« Conservatives Play Pin the Fail on the Donkey's Fannie | Main | State and Local Governments Need More Help »

Monday, January 11, 2010

Paul Krugman: Learning From Europe

Europe shows that social democracy does not undermine economic dynamism and growth:

Learning From Europe, by Paul Krugman, Commentary, NY Times: As health care reform nears the finish line, there is much wailing and rending of garments among conservatives. And I’m not just talking about the tea partiers. Even calmer conservatives have been issuing dire warnings that Obamacare will turn America into a European-style social democracy. And everyone knows that Europe has lost all its economic dynamism.
Strange to say, however, what everyone knows isn’t true. ... The real lesson from Europe is actually the opposite of what conservatives claim...
It’s true that the U.S. economy has grown faster than that of Europe for the past generation. Since 1980 — when our politics took a sharp turn to the right, while Europe’s didn’t — America’s real G.D.P. has grown, on average, 3 percent per year. Meanwhile, the E.U. 15 ... has grown only 2.2 percent a year. America rules!
Or maybe not. All this really says is that we’ve had faster population growth. Since 1980, per capita real G.D.P. — which is what matters for living standards — has risen at about the same rate in America and in the E.U. 15: 1.95 percent a year here; 1.83 percent there.
What about technology? In the late 1990s you could argue that the revolution in information technology was passing Europe by. But Europe has since caught up in many ways. ...
And what about jobs? Here America arguably does better: European unemployment rates are usually substantially higher..., and the employed fraction of the population lower. But if your vision is of millions of prime-working-age adults sitting idle, living on the dole, think again. In 2008, 80 percent of adults aged 25 to 54 in the E.U. 15 were employed... That’s about the same as in the United States. Europeans are less likely than we are to work when young or old, but is that entirely a bad thing?
And Europeans are quite productive, too: they work fewer hours, but output per hour in France and Germany is close to U.S. levels.
The point isn’t that Europe is utopia. Like the United States, it’s having trouble grappling with the current financial crisis. Like the United States, Europe’s big nations face serious long-run fiscal issues... But taking the longer view, the European economy works; it grows; it’s as dynamic, all in all, as our own.
So why do we get such a different picture from many pundits? Because according to the prevailing economic dogma in this country — and I’m talking here about many Democrats as well as essentially all Republicans — European-style social democracy should be an utter disaster. And people tend to see what they want to see.
After all, while reports of Europe’s economic demise are greatly exaggerated, reports of its high taxes and generous benefits aren’t. Taxes in major European nations range from 36 to 44 percent of G.D.P., compared with 28 in the United States. Universal health care is, well, universal. Social expenditure is vastly higher than it is here.
So if there were anything to the economic assumptions that dominate U.S. public discussion — above all, the belief that even modestly higher taxes on the rich and benefits for the less well off would drastically undermine incentives to work, invest and innovate — Europe would be the stagnant, decaying economy of legend. But it isn’t.
Europe is often held up as a cautionary tale, a demonstration that if you try to make the economy less brutal, to take better care of your fellow citizens when they’re down on their luck, you end up killing economic progress. But what European experience actually demonstrates is the opposite: social justice and progress can go hand in hand.

    Posted by on Monday, January 11, 2010 at 12:42 AM in Economics, Productivity, Social Insurance | Permalink  TrackBack (0)  Comments (150)

    TrackBack

    TrackBack URL for this entry:
    https://www.typepad.com/services/trackback/6a00d83451b33869e2012876c3e626970c

    Listed below are links to weblogs that reference Paul Krugman: Learning From Europe:


    Comments

    Feed You can follow this conversation by subscribing to the comment feed for this post.