I Heart Europe
David Brooks is training his fire
on Europe. Liberals have failed! Europe's the proof! Eh, it's probably worth reading his whole column, but after that, onwards to the debate, and the first thing we'll do is kill all his premises. Is
Europe really doing so much worse than the United States? Maybe not. Here's Robert Pozen:
Gross domestic product has grown at an average rate of 3.3 percent a year in the United States over the last decade, compared to 2.1 percent a year in the EU15. Per capita GDP growth, however, has been very similar: 1.8 percent a year in the United States, 1.7 percent in the EU15. The main factor driving higher U.S. economic growth is not greater productivity gains; it is a more rapidly expanding population.
Hard to blame the welfare state, then. I'd also note that, contrary to claims about burdensome "progressive taxation" in Europe, many of the tax regimes there often make use of the sort of things Brooks and other conservatives would like to see more of here in the United States. As Peter Lindert details in his truly fascinating book, Social Spending and Economic Growth in the Eighteenth Century
), the big welfare states actually tax property and capital less
heavily relative to social transfers than does the United States (or even the liberalized United Kingdom), and labor more heavily. Many of the welfare state democracies also tax consumption more heavily than we do here in the United States—again, something that many Republicans, including Brooks, have called for. Meanwhile, countries like Sweden tax dividends less heavily than low-spending states like the United States or Japan. Regardless of what Brooks may say, in many ways it's Bush and the Republicans
who want to push our tax systems to something more closely resembling Europe's.
So what is to blame for Europe's relatively low growth (or at least portions of Europe; some European countries, like Sweden, seem to be doing fine)? Well, as Pozen says, demographics are probably a big part of it. Europe's aging more quickly, and hasn't prefunded as many of its pensions. The U.S. is better at immigration, so long as we can duct-tape Tom Tancredo and toss him in a basement. There's also, as Olivier Blanchard points out
, the fact that Europeans work less, which is probably a bigger cause of lower income per capita (about 70 percent the U.S. average) than high taxes. But notice that all of those things are quite fixable. The EU expanded last year into Central and Eastern Europe, bringing about 75 million new people. If dealt with properly, that could obviously rectify a lot of demographic problems.
It's also not clear that the United States is going to trounce Europe forever. As Brooks never tires of reminding us in other contexts—namely, during the Social Security debate—productivity is going to slow soon enough. Now it seems doubtful that it will slow as much as, say, the Social Security Trustees predict, but our current supercharged rates of productivity growth probably aren't going to last forever.
Meanwhile, the U.S. is increasingly burdened by defense spending, and Europe is not. The United States, I'm told, has already reaped most of the productivity gains from having women enter the workforce en masse
—that phenomenon has only just started to take hold in Europe (excluding Norway and Sweden). According to this article
, only 55 percent of women work outside the home in Europe, compared to 65 percent in the United States. And southern countries like Italy and Greece could make huge strides on this front with the right policies and attitude shifts. Then there's the whole internet revolution thing: this study
argues that European firms are still trying to implement their fancy new IT technologies and learning various retail techniques from the United States. Once they do, they can slingshot their way forward, as we did in the 1990s. It's also worth mentioning that we've got much larger budget deficits here in the United States, which is eventually going to kick us in the ass.
So I'm not ready to write off Europe just yet. Certainly its struggles aren't entirely the fault of leftist-style policies. Certainly not all of its policies are leftist-style. On the other hand, it's true, I think, that countries like France and Germany are in need of serious regulatory and labor reform. Fine. Say they scale down labor protections on these fronts, some 40 percent; they'll still be far more congenial labor environments than here in the United States. There's a lot of middle ground here and it doesn't discredit American liberalism for us to try to aim for that
ground instead of a country "exactly like Germany now and forever."