Net Net: Promoting innovation and managing change
Net Net: Promoting innovation and managing change

California Girls, Kentucky Bourbon: Why America Works and Europe Doesn’t

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Europe’s woes are sometimes blamed on the failure of the European Union to be more like the United States. But many of the people who point out this contrast do not seem to fully understand what this would mean.

It’s true that the debt problems of Greece and Italy are greatly exacerbated by features of the European monetary union. Very different countries, with very different economic profiles, are forced to share a monetary policy that seems to be on the verge of breaking the union altogether.

What’s more, there’s a psychological gap in Europe that is absent in the United States. The Germans still think of themselves as Germans and think of the Greeks as foreigners. They are not very eager to spread their own wealth around, particularly because they view the Greeks as being at “fault” for their own crisis.

By contrast, Americans do conceive of the United States as a genuine unity. As Matt Yglesias puts it:

Americans, whether in San Francisco or in Kentucky, generally conceive of ourselves as all living in one country. We act either on behalf of narrow personally selfish claims or else broad idealistic concerns about what’s right and proper for the country as a whole. But if that spirit broke down, the whole national economy would have a very different feel.

But what Yglesias misses is that this unity is not just a matter of spirit. It is a matter of constitutional structure.

We can understand this by looking at the pattern of transfers between California and Kentucky. California is a net tax payer to the federal government, paying out far more than it receives. Kentucky is a net tax receiver, getting far more. Yglesias thinks pattern of “long-term, sustained, open-ended financial transfers to Kentucky” is what makes the monetary union between places as different as Kentucky and San Francisco work.

But what drives this transfer policy? It isn’t just a spirit of “what’s right and proper for the country as a whole.” It’s the way we apportion representation on Capitol Hill. Basically, states with the highest representation in the Senate per capita get the highest federal spending per capita.

A 2003 paper titled “The Political Determinants of Federal Expenditure at the State Level” by Paul Pecorino and Gary Hoover confirmed what had been found in a number of earlier studies: states like Kentucky are overrepresented in federal spending because their population is overrepresented in the Senate.

This pattern may explain why we have such a robust federal government in the first place. A poll of Kentucky voters last year found that 56 percent believed that the federal government was spending too much. It may well be that overpayment to Kentucky by states like California (that are friendlier to federal spending) is a way of buying off the acquiescence—if not actual support—of the net tax recipients.

So does Yglesias think Europe should adopt the constitutional structure of the United States, in which individuals in less-populated countries would enjoy more per capita representation in lawmaking? I doubt it.

Yglesias has written that overrepresentation by rural areas is “destroying the planet.” He’s also blamed it for ruining the possibility of real health care reform. He’s complained that the equal apportionment of Senators across the states is an “unfair and bizarre way to run things.”

The point is that the United States was set up to rely not just on the spirit of generosity to preserve its unity but on institutional impediments to the highly populated and most economically productive parts of the country dominating the less economically productive and less populated parts.

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