‘Becoming Europe’: A Prophecy Becomes Reality

Becoming Europe was the cautionary title of a book by Samuel Gregg, published exactly 10 years ago. Gregg’s warning has since become reality in America. If you look at the latest Index of Economic Freedom ranking, the United States has had its worst rating since the index was first compiled in 1995. According to the Index of Economic Freedom, there are now as many as 16 European countries that have freer market economies than the United States. Even the Scandinavian countries are economically freer—i.e. more capitalist—than the United States. Sweden is in 10th place on the “capitalism scale,” while the United States sits at 25th.

In Europe, most people think the United States is a country without a welfare state, and anyone who starts to tell them about the sprawling welfare state here is met with incredulous stares. In reality, at least 100 separate federal programs each spend more than $100 million annually providing transfer payments to households, on top of an uncounted number of smaller programs. The United States spends 30 percent of its gross domestic product on transfer payments, more than any other OECD country except France, which spends 31.7 percent. 

This development has a long history, which William Voegeli criticized in Never Enough: America’s Limitless Welfare State in 2010. In the United States, Voegeli observed, spending on social benefits rose from $3.57 billion in 1940 to $292 billion in 1980, and while it totaled $66.7 billion in 1970, spending had nearly quadrupled to $247.6 billion by the end of the decade. Even adjusted for inflation and population growth, welfare payments in the United States doubled from 1970 to 1980. From the mid- to late-1960s, during Lyndon B. Johnson’s time in office, welfare spending increased by 12.6 percent a year. From this already much higher level, spending climbed another 8.3 percent a year under Presidents Richard Nixon and Gerald Ford (1969 to 1977). In the four years of Jimmy Carter’s administration, welfare spending continued to increase at the rate of 3.2 percent a year.

And what about today? Well, Phil Gramm, Robert Ekelund, and John Early detail in The Myth of American Inequalitythe bottom 20 percent of Americans receive $45,389 in transfer payments per year. For the middle class, it makes less and less sense to work. “The average second- and middle-quintile households worked more and earned more than those in the bottom quintile,” Gramm, et al. note, “and yet, extraordinarily, the bottom 60 percent of American households all received essentially the same income when we count all transfer payments received and taxes paid and adjust that income for household size.” 

In America, the capitalist principle of performance-related incentives no longer applies: on a per capita basis, the average bottom-quintile household receives over 10 percent more than the average second-quintile household and even 3 percent more than the average middle-income household.

In the United States, these transfers are paid for by high earners. While anti-capitalist propaganda claims that the rich pay hardly any taxes in the United States, the reality is quite different: The top 0.1 percent in the United States pay more than $4 in taxes out of every $10 earned. In the United States today, the top 20 percent of earners pay 83 percent of income taxes and 38 percent of sales taxes. 

It is also absurd to assert that there is hardly any regulation in the United States. Anti-capitalists claim that the financial crisis of 2008 was a result of excessive deregulation. In fact, there were 28 different measures to regulate or deregulate the financial industry from 1980 to 2009, the years in which there was supposed to have been unrestrained deregulation of the U.S. financial industry. Of the 28 measures, just five cut red tape; the remaining 23 imposed new strictures.

The financial markets prior to the Great Recession were hardly a model of laissez-faire capitalism. Immediately before the financial crisis, 12,190 people were working full-time on regulating the financial market in Washington, D.C., alone—five times as many as in 1960. Moreover, U.S. annual spending on federal agencies charged with regulating the financial market had increased from $725 million to an inflation-adjusted $2.3 billion since the 1980s, which is when the laissez-faire phase is said to have begun.

Overregulation affects every aspect of life in the United States and is often the result of lobby groups: New York State recently added a new requirement that entry-level shampoo assistants in beauty parlors and barber shops must complete a 500-hour training course at an average cost of $13,240 before they can practice this complex art that most of us perform daily without mishap.

America is far from being a country of “unbridled capitalism.” There is far too much regulation, too much government debt to fund government redistribution programs, and too much taxation. America needs more capitalism, not less.

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About Rainer Zitelmann

Rainer Zitelmann is a historian and sociologist and author of the new book In Defense of Capitalism.

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