What is the American model really about? : Soft budgets and the Keynesian devolution

Abstract

Europeans tend to view the American success story of the 1990s through the prism of free-market public relations, as a triumph of falling wages, rising inequality, and increasing "flexibility" in labor markets. This is an illusion. If it were not, the United States would not now be in its present difficulties. The American return to full employment is better understood as the result of greatly expanded spending in the social sectors: health care, education, housing and pensions, notably, which in conjunction with the bubble in information technologies created the effective demand necessary to absorb the unemployed. Now that the bubble has collapsed the American model is in danger, as interlocking mechanisms of public and private finance all come under pressure. But the period of American success still holds lessons for Europeans considering how best to cope with their continuing scourge of mass unemployment. (original abstract)