Obama’s welfare state needs Republican guardians

For most of the past century, the United States and continental Europe have followed different paths. Social Democrats often ran European governments, which typically taxed and spent a greater share of their national incomes on social programs, such as public health care.
Our last Democratic president, Bill Clinton, accepted this fact, and won re-election as the triangulator who declared that “the era of big government is over.” But President Barack Obama was re-elected on an aggressively progressive program. Is the U.S. finally converging toward the European model?
In 2004, my colleague Alberto Alesina and I wrote a book titled “Fighting Poverty in the U.S. and Europe: A World of Difference,” which tried to document and explain America’s exceptional politics.
We noted that governments in the U.S. in 1998 spent 14.6 percent of gross domestic product on social-welfare programs, such as unemployment insurance and Social Security. The European average was 25.5 percent of GDP. U.S. tax rates compared with Europe’s were higher for poorer workers and lower for richer workers.
Political-economy theories suggested that a nation will have a smaller welfare state if it has less innate inequality, less economic volatility or more social mobility. Yet pretax, pre-social-spending inequality is higher in the U.S. than in Europe, and the American economy is more volatile. Studies looking at Italy, France and Germany often find that more Europeans than Americans escape from the bottom rungs of income distribution.
If economic fundamentals don’t explain the differences between the U.S. and Europe, then what does? Two forces are paramount – political institutions and racial heterogeneity. Evidence supports the view that more racially fragmented societies, such as the U.S., give less to their poorer citizens, especially when racial minorities are disproportionately poor.
Around the world, more racially fragmented countries have smaller welfare states. In the U.S., before the welfare reform of 1996 created more national uniformity, there was a powerful negative correlation across the states between welfare generosity and the black population, even controlling for state income levels. The strong connection between ethnic fractionalization and less redistribution doesn’t mean that people who oppose welfare are racist. There are good reasons to be skeptical about a more-generous welfare state. But the historical and international track record suggests it is easier to convince wealthy Swedes that poor Swedes deserve a helping hand than to persuade people in any nation to sacrifice their hard-earned prosperity for the well-being of people who seem culturally alien.
We estimate that about one-half of the difference between the U.S. and Europe can be explained by greater American ethnic heterogeneity. The remaining gap reflects the exceptionalism of American political institutions. The U.S. has a majoritarian system that favors senators and presidents who appeal to the middle. Many European countries have proportional representation that makes it easy for fringe parties, including Socialists and Communists, to get a seat at the table. U.S. institutions will continue to be a formidable check on Mr. Obama. While the growing diversity of the population favors the Democrats, Republicans have plenty of room to reinvent themselves as supporters of smarter, less-wasteful government.
Changing demographics means that Republicans now face a less-conservative political environment: The majority of Hispanics see more, not less, need for government programs that aid the poor.
Yet a more liberal nation still needs budgetary sanity. The next year’s political discussion is far more likely to be dominated by fiscal cliffs than by expanded social-safety spending. If the Republicans become the party of smart financial probity, they will have a decent chance of convincing Americans of every race that they will be better guardians of the nation’s finances. •


Edward Glaeser, an economics professor at Harvard University, is a Bloomberg View columnist.

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