Shadow Government

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The transatlantic democracy deficit

Europe’s financial difficulties were predictable, but they have been unfolding at a startling clip. This has brought out different reactions in different commentators. Paul Krugman, for example, is preparing to hide under a table. I am no less impressed by the potential for disaster, but I am also struck by the undemocratic nature of major ...

LOUISA GOULIAMAKI/AFP/Getty Images
LOUISA GOULIAMAKI/AFP/Getty Images
LOUISA GOULIAMAKI/AFP/Getty Images

Europe's financial difficulties were predictable, but they have been unfolding at a startling clip. This has brought out different reactions in different commentators. Paul Krugman, for example, is preparing to hide under a table. I am no less impressed by the potential for disaster, but I am also struck by the undemocratic nature of major deliberations in Europe and by parallels here in the United States.

The pace of Europe's response to Greece's mounting woes has been rather stately. This is in spite of some fairly blunt calls for urgent action. From the Financial Times:

"Far too much time has been wasted on inaction," said Angel Gurría, secretary-general of the Paris-based Organisation for Economic Co-operation and Development. "We should have intervened two or three months ago. The markets have developed negatively since then, unnecessarily. That's why we have to act now, quickly and decisively."

Europe’s financial difficulties were predictable, but they have been unfolding at a startling clip. This has brought out different reactions in different commentators. Paul Krugman, for example, is preparing to hide under a table. I am no less impressed by the potential for disaster, but I am also struck by the undemocratic nature of major deliberations in Europe and by parallels here in the United States.

The pace of Europe’s response to Greece’s mounting woes has been rather stately. This is in spite of some fairly blunt calls for urgent action. From the Financial Times:

"Far too much time has been wasted on inaction," said Angel Gurría, secretary-general of the Paris-based Organisation for Economic Co-operation and Development. "We should have intervened two or three months ago. The markets have developed negatively since then, unnecessarily. That’s why we have to act now, quickly and decisively."

And yet Europe’s summit meeting appears set for May 10. Why the delay? There is an important German election on May 9. From the New York Times:

The North Rhine-Westphalia election has the potential to upset the existing balance of power. At stake is not only the state legislature, but also control for Mrs. Merkel’s coalition over the little-watched upper house of Parliament, the Bundesrat, which has to sign off on legislation. Billions of dollars in assistance for Greece may not play well with voters in a state with its own financial problems.

"May not play well" is an understatement. A German poll found that only 16 percent of Germans support a Greek bailout while 65 percent are opposed. I am not an advocate of governing by referendum (a number of years living in California clarified the problems with that approach). Yet the avoidance of the electorate on such matters is deeply problematic.

Lest Americans feel superior, President Obama just launched his deficit commission this week. When will that body return with its prescriptions for how to save the United States from a fate worse than Greece? In December, conveniently after the U.S. midterm vote. When President Obama said the country needed to "urgently confront unpleasant truths about deficits," he meant post-election urgent, not pre-election urgent.

One can imagine a justification for avoiding electorates on such tricky problems. Suppose these issues had technocratic solutions upon which all right-thinking people agreed, but that would be toxic to any politician who backed them. If that toxicity were to wear off over time, then a wise and paternal government might circumvent a foolish electorate by embracing the policy as far away from an election as possible — i.e., right after the preceding election. Even in this scenario, the premise reflects a pretty low opinion of the electorate.

But in neither the European case nor the American is there a single, right, technocratic answer. If Greece receives a bailout, is there any real hope of it adjusting? And what of modern Europe’s founding Treaty of Maastricht (1992), which bans government bailouts? There may be loopholes in the treaty, but was this not the understanding on which the current form of the European Union was based? Is Europe sending good money after bad by bailing out Greece? Are Europe’s major powers also ready to bail out Portugal and Ireland? One group of economists just estimated that $800 billion may be needed to deal with the broader European crisis, many multiples of what has been proposed for Greece. If Europe is not willing to go all the way, is there any sense in making a first installment payment? Germany and France have a very direct stake in Greece’s fate because their banks hold Greek debt. Would it make more sense to just address the vulnerable French and German bank balance sheets directly?

In the United States, pundits will wax on about how fiscal rectitude will require a combination of spending cuts and tax increases. That is true. But what combination? Should we spend 25 percent of GDP or 20 percent of GDP? One could achieve sustainable deficit levels in either scenario, but they imply very different tax policies and very different levels of government services. What kind of nation do we want to be?

In Europe and the United States, leaders are facing momentous questions for which there are not obvious technocratic answers. This may be idealistic, but I thought our solution in such cases was for advocates of each position to put their case to voters and let them decide. Rather than obstacles to circumvent, elections would be opportunities to persuade voters of the merits of different approaches. We could have campaigns of substance, rather than the more common fixation on candidate’s personal attributes or verbal gaffes.

The fiscal issues in Europe are far more pressing than those in the United States, but they raise similarly fundamental questions about the nature of governance. Perhaps the respective electorates should have a say.

Phil Levy is the chief economist at Flexport and a former senior economist for trade on the Council of Economic Advisers in the George W. Bush administration. Twitter: @philipilevy

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