“Conservatives will also find that Europe is much less open to immigration than the United States, that Europe generally has much lighter taxation of investment income, that few European countries uphold American-style strong separation of church and state, that European countries generally afford accused criminals fewer procedural rights, and that Europe has much less in the way of product liability and class action lawsuits. What’s more, though there are a few exceptions (Sweden comes to mind), Europe as a whole is more conservative in its gender norms in many ways. Women’s workforce participation rates are lower, fewer children are born to single parents, and there are many more legal restrictions on abortion. ” — Matthew Yglesias, on the important difference between Europe that conservatives would find surprising
Archive for the 'Europe' Category
Leftists like to portray the European economic model as more “poor” friendly than the United States economic model. But that depends on what your preferences are: if you are poor and would prefer less disposable income with more government services, then yes, the European model would be preferable. However, if you are poor and would prefer more disposable income with less government services, then no, the European model would not be preferable. It all depends on your preferences.
Economist Tim Taylor, in contrasting government redistrubition trends around the world points this out:
On the tax side, the U.S. tax code is already highly progressive compared with these other countries. The OECD published at 2008 report called “Growing Unequal: Income Distribution and Poverty in OECD Countries, which states (pp. 104-106): “Taxation is most progressively distributed in the United States, probably reflecting the greater role played there by refundable tax credits, such as the Earned Income Tax Credit and the Child Tax Credit. … Based on the concentration coefficient of household taxes, the United States has the most progressive tax system and collects the largest share of taxes from the richest 10% of the population. However, the richest decile in the United States has one of the highest shares of market income of any OECD country.After standardising for this underlying inequality … Australia and the United States collect the most tax from people in the top decile relative to the share of market income that they earn.”
This finding is surprising to a lot of Americans, who have a sort of instinctive feeling that Europeans must be taxing the rich far more heavily. But remember that European countries rely much more on value-added taxes (a sort of national sales tax collected from producers) and on high energy taxes. They also often have very high payroll taxes to finance retirement programs. These kinds of taxes place a heavier burden on those with lower incomes.
My good friend Jon asked an important question: why not prefer the European economic model vs the United States economic model? I didn’t want to bog down his comments section with a long response, so I thought I’d post my longer response here.
Basically, there are two paradigms, two “visions” of an economy. The first, is generally considered left (or European): an economy with a large safety net, strong unions, and generally high taxes. The second, and my preferred, is considered right (or USA model): an economy with a large percentage of immigration, weak unions, weak safety net, and generally low taxes. The leftist economy tends to grow slowly. The rightwing economy tends to grow in a boom and bust way, with higher average growth than the leftist economy.So which one is better? Well that depends on personal preferences. The answer will be different for each person, depending on their personality (It would be like asking someone if they should join a union – it depends). If you are ambitious, entrepreneur minded, and generally a high achiever, you would prefer the United States model economy, where it’s easier to strike it rich (and, similarly, you would tend to oppose union membership). If you are someone who, for example, prefers small gains over large risks, and doesn’t have any ambitions to be CEO one day, you just want a steady pay with little growth – then the leftist economy is better for you (and, similarly, you would probably tend to favor union membership).
It’s kinda like asking someone should you invest their money in stocks or bonds? There is no right answer…it depends on the personality. Stocks give you better long term gains, but they are a lot riskier and volatile. Bonds are safer, but you sacrifice long term growth. It depends on the person (and age group – which is why the young around the world tend to prefer the USA, while the older Canada, see here).
Here is the important thing you have to notice about these two economies: they are mutually exclusive (please, click on the link and read the blog, it’s very pertinent to this discussion ). You can’t have a large safety net, for example, and a large immigration class. And you don’t need high taxes if you don’t have a large safety net. And you don’t get high growth with high taxes. etc. It’s all a domino.
So for example, in the United States, you have a dynamic corporate sector with one company rising to prominence in one decade, and going bankrupt in the next decade. Whereas in Europe, it’s usually the same companies, decade after decade (see here and here). Again, the United States model gives you boom and bust, with more growth, while the European model gives you steady growth, with less long term growth.
Or take immigration. Germany, for example, is not very friendly to the immigrant Turks (only recently, beginning to change, see here). And Germany – like the Scandinavian countries – is generally homogeneous (White).
More importantly, these dynamics feed off of each other. Because safety nets are indeed zero sum – your welfare gain really is my loss – large safety nets foster an ant-immigrant culture (it’s the same reason that during a recession, anti-immigration sentiment increases – the people feel that in a time of scarce jobs, immigrants are “stealing” their job).
Matthew Yglesias, who lived in Europe, writes on the cultural difference between Europe and the United States:
There’s often a kind of conventional idea on the left that the United States is an unusually racist society. And I think there’s also often a kind of image of Europe as a place where more of the progressive agenda has been achieved than in the USA. But I think that you’ll find if you look at Europe through the eyes of the liberal agenda that while the German left has certainly been more successful than the American left at securing universal health care, it’s been much less successful at promoting a tolerant, integrated, multicultural society. And allowing for the errors implicit in making any kind of sweeping generalization, I’d say that’s pretty generally the case across Europe. …
In the US, in other words, racial problems have been more salient for a long time since we’ve been a racially diverse society for a long time. But by the same token, for all the problems we have with us today, we’ve made enormous progress over the years. Racial and ethnic tensions are a common problem in the world, and the United States manages diversity pretty well in comparison with other places (not just in Europe) even if we fall short in some absolute terms. Just look at Barack Obama. I think we’ll be waiting a while yet before someone of non-European ancestry is elected head of government in a European country. Denmark has some great public policy ideas, but it’s also kind of made itself into the gated community of nations in a way I don’t find particularly appealing.
Just look at this youtube video on Black soccer players to see how different race relations are in Europe compared to the United States.
The United States is much more tolerant of immigrants not because we are inherently different than Europeans, but precisely because of our smaller safety nets. Because immigrants that come here are largely excluded from our safety nets, we don’t feel that they come to steal our piece of the pie – instead they are viewed as coming here to enlarge the pie for everyone (unless of course, you are a poor Black person – in that case you do feel threatened from immigration, and rightly so – which helps explain the high anti-immigration sentiment in the poor Black communities) .
That is not to say that the European economic model is bad for everyone. I agree that some people probably are better off under the European model. If you are a White, not very ambitious member of the middle to lower upper class (think liberal arts university professors, or White union members), the European model probably is better for you than the United States model.
But liberals often speak as if all that mattered were White union members (another example of this is in the minimum wage debate), but immigrants and minorities count as well and so do the non union members (White or not) and the very poor and even the very rich. And so the question is: are they better off under the European economic model? And on that I would say no. In addition to the exceptions mentioned above, the unemployment rate is significantly higher in European than in the United States (and especially higher if you have the bad luck of being a minority in Europe). And strong welfare nets notwithstanding, having a job counts for a lot (Highly recommended article here). It’s a source of self respect, pride and happiness. Furthermore, the unhappiness associated with being unemployed swamps out any happiness gains from the slightly higher job security gains of others.
And don’t say that ‘a couple percentage points of unemployment is worth it’, since even a couple points of unemployment could have a drastic affect on happiness levels. An economist explains: ‘Think about how hard it was to find a job back in January 2009 when our unemployment rate was 7.2%. The plight of the job-seeker wasn’t 30% worse than it was in May, 2008, when the unemployment rate was 5.5%. It was probably more like two or three times worse. Now imagine turning 7.2% unemployment into a way of life. It’s pretty awful to imagine, isn’t it? Well, you don’t just have to imagine it, because in France and Germany, 7.2% is normal. The horror!”
So to summarize: the European economic model is better for low ambition White union prone citizens. It’s worse for immigrants and minorities of all stripes. White non-union members. The United States model is better for those at the bottom and top of the economic ladder, and those who prefer risk and growth over stability.
“Here’s the $64 dollar question for which I’ve never seen progressives provide a satisfactory answer. Why is per capita GDP in Western Europe so much lower than in the US? Mankiw seems to imply that high tax rates may be one of the reasons. I don’t know if that’s the answer, but if it’s not my hunch is that the factors that would explain the difference are other government policies that the left tends to favor (strong unions, higher minimum wages, more regulation, generous unemployment insurance, etc.) So I think Mankiw is saying that if we adopt the European model, there really isn’t a lot of evidence that we’d end up with any more revenue than we have right now. Further evidence for this hypothesis is that the few developed countries that do have much lower tax rates than the US (Hong Kong and Singapore) now have much higher per capita GDPs (PPP) than Western Europe. Yes, they are small and urban, but Western Europe is full of small countries of about 6 million people that have less than 5% of the population in farming.” — Scott Sumner, professor of economics at Bentley University, discussing a post by Mankiw that Yglesias responded to
“Alabama has the same per capita income and slightly faster growth rate as the Social Democratic EU.15, which Krugman wants us to believe is a “Dynamic” region that the US should “learn from”. Has Paul Krugman ever written a column asking us to learn from the economy of Alabama? Of course not. That would be simply idiotic. Alabama is poor, and has a lower standard of living, just like the E.U 15. It only manages to grow faster than others because it starts off at such a low level (the EU doesn’t even manage to do that).” — Super Economy blog
“There’s often a kind of conventional idea on the left that the United States is an unusually racist society. And I think there’s also often a kind of image of Europe as a place where more of the progressive agenda has been achieved than in the USA. But I think that you’ll find if you look at Europe through the eyes of the liberal agenda that while the German left has certainly been more successful than the American left at securing universal health care, it’s been much less successful at promoting a tolerant, integrated, multicultural society. And allowing for the errors implicit in making any kind of sweeping generalization, I’d say that’s pretty generally the case across Europe.” — Matthew Yglesias
“There are countries in Europe that would love to have their unemployment rate fall to the 5.7 percent unemployment rate to which ours has risen. Yet those who seem to want us to imitate European economic and social policies never seem to want to consider the actual consequences of those policies. “Unacceptable” is one of the big weasel words of our time– almost always said when the person who says it has no intention of doing anything, and so is accepting what is called “unacceptable.”” — Thomas Sowell
“Europe continues, slowly and reluctantly, to deregulate its economies. In this it is following the US example. The American economy has some problems at the moment, but the EU’s governments are ever mindful of, and oppressed by, the long-term success of the American model. What is interesting is that the United States has been moving the other way. If the Democrats control both the White House and Congress next year, which seems very likely, America’s hitherto-gentle drift in Europe’s general direction will accelerate. One day, might the lines actually cross?” —Clive Crook, blogging in The Atlantic
Forbes recently released its list of the 400 richest people. John Tamney writing in Real Clear Politics gives us the lessons from the findings:
Of the charter members of the first Forbes 400 in 1982, only 32 remain today. Far from a country where only the rich get richer, the wealthy in the US are very much a moving target. While there are 74 Forbes 400 members who inherited their entire fortune, 270 members are entirely self-made. Though many attended Harvard, Yale and Princeton, there are countless stories within of high school and college dropouts, not to mention others who grew up extremely poor. Politicians who regularly engage in class warfare would do well to keep the Forbes 400 out of the hands of their constituents, because it makes a mockery of the kind “Two Americas” rhetoric suggesting the existence of a glass ceiling that keeps hard workers at the bottom of the economic ladder. To read the Forbes 400 is to know with surety that the U.S. is still very much the land of opportunity.
To read many business journalists today, one might assume that the U.S. economy is stratified, offers little room for advancement, and that those at the top are impervious to market forces while enjoying market power that enables them to fleece the less fortunate. Thanks to the lessons offered up yearly in the Forbes 400, we know the opposite is true. Successful people are that way because they make our lives exponentially better, while yearly dropouts from the Forbes list frequently offer evidence showing that consumers punish those who falter. For that, we should be glad that the Forbes 400 goes against the conventional grain and celebrates successful American enterprise.
Contrast this dynamic economy to the stagnant economy of Europe.
Writing in the New York Times, economist Tyler Cowen compares healthcare in the United States with that of Europe:
Economic SceneAbolishing the Middlemen Won’t Make Health Care a Free Lunch
Mark J. Perry, professor of finance and business economics at the University of Michigan, puts the US economy in perspective:
The unemployment rate in Canada just hit a 30-year low of 6.1% in December, the lowest rate since 1977 when Pierre Trudeau was Canada’s prime minister and Jimmy Carter was U.S. president. During the last U.S. recession from March – November 2001, the unemployment never got higher than 5.5%. When the unemployment rate continued to rise to rise and peaked at 6.3% in June of 2003, it was dismissed as a “jobless recovery.”
When the U.S. unemployment rate is around 6%, it’s called a “jobless recovery.” When the Canadian unemployment is about 6%, it’s celebrated as the lowest jobless rate in a generation. The fact is that the U.S. economy, even its worst years, is still better than most other economies during their best years.
These are no small potatoes, we can quibble all day about what welfare program to support or not, but (involuntary) unemployment is a large and permanent waste on the economy, with no benefactors at all. It is also an economic indicator that directly concerns the poor. One may want Canada’s healthcare system, or Europe’s worker protection ‘rights’, but if unemployment is high it falls most heavily on the poor.
This is why I am not persuaded by Canada’s, Europe’s or Scandinavia’s economic model, we can argue to the sun comes out about whether we need more or less welfare, but when you have 6%+, 10%+, and 15%+ unemployment, your economy is clearly inferior to one that has 4%+ (and if you add in the minority unemployment rate, which is usually double and sometimes triple the average unemployment rate, those countries become downright dreadful to brown people like myself).
“If the European Union were a state in the USA it would belong to the poorest group of states. France, Italy, Great Britain and Germany have lower GDP per capita than all but four of the states in the United States. In fact, GDP per capita is lower in the vast majority of the EU-countries (EU 15) than in most of the individual American states. This puts Europeans at a level of prosperity on par with states such as Arkansas, Mississippi and West Virginia.” —a report by the Swedish think tank Timbro called “EU versus USA”
“The youth unemployment rate is largely an artefact of French law. If employers were free to fire employees without cause, as under “employment at will,” the most common form of employment contract in the U.S. private sector, they would be much more willing to take a chance on hiring workers without a record of satisfactory performance. Tenuring just-hired workers may be good for those people lucky enough to land a job (though average wages will decline because the expected productivity of a worker will be lower than if he could be fired easily), but like other labor protections it is bad for the marginal workers, such as the Muslims who rioted the last time, and for the economy as a whole. It is part of a complex of unwise laws in Europe that are contributing to Europe’s economic stagnation”. —Richard Posner, blogging about the latest French Riots
“If you want to understand the real enduring strength of America as a nation, look at the Dow Jones industrial average. Not the record 12,000 level reached this month — that may last no longer than a day or a week. Look instead at the 30 companies that make up the Dow index. Only two of the original 30 companies in the index in 1930 — General Electric and General Motors — are still there today. Most of today’s Dow components — the Microsofts and Intels — weren’t even around 50 years ago. If you look at the relevant stock market indices for Germany, France or even Britain, you will find them dominated by companies that have been around for generations. America by contrast, has mastered the art of creative destruction. This vast competitive openness, combined with entrepreneurial spirit, keeps the country constantly innovating and regenerating”. —Gerard Baker, writing in the Times of London
Edmund Phelps, the winner of this years Nobel Prize in economics, has a very good article in the Wall Street Journal on Dynamic Capitalism, of which he compares the two different flavors of capitalism, the US model vs the Western Europe model.
Entrepreneurship is lucrative–and just.
BY EDMUND S. PHELPS
Tuesday, October 10, 2006 12:01 a.m. EDT
There are two economic systems in the West. Several nations–including the U.S., Canada and the U.K.–have a private-ownership system marked by great openness to the implementation of new commercial ideas coming from entrepreneurs, and by a pluralism of views among the financiers who select the ideas to nurture by providing the capital and incentives necessary for their development. Although much innovation comes from established companies, as in pharmaceuticals, much comes from start-ups, particularly the most novel innovations. This is free enterprise, a k a capitalism.
The other system–in Western Continental Europe–though also based on private ownership, has been modified by the introduction of institutions aimed at protecting the interests of “stakeholders” and “social partners.” The system’s institutions include big employer confederations, big unions and monopolistic banks. Since World War II, a great deal of liberalization has taken place. But new corporatist institutions have sprung up: Co-determination (cogestion, or Mitbestimmung) has brought “worker councils” (Betriebsrat); and in Germany, a union representative sits on the investment committee of corporations. The system operates to discourage changes such as relocations and the entry of new firms, and its performance depends on established companies in cooperation with local and national banks. What it lacks in flexibility it tries to compensate for with technological sophistication. So different is this system that it has its own name: the “social market economy” in Germany, “social democracy” in France and “concertazione” in Italy.
Liberals are fond of saying that the reason General Motors and US based companies in general are having so many problems competing is because Toyota and Volkswagen, located in Japan and Germany respectively, don’t have to pay health care costs and US based companies do – putting GM at a disadvantage to foreign competition.
Megan Mcardle, deputy countries editor of the Economist, exposes this myth:
This is a persistent meme on liberal sites, and with good reason: the logic is compelling. The only problem–and it is a slight one–is that this meme is not true. In both Japan and Germany, workers at large corporations get their health insurance via joint contributions from employeer and employee, just as they do in the United States. Big corporations in both countries also have pension schemes, just as in the United States, and higher social security contributions.
To be sure, their health care costs are lower, in large part because they are administered by the government, which rations it more strictly than GE can. But their pension fund deficits are often worse than ours.
Where does this idea come from that the Japanese and German corporations don’t have to pay any costs to cover their employees’ health and retirement? And why hasn’t anyone bothered to check it?
I am not surprised. Economist Don Boudreaux has more.
Update: Catallarchy has more.