By James Bowden

Welcome back, monetary policy sports fans. In round one, the U.S. clobbered the E.U. with its enlightened monetary and fiscal policies. But what about the political institutions that underlie the decisions that our combatants made when confronted by crises? Let’s take the gloves off and find out:

• Fiscal integration doesn’t work without political integration. The European Union is effectively a treaty system connecting the participating countries in an agreement to share a currency and not take on more than a certain percentage of GDP in debt, with one central bank. The United States is a politically and fiscally integrated federation of states, with one central bank. The difference is stark. Because the nations that make up the Eurozone have differing fiscal, political and social policies and positions, the only unifying factor is their currency – so if Greece’s economy falls apart, each individual nation has to perform its own risk assessment as to whether assistance is warranted. Conversely, if, say, Idaho’s failing economy was rending the social fabric of its communities, the United States would not seriously consider the possibility of doing nothing. That puts the U.S. on the board with one. 
• The Eurozone has no effective built-in checks and balances.  You know those wonderful, self-equalizing checks and balances that you learned about in grade school? The ones that balance competing interests of majority rule with individual liberty, the power of coequal branches of government, and the relationship between the states and the federal government? Yeah, the Eurozone doesn’t really have those. Since the only unifying factor is currency, the financial well-being of the constituents are directly tied to the whims of the economic center of gravity, which is Germany – an economy featuring a robust manufacturing industry, a trade surplus, and a borderline-psychotic fear of inflation. Beware, smaller European economies with real estate and tourism based economies, because the folks holding the purse strings don’t have the same interests that you do. Look at it in a constitutional sense: the U.S. apportions legislative power in a bicameral system, allocating representation by population in the House of Representatives and by equal representation per state in the Senate, with majority rule in each chamber (sort of). The Eurozone system effectively operates on a system that would be similar to California and New York making all monetary decisions for the country, and each state trying to maintain a functioning economy and government in the middle – unless the issue required unanimity, in which case Rhode Island could hold up the policy making process completely at its whim. Doesn’t sound very democratic, does it? Hurray for democracy, and hurray for the U.S.A. We win this one. 
• It isn’t your tax rate; it’s your tax collection rate. I know that Americans hate taxes, and the only good taxes are no taxes (or, alternatively, the taxes someone else pays that you get the benefit of). But the U.S. actually has an excellent collection rate; despite the relative rarity of audits and enforcement action, almost all taxes due are collected. Fraud is exceedingly rare. In Greece, tax evasion is a national pastime. No kidding – leading up to their collapse, the Greeks collected somewhere around 66% of the total taxes legally due. That’s a 33% evasion rate, and a 100% inability on the part of the government to realistically project the level of debt that the country’s economy can realistically service. Maybe it isn’t a question of law – maybe it is an issue with implementation, but either way Greece was doing it wrong. So that’s a big thumbs up to the U.S. tax system. Rare praise, I know.