The Case for Bigger Government

(3 of 3)

As our budget choices were getting tougher in the 1970s, Europe faced similar dilemmas and took a different course. While Americans rejected new taxes and new domestic programs, Europeans elected governments that introduced higher taxation, mainly value-added taxes, to cover the rising costs of health care, education, infrastructure, poverty relief and international-development aid. Ultimately, the Europeans restrained excessive growth in the welfare state in order to maintain global competitiveness and rebalance their economies and succeeded in sustaining the public-private partnerships and welfare-state benefits. 

The European strategy, with levels of taxation and government spending roughly 8% to 10% of GDP higher than in the U.S., has many successes to show for it: less costly and more reliable health care, the elimination of hard-core poverty, solid educational achievements, and social services that ensure better care for children and more flexibility for mothers and the elderly. The U.S. will not mimic Europe for many reasons — size, diversity, tradition and, of course, vested interests — but we can learn from Europe. Most important, we can see how government can be a partner of the private sector, not an enemy. (Read "Merkel's Caution on Economy Draws Fire".)

The time has arrived to restore national prosperity and security with a smartly rebalanced partnership between the public and private sectors. Fiscal policy will be President Obama's biggest political hurdle. Expanded spending by government — for health care, climate change, energy security, education, infrastructure and peaceful diplomacy — is urgently needed, but large deficit financing is not a long-term option. Although Obama's tax cuts might stimulate consumer spending — and placate Republicans — any permanent cut would be a huge error, and even short-term tax cuts are an unnecessary risk. Obama's long-term success will depend on his ability to lead Americans to a new, even revolutionary consensus that the U.S. government can offer value for money.