Unemployment in Europe: Some American Suggestions JAMES K. GALBRAITH H urricane Katrina and the destruction of New Orleans have exposed for Europeans the folly of the»American model« as commonly under­stood. Having abandoned planned public capital investment – not merely under George Bush but over 30 years – the United States finds it­self unprotected from a well-predicted natural disaster, unable to stage an effective urban evacuation, and with impaired capacity to plan and exe­cute reconstruction. Meanwhile, fiscal federalism in the stricken region leads to public sector bankruptcy and a collapse of services, to the point where local authorities cannot even detain, let alone prosecute, thieves, murderers, and rapists. As this is being written, evacuees find themselves stranded in hotels and shelters across the country, their homes ruined, their finances in tatters, and their futures in doubt. To the extent that the drive for labor market reform in Europe is pred­icated on shallow comparison with the United States, these develop­ments should signal a profound re-examination of assumptions. Do free and flexible labor markets imply, in part, the abandonment of cherished national and regional construction projects? Given the obvious linkage between wage rates and tax revenues, clearly they do: impoverished workers cannot easily support expensive public works. But public works are integral to the identity and even to the survival of Europe. Should the game of labor market reform require defunding the sncf (La Société Nationale des Chemins de Fer) or the Dutch levees, few Europeans would consider it worth the candle. Nevertheless, Europeans would be mistaken to swing to the view that America’s experience has nothing to offer in the way of useful ideas against mass unemployment. For it was only five years ago that the United States did achieve full employment – with a high labor force par­ticipation rate, measured unemployment rates below four percent for three years in a row, and unemployment and poverty among ethnic minorities at record lows. America did achieve this, and with negligible price inflation. The question is, how? ipg 1/2006 Galbraith, Unemployment in Europe: Some American Suggestions 39