Should we apply the EU Model to the US?
September 15, 2008 – 4:06 pmI’ve recently been thinking about whether the US can move to a EU like model with each state having control over it’s own policies but sharing a single market and monetary union. In addition, competition is well regulated and a shared budget exists. In addition, it looks as if this shared budget is a little over 1% of the Gross National Income of the individual countries (1) – imagine a Federal tax rate of 1%.
Clearly, the states would then have to handle more of the lower level administration but that may be for the best. Each state is different and must be governed differently. States with a large agricultural focus should have different policies than states with a large technology focus. States with a highly religious population should have different policies than the more atheist states. Under such a system, some states may end up doing better than others in the short term but if it becomes obvious that certain policies work, the other states would have adapt in order to compete, thus improving the US as a whole.
I believe that such a system plays on the strengths of the federal government as well as the strengths of local governments. It will still be easy to travel from state to state, use the same currency, and not deal with trade barriers but each state will have it’s own social and cultural policies that reflect its population.
It just seems that the federal government cannot pass laws that will be beneficial to all states at once and so there is some form of a standstill. Maybe this focus on a more state-centered model is the approach to take.
In the future, I would like to take a look at the economic growth of the individual countries before the creation of the EU as well as after the creation of the EU adjusted for the overall growth of the world markets. I have a feeling it would show that the creation of the EU encouraged the growth of the individual markets.
Notes:
(1) http://en.wikipedia.org/wiki/European_Union#Budget
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View Comments to “Should we apply the EU Model to the US?”
It's an interesting blog and I LOVE thought experiment like this! My perspective, however, is slightly different. Here's just some my random thoughts:
1.While open and free market is definitely something we should go for, the leverage of strong political power should never be underestimated: a) Internationally, great-power politics has been dominating this little shattered world from the very beginning, and there's no other way to get around it. Economic giant but political dwarf Japan would tell us the latest version of this stereotyped story. This is also one of many factors drives EU to cohere closely, and the predominant reason drives Georgia's will for EU accession; b) Domestically, centralized political power could be the rock-firm support for domestic market (or the opposite depending on the “favor” of the power, but it's an incentive problem I'll discuss later). The most recent example could be Fed's bailout of bear stern, frannie mae, freddie mac and now the whole financial system, this is an exciting (or at least an extraordinary) moment of financial history. I can hardly imagine EU would reach a bailout within such short period of time at such a large scale if similar financial crisis were happening in their backyard.
2.Everything exists for a reason, they thrive and demise on disparate conditions, not to mention every country is unique in many different ways (such as legal systems, social consciousness, religions, etc). For example, US models of democrat didn't make life any better in Philippines, and it's simplely because democrat and free market comes pricey requiring matured legal and social systems which are not easy to build in years. That being said, some systems may be suitable for one environment and other systems may thrive on another. Furthermore environment is constantly changing which makes it even more difficult to benchmark different models even if there exists such an indicator to benchmark with.
3.As to your thought on “policy adoption by state”, I feel that social experiment at this scale tends not to be replicable.or repeatable, and successors tends to imitate its predecessor regardless of their inherent difference in terms of timing and individual background (role model plays a much more important role than, say, statistical expectation of the return of the policy). So adopting what predecessor's winning policy do not guarantee to be a optimal solution, and this is even more obvious at a grand scale (local minimum is not guaranteed a global one). From this point of view, the first case (1st country piloting the policy) is crucial, but because of its smaller size compared with the whole country, it's potentially more likely to be affected by interest group.
4.The ideal model that I can think of is kind the model that instead of telling people what to do or setting the framework for its citizen, it should provide proper incentive to people and let people make the decision to optimize their own benefit. I believe all that matters is the incentive, and people reacting to all kinds of incentive at most granular level regardless of social formation (but the concrete form of incentive differers by society). From this point of view, the batman is no way the same level player compared with the joker: batman at most is only a tactic level player doing all those non-cost-effective villian-chasing job while the joker is true master of strategic planning player, achieving its goal by providing proper incentives and thinking in a much more grand level which is most cost-effective. The root cause of corruption in the city of Gotham in my point of view is the wrongly aligned incentives in their social and police system.
I'm afraid my digression on the topic has gone too far, and it's time to stop. This reminds me of my old school days in which I only do my homework on the last minute — usually a Sunday night just like this and usually with my essays much worse than this
but anyway, thanks for the post, I really enjoyed it. Please keep on blogging!!!
By G@0 on Sep 21, 2008
Some responses below:
1) Well the EU still acts as a coherent force for most things. In regards to the bailout, I don't think that the banks of a well run country would be in such a position to require bailing out in the first place. Also, the banks themselves would be limited by their countries size. If a bank is doing global work, it should be bailed out by the global community.
2) That's my point. Let each state run itself differently since they are different. Of course we can expect some overlap but each state should reflect the will of its constituents and if the will of the constituents changes, so should the politics of the state.
3) You may be right and states may not be too rational, especially if they dislike something about another state so much that they won't take any of the positive benefit. And this may be true for a bit but I think over a longer horizon, the states will have to adapt in order to compete and they will have to institute new policies which may be similar to other states.
4) Well of course if it were possible to create an incentive system thinks would be dandy but it's impossible to come up with a coherent simple incentive system that will be beneficial to everyone. Everyone has a different utility curve so imposing one system isn't going to work. And as soon as you start making it more complex, you defeat the purpose (see the US Tax Code). In addition, people aren't rational so the incentive system really is an ideal case. As a thought exercise, what type of incentive system would you create?
By dangoldin on Oct 1, 2008