a foe and politicians aren't in the business of making enemies amongst the electorate.

At least that used to be the excuse. Recent trends are beginning to undermine the conventional wisdom that voters hate big government in the abstract, but love specific entitlement programs. Take debt-plagued Greece where the Socialist Party won decisively in the recent regional elections despite being the party to propose a deep austerity program. Over the last year, the Socialist majority has passed pension cuts, tax increases, slashed the size of government, and raised the retirement age in order to address its yawning budget deficit. Finance Minister George Papaconstantinou praised the results saying, "People understand that there is no magic formula, and that difficult things must be done to save the country and improve it."

Voters also rewarded the party who pushed austerity in the recently held Latvian elections. Latvians reelected Prime Minister Valdis Dombrovskis despite, or possibly because of, his decision to cut government spending by an astounding 6.2 percent of GDP. Neil Shearing, an economist at Capital Economics, called the results "remarkable…given the austerity that has been inflicted."  Lars Christensen, an analyst at Danske Banke in Copenhagen, said that Dombrovskis will serve as an "inspiration for his colleagues in the EU; that he can be reelected even after passing austerity."

[Follow the money in Congress.]

Never mind the European Union, it should serve as an inspiration to politicians here. These results show that cutting our budget deficit will necessarily involve difficult choices, but they needn't be politically damning. Quite the contrary, voters can actually appreciate a politician who is willing to take the lead on solving our burgeoning debt problem.

New Jersey Gov. Chris Christie is perhaps the best example from this side of the Atlantic. He came in swinging. His budget proposal made a wide range of cuts, including laying off 1,300 state workers and trimming state aid to school districts. Nevertheless, he was largely successful in closing the state's $10.7 billion deficit without raising taxes. The plan to balance the budget didn't make him immediately popular. Following the introduction of the budget cuts, his approval-rating fell to 33 percent—a reflection of the seeming unpopularity of his decisions. Unapologetic, Christie said that "You can disagree, but you're never going to be able to say, 'The guy wasn't willing to take a risk. The guy wasn't willing to take a chance on how to fix something.'" His steadfastness is beginning to pay off. The latest poll has Christie's approval rating soaring to 51 percent, even surpassing Barack Obama's popularity in New Jersey.

As our national debt reaches a point that we must act, our politicians face a difficult choice. Do they stand on principle, but gamble on the politics of spending cuts, or do they play it safe and act as if it will all blow over? Politicians may not have the guts to decide, but if recent trends hold, they may not need them.

  • Check out a roundup of political cartoons on the economy.
  • Read more about the deficit and national debt.
  • Follow the money in Congress.