Steven Pearlstein
Washington Post Columnist
Wednesday, June 1, 2005
11:00 AM
Washington Post business columnist Steven Pearlstein was online to discuss his latest column , in which he examines the implications of recent votes in France and Germany. He writes that we can put aside any lingering hope that Western Europe might finally be ready to abandon the socialist economic model and embrace an enlightened form of global capitalism.
A transcript follows.
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Lots of assumptions and omissions: First, that's a nice assumption and mindless snarky point about Europeans "can't be rich if they insist on working a 35-hour week, retiring at 55 and overtaxing those who are productive and ambitious to subsidize those who aren't."
Didja ever think most of them don't want to be rich? I realize that's a horror show here in the States, but maybe just maybe they prefer to be comfortable with summer vacations.
Of course its not as cool as working 60hr weeks, never seeing your kids, and (maybe) getting in a vacation week, followed by an 80hr week catching up on the crap you didn't get the week before (don't forget the 2 hr commute each day!). But at least we're "rich"...except for the ever increasing split between the top 10% and everyone else...but who am I to question?
(Oh, and fun omission...US and French productivity rates have proven out to be the same, according to numerous studies.)
Personally, I only wish I had the Euro deal. I'm sick of crappy vacations, fear of unemployment because my MS means bankruptcy if I'm off health insurance, and getting pittance of the revenues I generate so corporate executives can make insane amounts of money...all while folks like you cheerlead our system as though its the only way to go.
Also, to claim a French reaction to Google is representative of anything is sheer silliness. The French live in a world of their own, culture wise. These are the same people that purged the official dictionaries of all English derivatives. They represent themselves, not all of Europe. Are we all idiots because our Congress voted in the name "Freedom Fries"?
Steven Pearlstein: Lots of good and fun and interesting points there. But I think, fundamentally, you're kidding yourself. The European deal right now looks like a good deal, but it is a fantasy -- it is unsustainable. The jig is up. Many want to freeze things the way they are, even if it means falling a bit further behind the US or UK. But that's not a choice. A lot of French prosperity is based on exporting its high value added goods to other countries. But the world is too competitive now and French exports won't be able to compete unless they are more efficient and innovative. And without the exports to generate the high incomes, they can't afford to provide a good living and generous social benefits to their service sector. Already, France has pretty much lost its pharmaceutical industry and its computer industry. Young university graduates live at home for a decade until they get to the front of the employment queue. That just can't continue if they want to maintain this lovely lifestyle you covet, which was the product of a very unique period of time in history after World War II.
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Oakton, VA: With these votes, Europeans are doing two things simultaneously, one right and one wrong.
First, they are rejecting a so-called constitution that was designed and supported by a bunch of elites who don't like democracy or the voters. What the elites want to do is create a super-bureaucracy, with submerged national identities, power concentrated in the hands of a mostly unelected few, and little or no regard for the wishes of the citizenry. Such willful disdain of the desires of the people should be rewarded with rejection.
The second (and wrong) message they're sending is that they are trying desperately to stave off the real world as long as possible. They don't want to compete in the global economy. They like things the way they are, with economic policies circa 1962, never mind that such a statist, stagnant mindset cannot possibly be maintained, given their demographics and the expense of the social programs and economic subsidies. I think the European public knows deep down inside that this cannot go on, but they simply don't want the only realistic alternative -- economic liberalization. Europe's economic and cultural prospects are grim unless change is undertaken, and soon.
There is some irony here. One of the arguments used by the opponents of the constitution is that its adoption would lead to the "Anglo-Americanization" of the economy. That's ridiculous. In fact, the "government" created by the EU constitution would have simply imposed the Franco-German model on every member nation. I suspect that the elites of Europe want this government created precisely to preserve this outdated economic structure.
Steven Pearlstein: I don't know who you are, Mr or Ms Oakton, but you have it exactly right. I wish I'd written that.
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Washington, D.C.: Hello Steve,
I really enjoy your work, please keep it up. My question deals with the decline in the Euro, why the drop? If markets are efficient as we are taught a "non" should have been discounted well in advance. This wasn't unforseen at all.
Secondly do you have hope for Germany? The Dax is moving up rather decently. I think given the "swarm of locusts" lbo, private equity and hedge funds the large companies are being forced to become more shareholder friendly, whether they want to or not. Also European shares are fairly cheap and mergers are picking up. Doesn't this bode well for the future, even given the mess of the wellfare state?
Steven Pearlstein: Thanks for the nice comment.
The recent fall in the euro reflects the changed perception about the political prospects for economic liberalization. There is new information there in the last few weeks, and the market is adjusting to that. And both the currency movement and the news on which it is based will both have a tendence to push European stock prices down. Whether that makes them a good bargain or not is debatable: even European companies are directing their investment away from the west, both because of sluggish demand growth in the west and better returns on investment elsewhere.
I don't know whether any of you read a series of columns I did last year from Germany and Eastern Europe, but basically I left it that Germany was at a crucial turning point. It could either embrace the modest reforms Schroeder had proposed, and build on them, or retreat. Now it looks like they've retreated, which will make it just that much harder for the next reformer to make headway. So I'm not a Euro-optimist at this point. The economic illiteracy on the part of political leaders and voters makes it particularly hard to set aside silly arguments, like the one against private equity companies investing in middle sized German firms. Without a vibrant IPO market and with banks already reeling from bad business loans, where do the Germans think equity investment is going to come from, if not private equity funds? And yet they dominize them as locusts, even though the record is that they have helped revive and grow these firms once they invest.
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Washington, D.C.; : A succinct definition of the 'third way' please?
Steven Pearlstein: The idea, floated by Clinton and Blair, was that there was "third way" between unfettered, overly harsh and unfair capitalism, and state socialism as practiced in western Europe -- a kinder, gentler, more humane market capitalism.
The problem is that while this is theoretically possible, its not turning out to be politically possible in western Europe because the general attitude is still very anti-market. You can go from a market-oriented economy to one that is a bit less harsh, I suspect, but it is turning out to be more difficult to go the other way. Wringing out the socialist, collectivist, fairness-uber-ales attitude and trusting in markets to accomplish many things is turning out to be just to high a hurdle.
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Danvers, MA: Bah! This is the dog that didn't bark column. More important than the protestations of some librarian is that the central bank has maintained a contractionary policy for years, and this is for the benefit of finance, not job creation or innovation or anything else one may trot out. It's a very short jump to link Euro market labor arbitrage between the 15 old and the ten new members to the finance oriented money strategy: both benefit the investor class. (Heck, I'm in that class, I'm a finance guy, I can see what benefits me, but I have working neighbors, and I can see the arb at work in their lives, and I can also see what strong currency does.) So, altogether now, the poor are that way because they earned it, things are getting worse because the people are too lazy. Please. The bottom line is the people of France know what will make their lives better. Always balance your story by asking the guy at the barrel end of the gun what he thinks about it. John
Steven Pearlstein: Its very nice to say Europeans aren't lazy, which they aren't exactly. They work hard when they work, and productively too. But in Italy and France, people were willing to shut down the economy for weeks at a time to protest eliminating one measley national holiday tied to a religious event that is irrelevant in these very non-religious countries. If the French and Italians aren't serious enough about reform that they can give up one of their dozen paid holidays every year, it is certainly going to be harder to tell civil servants they can't retire at 55 or retail workers that they may have to work on Sunday or tell plumbers that they can't use their guild to set minimum prices. These people just aren't serious about competitive markets, and they aren't serious about competing in global markets against Asians and others that are willing to work much harder than they do. They are still stuck in "protecting" what they have. Well, its time to get over it and move on, because what they had can't be maintained. Sorry, but that's the reality.
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Dublin, VA: What is the central lesson to be gained from the French "No" vote? I have read some studies on the demographics involved including urban (majority yes) vs. rural voters (majority no) as well as economic status (the wealthier tended to vote yes, lower incomes no). If the Dutch vote "no" today, do you believe that there is a common thread running through both of these events?
The most important goal that the EU should work for is the advancement of democratic governments and economic growth in Eastern Europe. The inclusion of Turkey will never work - there are too many differences to overcome: culture, religion, no democratic tradition, human rights, etc.
Steven Pearlstein: I agree with you: Turkey's admission to the EU is a big mistake. It is just too hard for too many to swallow, particularly at a time when they are trying to incorporate Poland, the Czech and Slovak Repubilc and Hungary. They just ought to slow down. These other states ought to form their own free trade zone on their own, get some of the benefits of that, improve their living standard. Then, maybe in another decade or so, the conversation can resume with the rest of Europe. Or maybe it will be irrelvant at that point.
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washingtonpost.com: You can read the columns in the European series Steven mentioned earlier: Europe's Capitalism Curtain , 'Old Europe' Unprepared for New Battles , The Pitfalls On the Path To Paradise , Refusing To Compete In Frankfurt , Germany's Tradition Vs. Strength , Can 'Old' Europe Preserve Its Prosperity?
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LEEDS UK: Mr Pearlstein seems to believe that Free Market Capitalism somehow works of its own accord and believes that taxation is bad. he seems to ignore the fact that infrastructure has been put in place which unfortunately has been, in recent years here in the UK, given over to free marketers, included here are the railways, electricity, gas, water, buses. All these now receive more money in subsidies from taxpayers money than they cost the taxpayer when the taxpayer owned them. That infrastructure in the UK dates back to the 1870 Education Act and subsequent Education Acts all of which were geared to the free market requirements of employers. We have now reached the stage in the UK that a free marketeer can put up a million pounds and have a school to run even though 1M pounds is a tiny amount of the cost. Is this the "free market" Mr Pearlstein means? I for one would be interested in his answer.
Steven Pearlstein: Mr. Leeds, you assume that because some privatizations have gone badly in UK, it proves once and for all that the socialist model is superior. No, it doesn't prove that at all. It simply proves that these things are hard to do and people screw it up once, twice, even three times before getting it right. I agree that, here inthe US and maybe in Britain, as well, some genuinely public services have been inappropriately privatized. But that doesn't mean the state should own the coal mines and the electric companies again.
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New York: Your comments on Europe remind me of the original barcode system: it did not have a country identifier as if only the USA existed. The continuing growth of the US economy is basically due to the "Chinese Marshall Plan" that allows America to live above its means and produce such conundrums as the "working poor" or the world's most expensive health care system with the poorest results in terms of public health. You forgot to mention that the French proposal for a parallel European digital library was also supported by "New Europe", i.e. Poland an the Czech Republic. Most small European countries, with languages that would be overlooked by Google, will certainly also support it, because diversity is the essence of Europe, which we want to preserve, even if it costs a packet in salaries for interpreters and translators (once you've taken them out, the EU's "huge bureaucracy" shrinks down to less than that of New York City)
Steven Pearlstein: Look, if there is a market for a French-oriented or a Czech oriented search engine, then in a free market system, somebody will come along and design and sell it. In fact, it may even be Google. But why does the state have to get involved, and create a national champion that it will protect against competition with regulation, and subsidize with taxpayers money. And then what we know happens is that these national champions get fat and happy and corrupt in their relationship to politicians and political parties, and they miss the next iteration of technology, because they are not subject to the ususal market disciplines. It is true markets can't provide every "good" that people value. I've written that many times. But markets are pretty good at providing most things, and there is no reason to suspect that a culturally-sensitive search engine isn't one of them.
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Washington, DC (London, UK): I have two comments. I wonder whether you are reading the Dutch antipathy to the EU constitution correctly. As far as I am able to see, the Dutch concerns with deepening of political union have much more to do with the relinquishment of democratic power at the national level than economic issues. Also, there is a strong backlash domestically against political correctness in immigration policy, typified by Pim Fortuyn, which has not yet fully played out. The Dutch do have a problem with integration of a large Muslim population within a very secular culture. Isn't this more of a slap in the direction of their national politicians, all of whom support the constitution?
I would also note that the UK pensions authority has just issued a preliminary report on the impact of the "A8" (new EU accession state) workers on the UK labor market. The impact is said to be positive, albeit with some pressure on wages in some sectors. Any comments?
Steven Pearlstein: Thanks for that.
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Dayton, OH: Steve - I worked in France in the 90s, and I still keep in contact with my colleagues there. You're right on the money. Those under 40 who have some gumption and ambition, know that they are living in an economically dysfunctional system. My friends email me every year, wondering what it would be like to emigrate here.
Steven Pearlstein: They probably wouldn't like it at first is my guess. But nothing good will happen until your under 40 friends rise up and take control of one party and win an election.
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Washington, D.C.: Do you think that the euro will be able to regain credibility? What's more important: the twin deficits in the U.S. or the lack of any prospect for a political union in Europe? Is a new core Europe possible without Poland and the Czech Republic, much less Ukraine and Turkey?
Steven Pearlstein: I don't think the euro has lost credibility,actually. But, yes, the center of gravity in Europe is moving eastward. I suspect the Czech Republic may be the richest country in Europe before too long.
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College Park, MD: It seems the Europeans are constantly trying to play catch-up to the US instead of inventing their own products and services. You listed the Google text scanning thing. At least the French will probably only spend a few million on that. The EU decided to build its own GPS because they don't want to depend on the US. So now they're probably going to put in billions of Euros to get Galileo running, and if it isn't better than GPS, they'll have to subsidize the production of units that are compatible with it.
But also from your article it seems the old version of point to the US and say, "That's not what you want is it?" isn't working any more. We complain about 5.5% unemployment, numbers that Germany and France would love. So are the people actually asking for a more liberalized economy, or just a change in upper management? It seemed the globalists and socialists didn't like the constitution, so I don't know what to make of it.
Steven Pearlstein: The constitutional vote was really not so much a referendum on the proposed text as a referendum on the loss of national autonomy, on the parties in power and in economic liberalization. These are all related, and hard to tease out of the election returns. But there is definitely a sense of people saying: we've seen the changes over the recent years and we've had enough.
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New York: Not long ago the Dutch model had been touted as having achieved that elusive "Third Way". What went wrong?
As for France, Mr. Chirac has now been through at least a few prime ministers. Does the problem perhaps lie with he himself?
Steven Pearlstein: Not sure fully what went wrong with the Dutch model, which as you point out was held out as a success. The last five years have generated lousy growth in the Netherlands. And it may turn out that while their labor markets were a bit more flexible, their big companies stumbled (Shell, Phillips, Unilever) because they were too insular and bureaucratic and their social safety net still too expensive. But, in truth, that's just a guess.
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good deal, but it is a fantasy -- it is unsustainable: You mean, of course, that its utterly unsustainable by having a near total trade balance, and very limited govt. debt. I totally agree. Our "muscular free market capitalism" is so much more sustainable, especially with those ever so sustainable huge debts and trade deficits! We're doing fab! We can keep this up forever!
Spare me. I'd buy your argument if you'd bother noting that our supposed "free market" system was in even worse shape than the Euros are in. Between our huge debts, and our addiction to SUVs and gas guzzling, we're far more likely to go down than they are.
Who's kidding themselves?
Steven Pearlstein: Maybe you should move to the eco-socialist paradise of Finland or Sweden.
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Washington DC: Do you really think any government even slightly to the left of ours is socialist? You keep using that word like you think it's appropriate here - ask anyone who lived in a communist state who now lives in europe, and they'll tell you how very ignorant you appear when you throw around labels you apparantly don't understand.
Would you be as apt to label any government to the right of ours facist?
Steven Pearlstein: These labels are imprecise, I admit. What would you call the French-German-Italian model. Democratic socialism? State-managed capitalism? I understand very well the difference between communism and socialism and unfettered, free-market capitalism. Do you?
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Burke, VA: One of the things I like about your articles is that even when I disagree with you I can follow the logic well. However, we here in the US have higher unemployment than is shown by the numbers - I'm not sure if the people who have stopped looking were added how we would fare. Heath care here is much more expensive, and people are in deep fear of loosing their health care. You in particular are a winner in the American system, so you may be willing to go on on how wonderful it is, but for the many losers of the American economy, those without health care, those whose real wages keep on going down, a bit of France looks pretty good.
Steven Pearlstein: I don't think anyone who reads my columns would say I am unmindful about the drawbacks of the U.S. system. But these are problems that an be fixed within the context of our basic system -- we don't need to go to a quasi-socialist to solve them.
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Arlington, VA: Give these losers who expected to be coddled by the State hell, Steve!
Steven Pearlstein: I'm trying.
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Sorry, but that's the reality: Again, assumption. A more closed market will generally not touch 80% of the population. Relatively speaking, their standards of living won't be all that effected.
On the other hand, the investor class will get clobbered. Gee, I wonder what motivates the go-go rush to trade liberalization again? Funny how that matches the voting pattern too.
But who am I to question? I guess I need to learn that we should all be happy with a top 20% of wealth upper class churning itself, while everyone else gets shut out of social mobility (not my opinion, was a special section in that radical leftist journal, The Economist), or driven downward by nice cheap foreign labor. Ever notice that we don't ever need foreign investment bankers, business executives, or loudmouthed "economics" columnists because they will "work harder" for less? How about a little globalization there, too?
Steven Pearlstein: Your first statement is simply false. A closed market will affect 100 percent of consumer and 100 percent of workers. Otherwise, how do you explain that barbers get paid more in the U.S. than they do in Turkey. It is because the general wage structure is set in the traded sector, and because the flow of best practices is from the more competitive traded sectors to the untraded sectors. The reason our banks are more efficient today is that they are building on the knowledge gained by the auto companies that were getting their brains beat out of them by the Japanese in the 1980s.
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Washington DC: Let's not pretend that economics is a science at the level of Newtonian physics or basic chemistry. Economists, even very good ones, are often contradictory or wrong to various shades in their predictions. Free-market economists have routinely predicted economic disaster due to growth of employee rights and benefits over the last century, and the opposite has routinely occurred.
So forgive me if I'm less than frightened for Europe's sake that they are not chopping away at their systems of government and economic management. Free-market economic theory bows down before the all-important GDP growth number, but in fact governments must be judged on the living standard that they afford to each individual citizen. By those standards the governments of both the U.S. and Europe are doing just fine.
Steven Pearlstein: We are both doing fine. But they are slipping.
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Washington, DC: Ever since I began studying German and Germany in early nineties, Americans have been labeling the German economy "unsustainable" and "nearing collapse."
Having just returned from that nation, I attest that somehow the Germans are indeed surviving and continue to live well. Yes, Germans are aware of demographic problems and are puzzling over how to support the aging population (just as we in the U.S. are), yet the mood is hardly one of catastrophe.
Perhaps the GDP is growing slowly, but higher GDP certainly doesn't guarantee wealth or happiness for the populace (not the way the "free market" distributes the wealth anyway). Unemployment may seem high by U.S. standards, but then again our unemployment statistics are artificially low compared to Europeans because we do not count our huge incarcerated population or those so disenfranchised as to be entirely out of the job market (e.g. the never-employed and those who have quit searching).
Why is it considered an economically preferable model to allow wages to become so depressed that workers at the bottom cannot afford housing, healthcare, or childcare? Is it really so superior to force a poor mother to work two minimum wage jobs and stash her kids in daycare all day while we subsidize her employer (welfare-to work program) and her childcare provider rather than just subsidizing her family directly?
Germans can't be doing too poorly anyway, I personally know two Americans seeking citizenship there, and a German grocery store is moving into my neighborhood.
Steven Pearlstein: Call me in a decade. I suspect you'll be wanting to revise your thinking on that.
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Maybe you should move to the eco-socialist paradise of Finland or Sweden.: Maybe you should address the point, instead of hiding behind a pithy comment.
Pearlstein World:
Europe - Unsustainable. Has near trade balance, and contained national debt.
US - Sustainable paradise. Has massive debt which threatens to collapse it's currency, and out of control trade balances.
Discuss.
Steven Pearlstein: The macroeconomic imbalances you site are a big problem, reflecting a host of problems in the U.S. and outside the U.S., including the slow growth in Europe because of its microeconomic problems. The macroeconomic imbalances, which are global, are not sustainable, and in this country we have to deal with the biggest contributor to them, which is the federal budget imbalance. But that is a very separate issue than the competitiveness and productiveness of our private sector, which are far and away superior to the business sector fo Europe. You are mixing micro and macro too easily.
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Burke, VA: I just don't see that privatizing everything is a good idea - electricity, gas, and water are public utilities, and should be run for the common good. Every time I've seen these industries privatized they tend to be underfunded so you get outages, or the rate is hiked to pay for the purchase of the utility, or water is sold to the highest bidder, not to those who need it. Then you get things like the California energy crisis, where the companies used it's control of the power to overcharge people in California, creating an energy and political crisis, where there was none. Bah - I don't want none of that privatization.
Steven Pearlstein: California is a good example of wrong-headed privatization. Any serious person who has studied it agrees with that. I suppose you would also prefer going back to the regulated airline model, where it would cost you $5,000 in today's dollars to fly to LA.
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Washington DC (London, UK): I agree with much of what you say. However, perhaps there is some nuance here that should be added.
A good micro-example of this nuance is in the health care sector.
American system: Free-market rules, chaos, expensive system with excellent care for some, and bad care or no care for many (or most?). Often little or no choice of physicians.
British system: Pure socialist system. Cheap system, bad care for most, but everyone has care. Little or no choice of physicians, physicians badly paid and too few of them. Catastrophic illness dealt with reasonably well.
German system: Strongly managed competition with state elements. Excellent care for all, expensive system, free choice of physicians, excellent supply of physicians.
Steven Pearlstein: Health care is the best example of where markets, left to themselves, don't provide everything we need. Our system has lots of problems, which I've written a lot about. I don't think the solution is a government run system, and the German system of managed competition offers some thigns we need to replicate here. But all of these systems are fundamentally unsustainable because of demographics and the dramatic technological advances in medicine that require some form of rationaing of finite resources.
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Oh, the irony!: Washington, DC: Ever since I began studying German and Germany in early nineties, Americans have been labeling the German economy "unsustainable" and "nearing collapse."...
Steven Pearlstein: Call me in a decade. I suspect you'll be wanting to revise your thinking on that.
Steven Pearlstein: I stand my the remark, as ironic as you find it.
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Boston, MA: Why do economic writers constantly claim systems that have been going on for 40 years are unsustainable. There is no difference between your article today and one printed in 1982 on 'Eurosclrosis'. 10 years from now the French will still have 35 hour weeks and 6 weeks of vacation and 12% unemployment. Americans will still work like animals while the rich get richer and the poor stay the same. They live a different lifestyle and have different values. They will reject cheap labor and try to shut it out, and we will invite it and exploit it to the bone. They may protest and throw out a government here and there but if they had to live with the uncertainty and risk that comes with American wealth they would be much more unhappy. They medicate themselves with wine and vacation and we medicate ourselves with therapist and anti depressants. Everything will work out fine, just fine.
Steven Pearlstein: That might be true. On the other hand, things may have reached a tipping point in terms of global competition that will make the next 20 years different than the last.
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Austin, TX: A general comment about the relative merits of US versus European capitalism:
I'll take the arguments that the US model is superior a lot more seriously if somebody will fix the health care / insurance mess in this country.
Steven Pearlstein: Me too.
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A closed market will affect 100 percent of consumer and 100 percent of workers.: In different levels. First, the internal economies don't compare. The difference would still exist, due to that. But even so, what differences come from the trade difference are relatively minor. But looked at internally, the foreign barber would be closer on the economic scale to the top 20% there, than here...by a huge margin. You also ignore that those evil social benefits would guarantee the barber health care, and make education available which offered much greater social mobility.
NOTE: Most European leaders come from middle class, and some from even lower social class by birth. With the exception of Bill Clinton and a few others, ours come from the top 10% by birth.
Discuss.
Steven Pearlstein: Its nice to know, comrade, that there is still one class-hating Marxist out there. Power to the People!
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But why does the state have to get involved: Oh, you mean as opposed to US govt. subsidization of Boeing? Or our "race to the bottom" process of freebie tax abatements to steal businesses between states and localities? Or the "farm subsidies" that go to big agribusiness? Or the fact that our all of our "free market" computer revolution in fact comes from govt. money paid out to silicon valley in the 50's and 60's (Xerox PARC especially), and the fact that innovation slowed when this money stopped?
I could go on. Again, you seem to be retyping canards from the "markets" hallelujah chorus, and ignoring all the funny facts that get in the way.
Steven Pearlstein: I don't think you've been a very close reader of my columns. You set up a straw man when you assume I say that everything is perfect in the U.S. system. On balance, it is better, but hardly perfect.
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Google-land: Last time I checked, Google ALREADY supports about 100 languages. AOL has huge chunks of content in Spanish for Latin America&for the Hispanic population in the US. Lots of good open-source software is developed in Germany and Sweden. Europe doesn't need state-supported tech; the entrenched interests are the ones who want it.
Steven Pearlstein: Thanks, Sergey.
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Steven Pearlstein: Thanks for the lively discussion, folks. Until next week, A bientot.
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