Social Democracy as Recession Insurance

Ezra Klein channels Laura Tyson:

“Think of this from the perspective of individual citizens,” she said. “We’re the ones who are going to see a huge increase in homelessness, in people without health care, in people without unemployment benefits, and in people not getting the education they need. The Europeans are right to say that they have strong automatic stabilizers in effect. From the perspective of Americans, it’s worse for them. They’re undercapitalized, overleveraged, and they don’t have a serious safety net protecting the key things they need to worry about.”

This might, she implied, help explain why America has been so much more aggressive about countering the crisis. They are much more vulnerable to recession than the Europeans. As evidence, she brought up every economist’s favorite bugaboo: Japan’s lost decade. It was bad for growth, she argued, but not particularly devastating to individuals. “The Japanese households, in the last decade and a half, they never experienced the economy the way economists experienced it,” she said. “The economist saw the economy as in dire shape. You asked the average Japanese person if they were in dire shape, they didn’t see it that way.”

James Surowiecki makes a similar point in The New Yorker. Another issue that I think needs to be considered is the direction of political change. Political conversation in recent years in the United States has mostly been about expanding the social safety net (usually in the form of health care reform) and improving the quality of public services (usually education or infrastructure) whereas debate in Europe has predominantly been about paring back the safety net in the name of greater growth. Consequently, I think it’s difficult for European elites to pivot in the direction of additional spending no matter how bad the recession gets.


Meanwhile, it is worth keeping in mind that all the Europeans I’ve spoken to are expecting a U.S.-led or Asian-led recovery; they’re just kind of laying low and figuring that they’re well-positioned to weather the storm.