Co-blogger Tyler Cowen has an excellent post on the looming crisis facing the Western European model of social democracy over at Crooked Timber.
I agree with most of Tyler's points. Unfortunately, however, I think that the risks posed by social democratic policies are in some respects even greater than he argues. The combination of high unemployment, low growth, and severe tensions between Muslim immigrants and native-born citizens (partially a result of the first two factors) has the potential for bringing political extremists to power in one or more European countries. In the first round of the most recent French presidential election, the far right (the racist National Front and similar groups) and far left (trotskyites, communists, and others) combined for some 40% of the vote. Extremist parties have also gained strength in recent years in Italy, Germany, several Scandinavian nations, and elsewhere in Western Europe.
If European governments fail to improve the anemic economic performance described by Tyler, and remain unable to assimilate Muslim immigrants effectively, there is a real chance that voter frustration will increase, and the far right or far left will successfully exploit it and eventually come to power in one or more major European nations - with potentially disastrous results. Many of those Europeans who vote for extremist parties are probably just "protest voting" and do not actually endorse their platforms in full. But the same was probably true of many of the Germans who "protest-voted" for the Nazis and Communists during the Weimar Republic (as Richard Evans suggests in this recent book). The results this time around probably will not be as bad as what happened in the 1920s and '30s, but neither will it be pretty.
I hope that Western European nations will head off this potential catastrophe (as well as the risks highlighted by Tyler) by adopting more market-oriented policies, as Ireland has recently done with great success. I fear, however, that many governments will prefer to try to muddle through with current policies rather than pay the short-term political costs of alienating labor unions, government employees and other powerful interest groups that support the status quo.
All of this is not to say that US policies don't have their own flaws; indeed, they have many. But, for the reasons Tyler emphasizes, as well as others, the US economic system at this point in time is doing considerably better than Western Europe. In part because of greater economic opportunity, we are also more successful in assimilating immigrants, including Muslims.