The economy of Europe and the U.S. is interesting to watch and ponder. Why? Because there is a lot of horse trading going on over the future of how the European economy will be managed by each country in the European Union. Like Japan’s cultural issue, that does not allow banks to foreclose on bad businesses because of loss of face, France, too, is in the mix for some horse trading with Germany over whether the tight fiscal policy can be maintained at about 4 percent growth in spending. Neither, Germany, Inc. or France, Inc. is going to make the caps work in the near future, while all the other smaller countries in the EU have been doing much better by tightening spending.

The two economies of Europe and the U.S. are interesting to watch and according to the Financial Foundation Review, it appears that the Europeans are gleeful over the U.S. economy challenges in recent years. Should they be gleeful? We think not. Why?

By about 2050, the U.S. will have 500 million people. Europe will have about 350 million. Demographic growth, via our immigration groups, will overpower Europe in the number of consumers we have to buy those goods and services. Second, the productivity in the U.S. outshines the Europeans, and has done so, for many years now. Why is this important? The productivity in the U.S. has created the current condition where the U.S. is capable of managing the current economic challenges by tightening our belts in the corporate life, reducing the number of employees while continuing to produce. The infusion of capital from investors into this country also continues to save the U.S. economy from disaster or even worse conditions than we see right now.

Fancy this idea about the size of Europe and the US…..in 2050, according to Selfert (2003) the U.S. GDP will be 2.5 times that of Europe GDP. Selfert also notes that if we add China’s growth into this mix, then we have a Europe that is sucking economic air while China and the U.S. become the national security players on into this century. Remember when we were a young nation and there were only 100 Americans for 350 Europeans? Well, that day is over and we will emerge demographically, technologically, and in shear wealth size via GDP to beat the socks off the Europeans in continued R & D and productivity just like we have since 1970. The 21st Century will be the Century of China and the U.S. economically and strategically.

Europe is old tired and sluggish. Its taxation policy still supports its ridiculous social policies that drive the costs of government through the ceiling because populations expect the support psychologically and financially. Not unlike our conditions in a state like New Mexico where business, industry and labor want the “world with a fence around it”. Europe is too slow to react and the French and Germans love their bureaucracies…just look at what happens with the United Nations to see it up close and personal.

Who does Secretary of State Powell call for a sense of foreign policy for the EU? He can’t call anyone. There is no single person that can speak for the EU on foreign policy. Who do we call upon for economic policy out of EU? No one again! The Germans and French are too busy trying to talk each other into some wiggle room with respect to spending and cultural barriers to economics than working on a sound policy that will drive capitalism. The Europeans are slugs. They still believe that socialism and a good bottle of wine will settle it all. That is why you see the old Europeans like France and Germany reacting to the U.S. foreign policy in the manner that they do while other smaller countries are really grooving on the new capitalism and tight fiscal and monetary policy that stimulates their economies, e.g., Spain, Ireland, Poland etc. The small European countries see the difference that capitalism can make….the older European countries don’t get it yet. Their populations have to be weaned from past history and this is not easy.

In states like New Mexico we are still trying to wean the business and industrial sectors from this same kind of socialistic thinking. Let the government do it. Where is the grant from the government? “We can’t invest ourselves in projects…we might have to risk losing money” is the cry from business in New Mexico. Europe provides an interesting economic window by which to gain lessons from bad economic policy. New Mexico economic policy still has high taxation like Europe, has way too much bureaucracy for the services provided by government, and is uncompetitive relative to neighboring states. Higher education is bloated and does not produce outcomes, rather uses tenure to support very bad education. Competition in education using vouchers can’t get past first base with the socialistic legislature and now a governor in the pocket of labor in education. New Mexico is a lot like Europe. Want to look at a future “Europe”, just look at California.

Now the U.S. has reached an all time high in spending at $ 450 billion deficit….all this under a Republican leadership! To get the economy going the tax cuts were necessary, but so is the control of spending as Alan Greenspan and others have noted this past week. Like drunken sailors, the U.S. Congress is spending their way to heaven or hell depending upon who you talk to about it. While our economy is robust and can sustain many hits, it is time to hire people for congress and state governments who really understand economics and control of the purse strings by disrupting the dependence on the part of citizens for government while creating massive savings so that citizens can declare their own economic independence. Our U.S. savings rates have dropped by several percentage points and we must encourage savings to keep the economic engine pumped. If someone saves $100,000 in a medical savings account for a bad health day, then there should be no tax on that money period. If someone saves money to put their child through college, say about $300,000, there should be not tax of any kind on that money. If a person is over 50 years old and is now saving money for retirement upwards of $500,000, then there should be no taxes on that account, including no capital gains tax. We need to re-think our priorities to stimulate the kind of economic future that makes sense for the 21st Century America in which we are living.

As for Europe….don’t worry about them. They will still be debating the caps on spending and unemployment by mid century while their demographics slow and their economy falters without direction or competition. Their capital markets will still be in disarray. Invest in America and watch this puppy go. Economic independence for all citizens is essential. If this happens, the liberal cry babies won’t have a message anymore and cultural class warfare will be a thing of the past.