Nicholas Kulish in The New York Times explains how “Europe, Aided by Safety Nets, Resists U.S. Stimulus Push.”
I wrote a few weeks ago that:
…there seems to be some sort of inverse relationship between a society’s social safety net and the amount of stimulus spending they are proposing.
This makes sense on a number of levels. Automatic stabilizers which should take some of the pressure off a need for a stimulus are not included here. On another level, these nations without a strong safety net must rely more heavily on economic growth for societal stability.
If this is true, China and America would be more reliant on constant economic growth to relieve social and political pressure and would be more likely to have larger stimulus packages. France and Germany with stronger safety nets would feel more insulated and be less likely to push for large stimulus packages. This is exactly how this matter is playing out on the world stage today – with some exceptions due to political leadership.
But both states with strong social safety nets and those without them are dependent on growth over time. But those states without strong safety nets feel the economic bumps more strongly – and downturns end up being more disruptive.
Kulish writes now that:
The Europeans say they have no need for further stimulus right now because their social safety nets, derided in good times by free market disciples as sclerotic impediments to growth, are automatically providing the spending programs that the United States Congress has to legislate…
Mr. Posen and others argue that while Germany may be doing more stimulus spending than others in Europe, it is counseling other European countries — many of which share the euro as their common currency — not to spend their way out of recession either, but to count on their safety nets to do much of the job.
Nothing groundbreaking on either of our parts – but it’s an example of how fundamental societal agreements – the social bargains underpinning the state – affect everyday policy.