The news from Europe, particularly from within the euro zone, seems all bad.
Interest rates on Italian government debt continue to rise. Attempts to put together a “rescue package” at the pan-European level repeatedly fall behind events. And the lack of leadership from Germany and France is palpable – where is the vision or the clarity of thought we would have had from Charles de Gaulle or Konrad Adenauer?
Jean-Claude Trichet, president of the European Central Bank until October, last week floated two proposals aimed at dealing with Greece and related eurozone public-debt problems.
The first idea would allow European Union authorities to override the policy decisions of member governments that can’t come up with sustainable budgets, implying the creation of an external control board for the likes of Greece. This approach has been used in the past for very weak countries (as well as for the cities of New York andWashington in recent decades). In Europe today, it would have no political legitimacy and would be completely unworkable — imagine the street protests it would spark.
In the nation’s latest fiscal mood swing, the mainstream consensus has swung from “we must extend the Bush tax cuts” (in November and December 2010) toward “we must immediately cut the budget deficit.” The prevailing assumption, increasingly heard from both left and right, is that we already have far too much government debt — and any further significant increase is likely to ruin us all.
This way of framing the debate is misleading — and at odds with the fiscal history of the United States. It masks the deeper and important issues here, which are more about distribution, in particular how much relatively wealthy Americans are willing to transfer to relatively poor Americans.