Dr. Allan H. Meltzer is an American Economist and the Allan H. Meltzer professor of Political Economy at Carnegie Mellon University’s Tepper School of Business. He is the author of a large number of academic papers and books on monetary policy and the Federal Resrve Bank. Dr. Meltzer’s two volume books, “A History of the Federal Reserve”, are considered the most comprehensive history of the central bank. He is considered one of the world’s foremost experts on the development and application of monetary policy. Currently he is also President of the Mont Pelerin Society. Dr. Meltzer originated the aphorism “Capitalism without failure is like religion without sin. It doesn’t work.”
Europe has been the model for how a democratic capitalist country becomes a welfare state. After a surge of market driven growth after World War II, each election from the 1960s on brought new programs of income redistribution and regulations intended to protect workers and consumers and to achieve an undefined “fairness”. Instead, high tax rates and heavy regulation slowed economic growth. And many welfare state programs became road blocs to economic progress by resisting reforms and prolonging the current European recession.
This essay neglects the immigration problem that complicates many of the issues, but does not change the need for real economic adjustment. I leave immigration to Europe for another day.
Current economic problems and prospects differ substantially within the group. At one extreme is Greece where promises for pensions and other benefits have made the cost of producing uncompetitive.(An index rates Greek’ competitive position at 3.8 on a scale of 10.) Greek workers can retire on full pension after working 37 years, so a worker who starts at 18 can retire with full pension at 55. Most other European countries use 65 as the age for retirement with full pension.
Recently the Greek Parliament finally agreed to reduce pension costs as part of its preparation for the next round of negotiations. Greece has a long experience with agreeing to adjustments that it is unable to achieve in practice.