Parallel Attitudes Towards Transfer Payments in America & Greece

Written By: Matthew Oxenford

I’ve been struck by two stories running at low intensity on either side of the Atlantic for the last several months. At first, they don’t seem related. First, there is a notable uptick in anti-German sentiment that has been documented Greece and in several other countries that may need to be bailed out by the wealthier EU countries if the Euro project is to survive (See Reuters article from 16 February: “Greece-Germany tension rises, reflects wider European rift“). Secondly, the Republican Presidential primary in the United States has taken turn towards attacking the social safety net, even though the most reliably Republican regions of the United States are indeed the poorest, and most in need of the safety net (Paul Krugman’s recent article in the New York Times, “Moochers Against Welfare” is a good encapsulation of the trend). These seem unrelated, but they really have the same ultimate cause, one that has profound implications for both the United States and Europe.

The trend in the United States has been going on for longer, so let’s look at it first. Republican political rhetoric has been dominated by the trope that government should not be in the business of redistributing money to undeserving people even while the poorest of the U.S. States are the most reliably Republican. Every year, rich states, like Massachusetts, Connecticut and New York receive less than a dollar in federal spending for every dollar they pay in taxes. Meanwhile, poor states like Mississippi, Louisiana and South Carolina see more than a dollar, and in the case of Mississippi, over two dollars in spending for every dollar paid in taxes. These transfer payments often go to projects that benefit the nation as a whole, such as road construction, but more often they go to social welfare payments including federal unemployment benefits, government health care programs such as Medicare and Medicaid and job training programs.

Often, these programs are accompanied by regulations coming from Washington. Medicaid funding is tied to certain minimum standards of care. The 2009 Affordable Care Act set up other funding mechanisms to offer subsidized health care to individuals who can’t afford health care on the individual market. These requirement make great fodder for anti-Washington Republican campaigners (indeed, former presidential candidate Rick Perry literally wrote the book on the problem with these requirements), but they do ensure a minimum standard of quality for federal payments. However, no one in the United States even pretends that someday these transfers will lead Mississippi to compete at the level of New York. It’s an open-ended transfer payment that is necessary for the currency union that is the United States to succeed. And it should look familiar to anyone forecasting what the future of Europe will look like. A scenario where Germany, the Netherlands, Austria and other richer countries establish open-ended transfer payments to the poorer countries in exchange for standards on how the money is used, but with no concrete expectation that the poorer areas will someday ‘catch up.’

So what does this mean for the U.S. or for Europe? For the U.S. it suggests that fear over loss of local control is an underrated factor over why anti-Washington politics is so prevalent. Anecdotally, I was once told by a South Carolinian: “We know we’re on the bottom of every list of states that’s good, and we’re on the top of every list of states that’s bad. But that’s our problem to deal with, and we don’t like a bunch of Northerners who’ve never lived here swooping down and trying to fix our problems like they know best.” Switch out Northerners for ‘Brussels technocrats’ and this could’ve been said by a Greek.

The idea that people in a culturally distinct region will oppose outside interference even if they are being helped is also a more benign explanation for Red States voting against Washington than some of the alternative explanations that have been put forward, including latent racism and religious indoctrination. However, if this is indeed the case, it also suggests that Europe is in for even sharper divisions as it moves towards further fiscal union. The claim that government should be kept on a local level is an argument that defines American political life, despite the fact that the United States is far more culturally homogeneous than Europe will ever be.

I generally think that blaming “culture” is a lazy way of saying that nothing more substantial can be said, but in this case, there is one complicating factor. The Southern United States is by far the most culturally distinctive region of the United States. One of the major reasons for that is that it briefly considered itself its own country and fought a Civil War with the rest of the United States. However, the perception of the South as a unified political entity opposed to the North persisted for at least a century afterwards. Where the United States has only one brief instance of this happening, the European Union has dozens also combined with deeper and longstanding language and cultural differences.

If concerns over local control is related to culture, and this is an underrated fact in why different cultures oppose transfer payments, than the comparisons between the U.S. and the E.U. are faulty. Despite their similar size and standard of living, the E.U. has much deeper cultural and linguistic divisions and fewer system-wide institutions to unify it. There is another nation that has mostly succeeded its linguistic and cultural divisions to form a currency union, but that is a topic for another article.

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