W
ith U.S. unemployment set to climb to 10%, and Canada not far behind, the North American market economies will soon be looking at what used to be derisively termed “European levels” of unemployment. The question is whether these high unemployment rates are merely short-term blips that will be followed by quick recoveries, or whether high jobless numbers will persist, turning Canada and the United States into grim replicas of sclerotic Europe.
Recent economic history suggests both Canada and the United States can quickly rebound from economic slumps. Unemployment in the United States, for example, hit a peak of 10.8% in the midst of the 1982 recession, but it was all over six months later.
Almost all recessions are followed by economic chatter about a looming “jobless recovery.” And all such chatter has, in the past, been proven wrong. Markets quickly adjusted to changing economic circumstances. Investors began investing, capital spending rose, workers and employees moved on to new jobs, consumers began spending again. Markets, left alone, function quickly.
The keys to these quick employment recoveries were the functioning markets for investment, employment and consumption. The current economic crisis, however, looks a little different. In the United States, and to a lesser degree so far in Canada, the open markets that cleared the way to rapid economic recovery have been severely undermined. The ways of capitalism in North America are giving way to the social-planning models and interventionism that have long restrained and paralyzed European economic development.
The Europeanization of American economic policy is well underway. President Barack Obama, backed by an army of anti-capitalist spear-carriers on the left, has moved to install the U.S. government as the overseer of this Europeanization.
One of Mr. Obama’s spear-carriers is Joseph Stiglitz, 2001 Nobel Prize-winning economist at Columbia University, who told the Financial Times earlier this year that “the view of American capitalism has changed. I hear a lot more of a sense of confidence in the European social model — the view that Europeans are very thankful that they have better social protections.”
Edmund Phelps, 2006 Nobel Prize-winning economist at Columbia, disagreed. “The unpleasant truth is that the European social model has been complete failure. They don’t have high employment, they have massive problems of social groups within societies. It’s a social catastrophe in Europe, so there’s no chance that Americans are going to go for a paralyzed, uninnovative economy with stagnant productivity.”
To say that there’s “no chance” Americans will tolerate massive government takeover and regulation of vast chunks of the U.S. economy seems overly optimistic today. The train has already left the station, ready to unload its burden of productivity-killing taxation and programs across the country.
Rapid economic recovery and job creation requires business and consumer confidence about the structure of the economy, free of uncertainty about the future course of governments and politics. Investors and corporations would be hard-pressed today to feel that the U.S. economic environment will soon be a place where market forces will prevail.
The Obama administration has politicized the financial system, taken over auto manufacturing, is seizing control of energy industries, health care, housing and others. Combined, these sectors make up more than 60% of the U.S. economy. New laws expanding minimum wages, union power and deficit spending will impose severe limitations of the functioning of markets for decades to come. The country’s central bank and its currency are covered by a huge overhang of dubious assets. Taxation is about to skyrocket and protectionist measures are already hampering global trade.
By comparison, the U.S. economy circa 1982 looks like an economic utopia. Ronald Reagan was still in his first term, having fired striking air traffic controllers in 1981, sending a message to unions. American capitalism was on the rise and Europe was busy expanding its social model.
Under Reagan capitalism, U.S. unemployment, at 10.8% in December, 1982, was down to 7.7% within a year and a half. And soon, the jobless numbers began a long decline — briefly interrupted in 1992 — to rates as low as 4% in 2000. The chance of a repeat performance under Barack Obama’s Europeanization are…?
Obama’s ‘Europeanization’ of the U.S. – Terence Corcoran, National Post
