Paul Craig Roberts, Assistant Secretary of the Treasury during the Reagan administration and one of the young economists who convinced Ronald Reagan of the merits of supply-side economics,  (aka Reaganomics)  has an article on vdare.com warning that the American economy is about to crumble.
 
Roberts points out that the 207,000 jobs which the American economy created last July, are not a reassuring figure, as 26,000 of them were tax-supported government jobs and 177,000 of the remaining private sector jobs were created in the domestic service sector. “Not a single one of these jobs produces a tradable good or service that can be exported or serve as an import substitute,” says Roberts. “The US economy is employing people to sell things, to move people around, and to serve them fast food and alcoholic beverages. […] In the 21st century job growth in the US economy has consistently reflected that of a Third World country – low productivity domestic services jobs.” Moreover, he stresses, many of these “mom and pop” jobs are filled with immigrants.

Roberts posts on vdare, which is our friend Peter Brimelow’s interesting website on immigration issues. On comparing the United States to continental Europe I fear one can only conclude that the situation of the latter is even more problematic than America’s. Europeans feel pangs of envy when they hear Americans complaining about Hispanics taking over Mexifornia.  America, what is your problem? We live in Eurabia. As Robert S. Leiken writes in the recent issue of Foreign Affairs  “the footprint of Muslim immigrants in Europe is already more visible than that of the Hispanic population in the United States.” It is estimated that between 15 and 20 million Muslims now live in Western Europe. France has the largest proportion of Muslims (almost ten percent of its total population), followed by the Netherlands, Germany, Denmark, Sweden, the United Kingdom, and Italy. European conservatives would gladly settle for Catholic Hispanics instead of North African Muslims. And they would also settle for immigrants who are willing to work in the service sector instead of the legions of newcomers who were drawn to Europe for its generous welfare benefits rather than its job opportunities.

“Most gasoline station/convenience stores seem to be the property of immigrant ethnic groups who acquired them with the aid of a taxpayer-financed US government loan,” writes Paul Craig Roberts. Many of Europe’s immigrants are receiving unemployment benefits or are lining up at the municipal welfare offices for handouts. Only recently, European governments have begun to curb excesses – to great indignation of the far Left.

As Richard Posner wrote recently Europe’s social model has exacerbated its problems with immigration. “Because the U.S. does not have a generous safety net [...] it tends to attract immigrants who have values conducive to upward economic mobility, including a willingness to conform to the customs and attitudes of their new country. And because the U.S. does not have employment laws that discourage new hiring or restrict labor mobility (geographical or occupational), immigrants can compete for jobs on terms of substantial equality with the existing population.”

Paul Craig Roberts, however, warns about a serious problem that Europeans, too, will soon be facing though they are not aware of it yet. Referring to last month’s 207,000 newly created “mom and pop” jobs in America (a figure, by the way, that Western Europe can only dream of) he asks: “Where are the jobs for the 65,000 engineers the US graduates each year? Where are the jobs for the physics, chemistry, and math majors? Who needs a university degree to wait tables and serve drinks, to build houses, to work as hospital orderlies, bus drivers, and sales clerks? […] What is the point of higher education when the job opportunities in the economy do not require it?”

Countries like India and China are rapidly catching up on Europe and America in the number of highly qualified people with university degrees that once only the West had in abundance. It is a mistake to think that Europe’s most threatened jobs are those of the relatively low-wage blue collar workers. People with degrees in higher education will also be having more difficulties getting jobs in the future because the Third World has begun producing millions of smart, intelligent and highly qualified engineers, physicists and chemists.

The future looks gloomy, says Roberts. “Economists assume that every high productivity, high paying job that is shipped out of the country is a net gain for America. We are getting things cheaper, they say. Perhaps, for a while, until the dollar goes. What the cheaper goods argument overlooks are the reductions in the productivity and pay of employed Americans and in the manufacturing, technical, and scientific capability of the US economy.” Soon high quality Chinese and Indian cars, computers and other consumer goods will be sold on our markets at prices lower than these goods cost today.

These developments are prompting people like Roberts, but also the leading leftist German weekly Der Spiegel, to predict that the eclipse of America has begun. An extra argument for their fear (in the case of Roberts) or hope (in the case of Der Spiegel) can be found in the recent attempts of the Chinese (government owned) oil company CNOOC to buy the American oil and gas company Unocal – an attempt that could only be prevented by American political interference. Free-market economists like Nobel Prize winner Gary Becker, however, have no problem with China buying American companies. They believe that the dynamics of capitalism will ensure that human ingenuity will find an answer to the new challenges. Moreover, as some Germans point out, Der Spiegel and the German left have “a proven track record of calling the wrong horse, and I guess we can make a Euro or two by simply betting on the opposite outcome.”

The same Germans, however, are asking the poignant question: “Where is the European bull in all of this and why isn’t he atop the globe struggling for the future with the [American] eagle and [Chinese] dragon?” The reason for Europe’s absence is exactly that which enables America to overcome its problems: Europe lacks the spirit of capitalism that invigorates America. Paul Craig Roberts should know this because twenty years ago he helped Ronald Reagan to invigorate America with this spirit. If Europe wants to survive it will have to dump its welfare system and adopt a model that rewards people for their efforts and encourages them to use their ingenuity in solving the problems facing all of us.

Healthcare

European governments, however, are doing exactly the opposite. Take healthcare for example. Faced with large deficits European governments are regarding healthcare as a drain on public budgets instead of seeing it as a promising growth sector. When one country applies the wrong approaches other countries adopt them. The goal is always the same: to cut costs. But instead of cutting costs, why not attract more capital to the system – private capital, that is, by diminishing government regulation?

In markets with a free supply of services and spontaneous competition, consumers have a real say. Since they demand, choose and pay for a service, it had better be good and reasonably priced. What we see in Europe’s healthcare systems is different. The customer has no option. Cost control often means curtailment of the healthcare service. This tendency is evident all over Europe, which is ironic because the major area of economic growth in Western Europe over the past three decades has been in the service sector – and healthcare is one of the most desirable of services, one which could be of tremendous benefit to the economy. It offers jobs to people doing “mom and pop” activities but also to highly educated people. Moreover, it is a service which is to a large extent location bound. Foreign competition is only of marginal importance. Modern technology such as telemedicine will not alter this. When a patient is in need of medical treatment, the primary provider of these services has to be in the vicinity.

As a consequence, an expanding national healthcare market is a benefit to that country’s local labour market. For governments coping with high unemployment figures, growing healthcare needs should be most welcome. What is more, the healthcare market cannot be saturated. People will always want to avoid pain and death. Typically the richer people get the more they will be able and willing to spend on their health. This makes healthcare into one of the most promising growth sectors of the economy – one which should act like a magnet to capital. For capital is not like water but like gas. It flows to the highest point.

Why, then, given its enormous growth potential, is capital not flowing to the healthcare sector? It is not, because, in a variety of ways, governments are preventing it from doing so. Either they are constraining healthcare spending directly, thus starving healthcare systems on the income needed for investment in new buildings, technology and jobs; or they are preventing private spending from entering the system, by keeping the healthcare consumer trapped inside public insurance systems.

Attracting private capital to the healthcare sector would imply a partial privatization of the sector, including, most crucially, more private financing through insurance or other mechanisms. Private insurance-based systems are often criticized in Europe on the grounds that not every citizen would be insured. However, there are already working examples within Europe of well-functioning and equitable private health insurance systems which overcome these objections. In Switzerland the entire population is privately insured. The government provides subsidies to higher risk groups. In Germany people earning a certain income are free to opt out of the sickness fund system and take private health insurance. Over ten percent of the Germans do so. The risks are pooled, and people pay a premium calculated in terms of the risk of the age group they are in when they join their insurance company. In the Netherlands, people can also opt out of the system, but the income threshold is lower than in Germany. Catastrophic health insurance is mandatory and paid for via income taxes. For the lower non-catastrophic risks one can take private insurance, but, as the very high risks are dealt with elsewhere, the premiums are affordable for everyone.

As I wrote in a CNE study a few years ago, (pdf) these private insurance systems constitute interesting laboratories for healthcare reform. They suggest the way out of the fiscal morass in which Europe's public healthcare systems are mired – i.e. opt for a decentralized system, where patients are empowered and where they are free to choose the healthcare which they think will serve their needs best. A diverse private system, with subsidies for those too poor to pay their premiums, is a first step to bringing new private investment into the area of healthcare – investment in jobs, infrastructure, and technology – and by doing so, to making healthcare a promising economic sector that can create value for Europe. Instead, the European governments are killing their own economy, thereby harming the prosperity of their peoples, condemning them to Thirld World standards.