The U.S. election campaign is focused primarily on how much the next president will spend as well as the measures planned to combat the CCP virus. Both issues should point to one conclusion: Unlike what candidate Joe Biden wants to do, the next U.S. president shouldn’t copy the European Union.
As a second wave of the outbreak accelerates in Europe, we know that the March measures and aggressive lockdowns were a grave mistake. The European economy is on the verge of a double-dip recession; the unemployment rate is at 8.1 percent compared to 7.9 percent in the United States, but the European Union still has roughly 10 million furloughed jobs.
Real unemployment, if we use the same calculation as in the United States, is closer to 11 percent.
Politicians tend to say that public health care and government spending are the solutions to this crisis. However, that’s contradicted by the fact that Belgium, one of the countries with the highest public spending in the world, has 36 percent more deaths per 100,000 inhabitants than the United States. Conversely, South Korea, one of the countries with the lowest government and per capita health care spending, is leading the pandemic fight with fewer deaths (only 457 in a nation of 51.8 million citizens).
Control of the pandemic can’t come from misguided government intervention in the economy or inefficient lockdowns. The Financial Times recently showed how countries with simple but effective protocols of social distancing and massive testing have fared better economically and in terms of health.
No, it’s not a question of public spending and destroying the economy with lockdowns, but prevention and testing.
Voters should also be warned against the mirage of massive public spending to create alleged millions of jobs. The European Union example shows that the three consecutive government and central bank stimulus plans implemented since 2009 have created less employment and lower growth than announced, and that the economy has been in stagnation, despite the billions in spending.
The United States’ economy fell significantly less than the eurozone’s in the first half of 2020 and is now recovering faster, with a lower unemployment rate.
That’s especially important when we analyze the tax increases and government spending plans announced by Biden. Most of the public expenditure plan will be debt-financed, and even the most optimistic estimates by Bloomberg Economics assumes a $3 trillion deficit from 2021 to 2024, 30 percent larger than the most negative assumption of deficit if Trump is reelected.
It’s interesting to see how most analysts assume that the economy in the United States will barely grow above the 2 percent level despite a massive $5 trillion spending plan. As such, it makes it very difficult to believe that job creation will return to 2019 record levels if the marginal corporate tax rate is increased to the highest in the Organization for Economic Co-operation and Development (OECD), as Biden proposes, and Social Security and business activity taxes are increased.
There’s only one way in which the United States remains the leading economy in the world, and that’s by having a pro-business policy that supports higher growth and better employment.
The fact that the United States has recovered jobs and the economy faster than the eurozone in the middle of a health care crisis shouldn’t be a surprise. The main difference between the two economies is more liberalization and less intervention. This, and combating the health crisis with massive tests and simple but effective social distancing measures, should help the United States recover faster and more strongly.
The lesson from the European Union for the United States is simple: More regulation, higher taxes, and massive government spending don’t generate enough growth or jobs in boom times, don’t help reduce the blow in a crisis, and ultimately, delay the recovery with weaker job creation.