Is Social Democracy a viable model for the European future?

by Tyler Cowen on October 30, 2006

“Political history in the advanced industrial world has indeed ended, argues this pioneering study, but the winner has been social democracy…”

So runs the opening blurb on Sheri Berman’s The Primary of Politics: Social Democracy and the Making of Europe’s Twentieth Century. Most of the book is a well-researched account of the history and subtlety of social democratic thought, but I wish to consider the broader framing of the argument. In the last chapter the author returns to her apparent view that social democracy is fundamentally a solution to the problem of politics and it will remain relevant, indeed dominant, throughout the twenty-first century.

Much as I have enjoyed living in, working in, and visiting Western Europe, I have my doubts.

The Western European economies, which I take as the living embodiments of social democracy, face a dual crunch: low rates of economic growth and unfavorable demographics.

The importance of economic growth is obvious, but rarely are the long-range implications of lower growth taken seriously.

If a country grows at two percent per annum, rather than one percent, the difference in wealth or welfare in a single year is relatively small. Over time the difference becomes very large. For instance, had America grown one percentage point less per year, between 1870 and 1990, the America of 1990 would be no richer than the Mexico of 1990.

Growth laggards fall behind. If we compare a one percentage point differential in the growth rate, and start at real income parity, we need a time horizon of 110.4 years to establish a 3:1 ratio of superiority of per capita income. If we are comparing a two percentage point boost in the growth rate we need a time horizon of only 55.5 years to establish a 3:1 superiority in per capita national income.

Nobel Laureate economist Robert E. Lucas put it succinctly: “…the consequences for human welfare involved in questions like these are staggering: once one starts to think about [exponential growth], it is hard to think about anything else.”

For all its virtues, social democracy stands in danger unless Europe can boost its rates of economic growth. Even if some of the more radical social democrats may feel that “people already have enough,” it is hard to imagine Europe persisting and flourishing if it ends up as the “poor man out” and in a state of relative impoverishment. If nothing else, the most talented Europeans would migrate elsewhere. There are already 400,000 EU researchers working in the United States, and it is not clear when they plan on returning.

Most of Western Europe experienced a long postwar boom, lasting at least through the late 1970s (the timing is later for Spain). This was sustained by rebuilding, an enormous growth in world trade, and by lower levels of government intervention than we see today. But welfare payments rose, taxes rose, labor markets became less flexible, interventions favored insiders to a greater degree, regulations were cartelized, and the entrepreneurial spirit ebbed.

Western European per capita income is now about 30 percent below that of the United States and I see the gap widening rather than closing. It is common for the United States rate of productivity growth to be twice as high as that of the core European nations (NB: don’t be fooled by statistics of high average labor productivity levels in some countries, such as France. In part they result from limits on the creation of low-wage jobs and they do not predict good future performance.) The relatively free Ireland continues to boom, but France, Germany, Italy and others have performed poorly. Even the Dutch economic miracle appears to have ended.

Germany may experience a current blip in growth rates, coming close to three percent over the next year. But this will not sidestep the broader and persistent problem of shrinking populations. Most European birthrates are under the 1.5 mark and it is quite possible that many national populations will be cut in half by 2050. Along the way there will be too many retirees per worker and current European tax rates – already among the highest in the world – will have to rise. Since older populations also tend to be less productive, it is hard to see how Western Europe might reassume world economic leadership or even hold its current relative ground. Nor has the EU, for all its benefits, proven itself a good mechanism for making economic policy; farm subsidies are over 45 percent of the EU budget.

Part of the demographic problem, of course, is that the real standard of living in Western Europe is remarkably high. Western European women have learned how much fun they can have, living in Europe and traveling abroad, when they are not tied down with four children. The extreme secularism of Western Europe – a philosophy which I share and indeed cherish – also promotes small families. Religious exhortations to have more children, combined with a child-friendly church culture, do in fact raise birth rates. In both economic and cultural terms, Western Europe is not investing enough in its future.

It seems that for Western Europe to regain its dynamism, it has to move to a freer market economy, higher rates of childbirth, higher immigration, and greater religiosity. It has to stop being the Europe which we (or at least I) love, and become more like the United States.

The defender of the European way can attempt four arguments:

  1. The proper rate of social time discount is high. Yes, America will be much wealthier in the future but that simply doesn’t matter much.
  2. America’s growth advantage is illusory. Cowboy capitalism is self-destructive, and in the long run the European economies are better bets.
  3. Europe will return to traditional morality and high rates of child-bearing, but in the meantime we should keep this wonderful experiment going for as long as possible.
  4. Islamic immigrants, plus Chinese and Indian tourists, will save the European way of life.

I hear #2 from many Europeans, and from some American leftists, but it is mostly fantasy. If American does self-destruct it will more likely be from foreign policy than anything else. A look at the comparative microeconomics of information technology, research and development, or American universities, confirms that America’s growth edge is rooted in fundamentals.

I will not, in this forum, debate the ethics behind #1, which I have argued against elsewhere. Furthermore #1 is not an easy fit with the pro-education, pro-future, anti-global warming sentiments found on the Left.

#3 and #4 are plausible. We do not know for sure they are true, but they violate neither the available data nor a first-cut application of economic reasoning.

These hypotheses, however, are damaging to European pride and damaging to the idea of social democracy as a universal model. #3 implies that the current arrangements, however noble, are doomed. #4 implies that the model can be sustained only with the assistance of foreigners, and poorer foreigners at that. In that scenario Europe survives as an Asian and American theme park, with the manual labor done by Muslims. The French and German lifestyle will continue, but with smaller numbers and as a kind of museum piece.

The bottom line: European social democracy will go down in history as a glorious moment in the sun. But its deep structural problems, most of all for delivering ongoing economic growth, mean that 21st century Europe will have to take a very different course. For better or worse, history will continue. The one component missing from Social Democratic Theory – and from this otherwise excellent book – is realistic economics.

{ 5 trackbacks }

Catallarchy
11.02.06 at 12:30 am
Progress Daily » Blog Archive » Exponential Growth
11.08.06 at 2:02 pm
Crooked Timber » » Dubious about demography
11.10.06 at 6:28 am
John Quiggin » Doubts about demography (crossposted at CT)
11.10.06 at 6:35 pm
Garrick Van Buren .com » I Thought Europe Was Already a Museum ;)
11.12.06 at 6:49 pm

{ 77 comments }

1

John Quiggin 10.30.06 at 12:38 pm

I’ve seen this presentation of the argument before, and I find it unsatisfactory.

The 30 per cent difference in output per worker is accounted for completely, or more than completely, by differences in hours worked per employee, so that starting the argument with this difference is misdirection.

The claim that can be made for the US is that it manages to employ a larger proportion of the population than European countries, with no offsetting loss in average productivity. The difference in E/P ratios is significant as regards France, Germany and Italy but not as regards the Netherlands and Sweden.

Moreover, even when comparing to France, the implied difference in underlying productivity is not great. The US has an E/P ratio of about 60 per cent compared to 50 per cent for France. Assume that the ‘extra’ workers have half the productivity of the ‘core’ workers. Then if France had the same E/P ratio as the US, output per worker would decline by around 10 per cent. This is enough to wipe out the apparent advantage in hourly productivity for France, but not to open up a significant gap in favour of the US.

So, there’s really nothing much to the productivity story either way. We’re still left with a trade-off between much greater inequality in the US, and an employment/population ratio that’s significantly higher than some, but not all European countries.

2

MQ 10.30.06 at 12:46 pm

Look, this whole post is based on the idea that there is definitely a substantial gap between EU and American productivity growth rates. But that central idea is hardly defended at all. I’m frankly not sure what to believe in the debate on productivity growth rates in Europe vs. the U.S. But it seems to me that there is definitely enough of a controversy that Tyler needs to actually take it on rather than just wave his hand at it for a moment and then go on to predict collapse for Europe.

3

Thomas Palm 10.30.06 at 12:57 pm

Given how we already overtax the resources of Earth any solution that consist of increasing population growth has to be considered flawed. It may help Europe in the short run compared to other nations, but in the long run it may doom us all. As you note exponential growth is dramatic, and that is very much true for population growth.

A real problem for any social democrat government today that tries to even out opportunities by taxes and free education is that after getting their free education the brightest can move to more stratified countries that give more benefits to the elite. This is even more true for movement of capital to countries that have the lowest taxes. This leads to a race to the bottom where you can’t tax capital or people who can move abroad, thus making a welfare state very hard to finance. In the long run I doubt this is good for anyone. You get more gated communities where the rich hide away from the rest of the population.

4

joshb 10.30.06 at 1:00 pm

Tyler

it’s true that you slipped far too easily from differences in per capita income to differences in productivity.

the first (differences in per capita income) are real, the second (differences in productivity) are a much more mixed bag. The US has done a bit better in the past 5-10 years after most of Europe experienced much more rapid productivity growth in the preceding 30.

And, European employment is even better compared to the US than John says – among prime-aged workers (25-54) France and the US have identical employment rates, and, the EU15-US gap is less than a point.

joshb

5

roger 10.30.06 at 1:49 pm

I doubt Europe can learn that much from the U.S. in terms of promoting free market economies – but it can learn much in two areas. One is education. The U.S. simply has a much stronger commitment to all levels of education, from community colleges to premier state universities. Germany and France lag way behind there, with an educational system that is highly much more highly stratified than the U.S. In France, you are much more likely to find a Normalian in a position of power than you are to find, for instance, in the U.S., Ivy League graduates. A quick survey of CEOs in the U.S. would show this. And a much great portion of the U.S. population has some college experience. This is good in two ways – removing a large part of the population from the employment market, and actually increasing that fabled human capital.

The second area is reluctance of the Europeans ever to reflate their economies. The housing market is a great example. In the U.S., easy credit really floated the whole economy on a real estate bubble over the past five years. This was a good thing, and in fact it didn’t bring about massive inflation. But the EU has made European states even more reluctant to broaden credit access.

In sum, the problem with Europe is that it is not Socially democratic or Keynsian enough.

6

Scott Martens 10.30.06 at 2:08 pm

So, too summarize:

Life is misery and the life of the individual is nothing. Only the nation can be great. We in America are prepared to be miserable – to have insecure lives and rotten jobs, to force unwanted children onto our women, to live in poverty and deprivation – for the greatness of our land. Those European who think that they can have lives of security will inevitably pay for their decadence.

So, should I say that Americans hate Europe for it’s freedom?

Tyler, you may not realize it, but one of the reasons why this has so little traction in Europe is because Europe has been there, repeatedly, within living memory. That line of thinking has been the source of endless oppression, and of devastation that destroyed any growth it might have engendered.

7

Daniel Nexon 10.30.06 at 2:19 pm

Tyler Cowen’s engagement with Sheri Berman’s book strikes me as fundamentally unserious. Berman’s book — or at least the draft chapters I read two years ago — claims that social-democratic ideals and values triumphed in the industrialized world. The argument should be perfectly recognizable to Austrian-school libertarians: even in the liberal United States the terms of policy represent, at best, a superficial advocacy of the self-regulating market in the context of an underlying commitment to the relationship between state, society, and the market that reflects social-democratic principles.

Henry challenges this claim. He argues that one can reconstruct welfare-state liberalism as an intellectual mutation in the liberal tradition — one dating back to the nineteenth century — rather than the a social-democratic variant of liberalism.

Mark Bylth’s own work suggests that the rise of Hayek-inspired conservativism and the so-called “Washington Consensus” constituted a reversal of Polanyi’s double-movement, one in which economic liberalism emerged truly ascendant. But arguing about whether the European model of social democracy maximizes aggregate welfare in no way challenges Berman’s core claim. If the New Deal, for example, reflects a “social democratizing” of liberalism than we would still say that Social Democracy triumphed in the second-half of the twentieth century; the New Deal remains relatively intact despite efforts to erode it. Conservatives in the United States expand the federal government rather than shrink it. And so forth.

Did Tyler Cowen actually read the book? I would like to know his take on Berman’s claims about the triumph of social-democratic politics. His observations here are potentially relevant, but only if we fill in certain gaps and draw connections for him.

8

Tyler Cowen 10.30.06 at 2:51 pm

Here is one look at the comparative data on growth and productivity: http://www.dallasfed.org/research/eclett/2006/el0605.html. The U.S. advantage is obvious. The one commentator is correct that I don’t much engage with most of the book. But I thought the book, high in quality as it is, was taking a core premise for granted. I wished to challenge that premise, and of course I am an economist not a political scientist per se.

9

Delicious Pundit 10.30.06 at 3:06 pm

Is Tyler Cowen saying that Europeans need to believe in God again because it will help the growth rate?

Okay, I guess, but to play devil’s advocate, consider the lilies of the field: they toil not, neither do they spin, but I tell you that David Brooks in all his glory was not arrayed as one of these.

10

Matt Kuzma 10.30.06 at 3:07 pm

I hear #2 from many Europeans, and from some American leftists, but it is mostly fantasy.

Tell that to the General Accountability Office!

11

A Tykhyy 10.30.06 at 3:09 pm

A real problem for any social democrat government today that tries to even out opportunities by taxes and free education is that after getting their free education the brightest can move to more stratified countries that give more benefits to the elite.

I think something can be arranged about this problem. After all, “free” education is not really unpaid for: the society, by agency of the state, pays for it. So it is reasonable to demand this payment back if the recipient stops contributing to the society which financed their education.

12

spencer 10.30.06 at 3:16 pm

your fed link appears to be broken.

13

Brandon Berg 10.30.06 at 3:45 pm

Matt (12):
It should be fairly clear from the article to which you link that the US government’s financial problems stem not from “cowboy capitalism,” but from its primary social democratic elements: Social Security and Medicare.

Note also that the problems are political, not financial, and could in theory be solved quite painlessly by restraining the growth of these programs. The only real obstacle to this—what has turned this from a minor forecasting error to a crisis—is the social democratic mindset of the electorate.

14

abb1 10.30.06 at 3:45 pm

I hear #2 from many Europeans, and from some American leftists, but it is mostly fantasy. If American does self-destruct it will more likely be from foreign policy than anything else.

It won’t necessarily self-destruct, it just that it produces a lot of waste. Take the dot-com bubble for example: hunderds of millions of man-hours down the drain, billions of lines of worthless code, hundreds of thousands of useless servers and other gadgets, useless infrastructure, dark fiber. No government bureaucracy can create so much waste, not even the pentagon. So much for the high productivity.

15

John Quiggin 10.30.06 at 3:50 pm

The link is
here, but it subtracts from, rather than adding to the argument, since it doesn’t even acknowledge the starting point that, in terms of what it correctly describes as the key variable, output per hour worked, Europe matched or surpassed the US some time ago. The faster US growth of the past decade is in part catchup.

16

soru 10.30.06 at 4:03 pm

once one starts to think about [exponential growth], it is hard to think about anything else

Obviously exponential growth, as a mathematical model, is a not-completely-wrong approximation of the way modern economies behave.

There is a question to be asked, however, as to how well it actually works when you get down to the level of modelling changes, predicting causal effects.

Specifically, the model would say if that in year 0, society A grew at 4% instead of 3%, that extra growth would translate into not just extra wealth the next year, but extra growth the following year (as 3% of 104 is bigger than 3% of 103), and so on down the years. The total wealth added by one year of 1% higher growth is, after a hundred years, much greater than 1% of the year 0 economy size.

There are a couple of questions to be asked about that mathematical effect:

1. is it true: do economies behave that way?

2. if so, is there a specific causal mechanism by which it works, for example extra R&D in year 0 lowering costs in later years, or infrastructure being built now beingused later?

3. if so, can it really be unconditionally true that a given real-world case of extra growth will lead to ongoing exponential gain? Surely those causal mechanisms only work if the extra money is actually spent that way?

4. What about globalisation? Even if the model works well for total global wealth, why would you expect it to work for political units? What is the mechanism that restricts the ongoing effects of US spending in year 0 to the US?

17

abb1 10.30.06 at 4:19 pm

As far as output per hour, it wouldn’t surprise me if it was much higher in Europe. European manual labor is much more expensive than the US, thus attendantless gas-stations and car-washes, self-cleaning toilets, well mechanized agriculture and so on.

If you can hire an army of illegal Mexicans for $2/hour to pick your grapes, why would you care about their output per hour? But if you have to pay $15/hour plus taxes and benefits – you sure do.

18

steven 10.30.06 at 4:26 pm

John-

Out of curiosity, what would you consider a good source for output/hour? The OECD tables here

http://www.oecd.org/topicstatsportal/0,2647,en_2825_30453906_1_1_1_1_1,00.html (the first table under “labor productivity)

seem to indicate that the EU-15 output in 2005 was $36.8/hour vs. the US figure of $42.9/hour. Or am I misreading this somehow?

19

Rhadamanthus 10.30.06 at 4:31 pm

I have to say that as a classical liberal who is interested in dialoguing with egalitarian liberals, I was rather disappointed with the replies to Tyler. They seem to constitute a collective groan/eyeroll which is rather typical of the treatment egalitarian liberals give their ideological cousins.

I just wish that egalitarian liberals would stop playing the spoiled brat of the liberal family. And the comments above dashed my initial hopes for productive dialogue.

C’mon, Tyler’s a serious guy; and he’s not *obviously* wrong about the productivity issue as John Quiggin and others maintain. Respect his field of expertise, realize that there’s a reason few microeconomists are economic egalitarians [not a Marxian class-analysis reason, please], and try to say something constructive.

20

lamont cranston 10.30.06 at 4:44 pm

um, Rhadamanthus, who’s the one doing the groaning and eye-rolling? Cowen has basically conceded that he didn’t bother to engage the argument of the book under discussion, preferring to launch his own argumentative thread instead. He may indeed be a “serious guy,” but it would not seem, by his own admission, that he’s particularly interested in engaging in the kind of dialogue you’re describing.

lc

21

bob montgomery 10.30.06 at 4:46 pm

It won’t necessarily self-destruct, it just that it produces a lot of waste. Take the dot-com bubble for example: hunderds of millions of man-hours down the drain, billions of lines of worthless code, hundreds of thousands of useless servers and other gadgets, useless infrastructure, dark fiber. No government bureaucracy can create so much waste, not even the pentagon. So much for the high productivity.

It produced ebay, Google, Amazon.com, PayPal, Yahoo!, YouTube, MySpace, The Mozilla Foundation, the iPod, Xbox Live…

22

Hork 10.30.06 at 5:05 pm

On the economic argument about various feasibilities — I think Cowen underestimates the huge costs that the USA’s myopic underinvestment in public goods has produced — education, health care, good jobs (creating huge — and totally foreign to europe) crime epidemics, and — perhaps most importantly, infrastructure http://www.asce.org/reportcard/2005/index.cfm

23

Bruce G Charlton 10.30.06 at 5:11 pm

One possibility that TC does not mention, which I think would actually happen if Europe did decline in the way he envisages, is that Europe would become _colonized_ by the successful nations.

The US, China, whatever – would gradually take-over things in a piecemeal fashion. This is happening to an extent already in business, quantitative science and some other areas where Europe lacks comparative advantage.

Probably politics would continue to employ ‘native’ personnel, so the take-over process might not be obvious.

But then again, this might happen anyway and everywhere as a consequence of global free trade.

And another aspect of globalization which will probably happen is reverse-migration of educated workers from wealthier to poorer countries (eg. in central and eastern europe) to do jobs like teaching, public administration, and business management.

Such migration could substantially diminish the economic hardship of the middling people in the US, UK and Western Europe who are displaced from jobs by competition with Chinese and Indians.

24

John Quiggin 10.30.06 at 5:40 pm

Steven, this is a reasonable source, but EU-15 includes the recent admissions such as Poland, whereas the argument here is about “Old Europe”.

I can’t find the figure you cite, but it’s clear that if the gap between the US and the EU-15 as a whole is around 15 per cent, Western Europe must be pretty much on a par with the US.

25

leederick 10.30.06 at 5:43 pm

…“free” education is not really unpaid for: the society, by agency of the state, pays for it. So it is reasonable to demand this payment back if the recipient stops contributing to the society which financed their education.

Isn’t the problem this: I receive a very expensive publicly funded education in Europe, at which point I move to the US. How does the state get its payment back? It can’t send the bailiffs round as I’m outside its jurisdiction.

26

stostosto 10.30.06 at 5:53 pm

There is a debate on whether and by how much Europe is in economic decline. Tyler C says it is, very much (which is debatable) and he links it to Europe’s social democratic setup.

But he is vague to the point of silence on which specific traits in this setup that are a)detrimental to economic growth, and b)particularly social democratic.

He is being mind-bogglingly superficial here.

As for his assertion that low fertility is a function of European secularism… what is there to do but roll one’s eys?

27

Dan Karreman 10.30.06 at 5:55 pm

Yes, Tyler, growth is important, but only if you can reap its benefits. I guess that means that stagnant US median wages are a problem then. When the richest 10 % of the population monopolizes the fruits of economic growth, the remaining 90 % percent perhaps don’t care so much about the wonders of exponential growth. It seems to me that social democracy is better prepared to deal with this problem than the US winners-take-all system.

I’m not so sure about the demography argument neither. Since most European economies have fairly high unemployment and thus excess labor capacity, shrinking populations appear to be a solution rather than a problem. When European economies operate at full employment, then demographics may present a problem, but not until then. And as far as I know, worker shortages are likely to stimulate investment in automation, innovation and labor immigration. Can’t see social democracy present a problem here, rather the opposite actually (see Scandinavia).

28

MQ 10.30.06 at 6:03 pm

Rhadmanthus — I for one respect Tyler a lot, but he has not made a full case for his fundamental productivity claim here. You, and perhaps he, seem to think that no case needs to be made, that “serious microeconomists” all think this. Well, that’s frankly not true — there are plenty of serious microeconomists who make an argument for the European productivity performance not being that bad compared to the U.S. They are a minority, but they are a large one and are making a lot of good points. It’s not just measurement issues, but the temporal facts. Up until the later 1990s, it was basically uncontroversial that labor productivity growth was at least as fast — actually generally faster — in the EU than here. Now, things reversed over about the past decade, but how much of that has to do with the internet bubble and U.S. service sector investments in IT that really have major measurement issues in terms of their effects on productivity? How much is measurement differences? How sustainable is it? Some people claim the growth rate gap has started to close up again as Europe invests more in IT. It certainly seems problematic to me to just project this gap out to eternity and posit the collapse of Europe. I’m not saying that Tyler is wrong to do it, just that I want to see him step back and make the argument for it seriously. I am quite prepared to listen; I’m actually somewhat of an agnostic on the issue despite having some egalitarian tendencies myself. But just as we should not assume Tyler is obviously wrong, he should not be assuming he is obviously right. The evidence doesn’t support that level of certainty yet.

The Dallas Fed link was helpful, but it is to a rather tendentious and political paper — one chart showing total aggregate per capita output (with no correction for hours!) is not enough. You have to go beneath the numbers.

29

steven 10.30.06 at 6:40 pm

John-

Are you sure about that? The OECD website seems to suggest otherwise: http://stats.oecd.org/glossary/detail.asp?ID=6805

As far as I can tell, Western Europe* as a whole trails the US, while certain countries (e.g., France) are ahead in per-hour output. That’s interesting (in as much as you care about per-hour output, which I think it an overrated metric), but I find it difficult to see how you can say that the higher US growth is “catch up” when in fact the US is ahead of the average (but not every!) Western European country.

*Granted, defining Greece as part of “Western Europe” is a little loose, but it doesn’t affect the point.

30

mark blyth 10.30.06 at 6:40 pm

Apropos the debate over Europe v’s the US on productivty and growth that Tyler’s contribution has started, my general schtick on this very subject can be found in a 3 Quarks piece at

http://3quarksdaily.blogs.com/3quarksdaily/2006/04/eurobashing_som.html

On similar ground, there is an excellent essay in the latest issue of the Review of International Political Economy called “On spurious differences in growth performance and on the misuse of National Accounts data for governance purposes”.

Short version – 40 percent of the US ‘advantage’ in growth over Europe comes from how GDP deflators are constructed.

Interesting stuff

31

A Tykhyy 10.30.06 at 6:40 pm

leederick: for instance, the cost of your education could be accumulated as frozen debt on your bank account(s), which is activated if you work outside the country(ies). If you move your productivity back, the debt freezes again.
Anyway, I’m sure that a workable scheme could be devised. The nuance here is that its functioning must not rely exclusively on monetary incentives/disincentives, but include “Identity management”. Otherwise you’d be just encouraging people to find ways to game the system.

32

Henry 10.30.06 at 6:54 pm

John – I think Steven is right here – EU15 is the usual shorthand for the old member states before the expansion to 25 members. Now there’s a lot of variation in social models among these 15 but still …

33

John 10.30.06 at 7:01 pm

lamont @ 20 – he didn’t “concede”. He said He didn’t agree with the premise. – Just like you don’t agree with his premise…

In any case, there are certainly times in the past when the Germans (for instance) were more productive than the US. That this is no longer the case, and has not been the case for the last 10 years seems quite important, whether Mr. Quiggan thinks so or not. That is to say – the US model is growing more effective over time. Plus, Europeans spend a lot more time doing housework than United Statesians. I wonder whether Europeans could actually increase their hours enough to be competitive on GDP with the US, even if they wanted to.

Bottom line (for me, at least) -
a) The US is growing much faster than Europe, and there’s no evidence this will stop.
b) the US is the source of most of the innovation and creative destruction in the world today, and this trend, also, seems unlikely to stop.
c) The US does a much better job of assimilating minorities, which bodes well for a immigrant-heavy future.
d) Globalization is killing the European welfare state.

Thanks for the great insights. I’ve learned quite a bit.

34

Francis 10.30.06 at 7:24 pm

It seems that for Western Europe to regain its dynamism, it has to move to a freer market economy, higher rates of childbirth, higher immigration, and greater religiosity.

Why?

California, compared to Alabama, has a high-tax, high-benefit economy. California regularly lags near the bottom of various rankings of the various states on regulatory and tax burdens. Yet California has an ongoing population inflow and an enormous economy.

It would seem to me that the forces of globalization will encourage the smartest, most entreprenurial people to move to where the quality of life is highest, not where the tax burden is lowest. No one, after all, is contemplating that Silicon Valley relocate to Somalia.

The US may, if it so chooses, continue to plan for a pyramid-shaped population structure. But a growing body of evidence suggests that if we are to move the rest of the planet towards US levels of consumption, we will exceed the carrying capacity of the planet. (Witness, for example, impacts on fisheries. Can we possibly feed 6 billion people an American-style diet?)

Someone needs to figure out how to manage a society that is shrinking. We might as well let the Japanese and Europeans lead the way.

35

Jack 10.30.06 at 7:48 pm

Why attribute all the difference in productivity and growth in the US to supposed but in practice pretty small micro considerations when the most obvious difference is that it has, up to now, done a better job of delivering a single market and the corresponding economies of scale and critical mass?

Even sticking at the micro level, how to compare the future importance of potential drag from social democracy with energy dependence? Or an economy that no longer manufactures much that the rest of the world wants? Is extrapolating a fairly short term trend, itself fraught with measurement issues, really a compelling argument?

36

Michael Sullivan 10.30.06 at 7:50 pm

Tykhyy at 31 and 11:

I think that your proposal has some serious flaws on both a practical and a theoretical level.

Practically, I don’t understand how you think that a “frozen” debt in a bank account will solve the enforcement problem. Surely, the emigrating European simply has to transfer the money out of his hostaged bank account prior to emigrating? Then once he’s gone, sure, the account looks negative, but he just defaults on it and ignores demands for payment. Alternately, he leaves right after college when he simply doesn’t have any monies worth mentioning.

But let us suppose that the proposition could be made enforceable in at least most cases. I understand that you wish to deter brain drain, but you seem to be doing so at the cost of heavily disincentivizing any kind of “legitimate” emigration as well.

A college education is expensive — true cost should well exceed $100,000. Let us postulate a history student, someone bright but un-exceptional, who develops an interest in southeast Asia (or anywhere) and wants to move there. You propose to hit her with a crushing debt that her stay-at-home comrades do not share, and to what end? She is presumeably not part of a brain drain, and is probably not going to squander your social investment in some high-paid position.

Further, I would argue that our hypothetical student and her peers who live abroad perform a valuable service for Europe. In some cases, they will return to Europe or end up working for European companies and bringing value that they accumulated abroad back to the continent. In others, they simply will simply carry some of Europe’s ethos to the rest of the world. It seems troubling to me to strongly disincent emigration in general.

There’s also something of an uncomfortable association with laws that intend to make it difficult for people to travel freely or leave a place that they don’t want to live.

37

John Quiggin 10.30.06 at 8:07 pm

Steven, sorry about that error (I saw Poland in the tables and assumed it must be in the average), but it’s still true that the EU-15 average is pulled down by Spain, Portugal and Greece, which are similar, if not as extreme, examples of the same point. The UK is also below-average, which is not ideal for Tyler’s case .

More importantly, and coming back to point 1, once we agree that the US doesn’t have particularly high productivity per hour, arguments based on 10 years of above-average growth in that variable don’t have the kind of weight Tyler wants to claim.

38

lamont cranston 10.30.06 at 8:47 pm

Btw, anyone interested in Berman’s views on the future of Europe can find them in the Winter O6 Dissent

lc

Europe’s Choice
By Sheri Berman
Dissent, Winter 2006

The United States of Europe:
The New Superpower and the
End of American Supremacy
by T.R. Reid
Penguin Press, 2004 320 pp $25.95

The European Dream:
How Europe’s Vision of the Future
Is Quietly Eclipsing
the American Dream
by Jeremy Rifkin
Jeremy P. Tarcher/Penguin, 2004 448 pp $25.95

Why Europe will Run
the 21st Century
by Mark Leonard
Public Affairs, 2005 170 pp $20

Over the last several years a rift has opened beneath the Atlantic, pushing the United States and Europe farther apart. One cause has been increasingly different approaches to foreign policy. Another has been a sense that Europeans and Americans have distinct approaches to domestic affairs as well. Alongside the shelf of books chronicling transatlantic disputes over Iraq, terrorism, the United Nations, and similar topics, another shelf is filling up with analyses of how the “European model” is not just different from the American one but superior to it. This literature does a good job of pointing out the chinks in America’s armor and highlighting the ways Europessimists have overdone their gloomy portrait of the continent and its future. The books tend to have significant flaws of their own, however—including, oddly enough, a shared blind spot regarding Europe’s true hope for long-term greatness and the obstacles it must surmount to achieve it.

T.R. Reid’s The United States of Europe is up front about its goals and motivation. A former European bureau chief for the Washington Post, Reid sees European integration as designed to create a new actor able to “stand up as a counterweight to the American brute” and penned his book to help this project along.

Reid focuses much of his attention on the business sphere and the ways integration has steadily leveled the playing field between American and European firms. Much of one chapter, for example, is devoted to the story of General Electric’s failed attempt to purchase the aerospace company Honeywell. The deal was approved by the boards of both companies and the relevant U.S. authorities, yet it ultimately fell apart. Why? Because Jack Welch “came up against a force more powerful than the most powerful corporate chieftain. He ran headlong into the path of [a] great historic movement . . . the unification of Europe.” This is Reid’s overwrought way of saying that integration has given Brussels great leverage due to its regulatory power and ability to control access to a large and lucrative European market. Welch failed to recognize this because he was accustomed to thinking about satisfying only American authorities and actors, and compounded his mistake by appealing to Washington to help get the deal done. The result was predictable: with Europe now unwilling to be treated as a “weak little sister who can be pushed around by swaggering Americans,” the merger was rejected and Welch’s reputation tarnished.

Reid ties the corporate tales to more general cheerleading about Europe’s economic performance and prospects. He touts the growing power of the euro vis-à-vis the dollar, the ways integration has helped European businesses overcome coordination problems and benefit from economies of scale, and the impressive spread of European brands and businesses across the globe. He also includes the requisite sections on the European welfare states, reminding his readers of the many practical benefits the continent’s generous social policies continue to offer its citizens. All of this is a useful antidote to those who think that Europe’s economy is anemic and unable to compete with its “more dynamic” American counterpart.

Where Reid offers an informative and entertaining review of Europe’s many practical accomplishments, particularly in the economic sphere, in The European Dream social theorist Jeremy Rifkin sets out to prove that Europeans are ahead of their American counterparts in the “vision thing” as well. Writing with the fervor of a religious convert, Rifkin sees the key to Europe’s success in an ideal of life “far better suited to the next stage in the human journey” than its American counterpart. While America is desperately trying to hold on to an old era, Europe is “creating something new and bold.” This vision is idealistic rather than materialistic, focused on the achievement of a better world rather than simply the accumulation of goods. It values community over individualism, favors multicultural diversity over melting-pot assimilation, and views multilateral institutions rather than military hegemony as the path to global stability.

Rifkin argues that the European dream has practical benefits as well as spiritual ones: it helps support, for example, what Rifkin believes is a distinctively European model of governance, one ideally suited to contemporary economic conditions. The emerging interconnected world is rendering the adversarial nature of markets obsolete, he claims; only “cooperative commerce” based on “networks” can deliver the long-term relationships necessary for success in today’s “speedy, complex and diverse” world. Rifkin compares these economic shifts to the “great transformation” that occurred with the industrial revolution; now as then, he writes, Europe is in the vanguard.

Both books have a relentlessly upbeat tone, an explicitly evangelical goal, and a firm belief that the “end of History” has indeed arrived (although at a different station from the one Francis Fukuyama envisioned). Driven by an overwhelming desire to prove that Europe is not the stagnant economic backwater that so many Americans (and indeed, a number of Europeans) believe it to be, however, both overshoot the mark.

It is certainly true that Europe’s economic problems can be overstated and its accomplishments underappreciated. But the continent also certainly faces important challenges, many of which are the flip side of the very accomplishments commentators such as Reid and Rifkin emphasize. An obvious one is the need to overcome the widespread European view that globalization is something to be feared or resisted rather than embraced. Although it is true that tales of European economic doom are overwrought, there is no doubt that a general sense of pessimism pervades much of the continent. A recent editorial in the German newspaper Der Tagesspiegel, for example, tried to perk up Germans by noting, “Sure, the German economy is in the dumps, and our national mood is sour. But the French are even worse off! Not only is their economy more ‘sclerotic’ than ours, but they are constitutionally incapable of fixing it.” These are not the musings of a people eagerly embracing the New World Order. Books that prattle about a “cooperative” or “trust-based” economic order are no substitute for clear thinking about the reforms needed in order to allow Europe to flourish rather than flounder in an ever-more-competitive global economy.

Another challenge to Europe’s economic future is demography. Slowing birth rates are creating immense economic and social problems across the region, and unless those rates are raised or offset, Europe’s future will be cloudy. The most plausible way of offsetting the declines, of course, is through immigration, a controversial subject that is oddly, if tellingly, ignored in both books. In fact, it’s hard to take seriously Rifkin’s praise for Europe’s emphasis on community and diversity, given the inability or unwillingness of most European countries to address the problems facing their own minority populations (as the riots in France have made painfully clear).

If Reid and Rifkin are both strangely silent about some obvious problems facing Europe, they also fail to focus on perhaps Europe’s most striking and distinctive accomplishments, namely democracy promotion—a topic that given their and the continent’s obsessions with countering the “American model” or “American hegemony” is quite odd indeed. Here at least Mark Leonard’s Why Europe Will Run the 21st Century takes up the gauntlet. Leonard’s book provides a short, concise summary of the standard Europhile arguments and shares some of the same strengths and weaknesses of the other two books. However, Leonard differs from Reid and Rifkin in highlighting Europe’s success in beating the Americans at what they like to think is their own game. In an era when the U.S. government has bet the bank on democracy promotion and has come to argue that political transformation is the key to national security as well as the natural fulfillment of America’s “God-given” role, it is striking to recognize just how successful Europe has been at this game. As Leonard notes, “Once sucked into [Europe’s] sphere of influence, countries are changed forever. For fifty years . . . Europe has been creating a ‘community of democracy’ and using its market size and the promise of engagement to reshape societies from the inside.” Unlike the United States, he argues, Europe does not change countries by invading them but by threatening to ignore them.

Indeed, looking back at the “third wave” of democratization that began spreading across the globe in the 1970s, one can see just how critical a role Europe has played in pushing it forward. Beginning with Spain, Portugal, and Greece, the promise of European Community membership encouraged those trying to move away from authoritarian rule. The immense political, economic, and social changes required for membership, combined with immense aid, then helped ensure that these new democracies would steady themselves and develop further. And when the Soviet Union collapsed, of course, the lure of Europe helped bring formerly communist countries firmly into the democratic and capitalist camp. More than eighty thousand laws regulating a vast array of economic, political, and social affairs—the European Union pulled off nothing less than a miracle forcing, or rather enticing, countries to undertake societal, political, and economic reforms that in some cases helped transform them from top to bottom. Thus not only did Europe encourage transitions to democracy, it also helped provide incentives for the types of reform that would help create the contexts within which democracy could work. The practical results have been astonishing. Less than fifteen years after the fall of communism, for example, most of east and central Europe was firmly in the liberal, democratic camp or well on its way to being there—all without firing a shot. As Leonard puts it, “The European model is the equivalent of the strategy of the Jesuits: if you change the country at the beginning, you have it for life.” This approach is incredibly effective and stands in direct contrast to the more expensive and threatening American one. “Rather than relying on the threat of exercising power to secure its interests, Europe relies on the threat of not using it—of withdrawing the hand of friendship, and the prospect of membership.”

This same drama is now playing out in Turkey, where—as in Southern, Central, and Eastern Europe—the prospect of EU membership has driven the country to undertake massive reforms. But here is where the story gets truly interesting, for bringing Turkey into Europe and securing its democratic future would not only be an accomplishment of world-historical significance (and stand in stark contrast to the U.S.’s bumbling efforts to promote progressive political, social and economic change in other parts of the Muslim world), but would also force Europe to confront arguably its greatest contemporary challenge, settling once and for all questions about its own future and identity.

The European Union can either remain a weak confederation of states, joined together largely for economic purposes, or it can become something more. All three authors examined here favor the latter course, both on its own terms and as the only way Europe can counter the United States. Yet in order to move forward, the European Union will have to develop a distinctive consciousness and rationale, one based on more than being the “anti-United States.” Herein lies the rub, for doing so will require confronting many of the challenges that books in the Reid, Rifkin, and Leonard genre ignore.

Two different paths are open to Europe. The first would define Europe on the basis of history, culture, and religious heritage. Turkey does not share these, the argument runs, and so letting it in to the Union would threaten Europe’s unity and identity. There is something intuitive at the core of this argument, even if it is hard to define in any rigorous way (for example, it is hard to find much commonality in the history or culture of nations as diverse as Sweden and Bulgaria).

But there is another view of modern European identity and the EU’s purpose, one that builds upon the key historical accomplishment of the Union thus far. Europe is defined, in this view, by a commitment to a set of ideals rather than an amorphous and perhaps mythical shared past. From this perspective, the EU constitutes a group of nations committed to the maintenance and furthering of democracy, prosperity, and peace. It is grounded in what the philosopher Jurgen Habermas has called a Verfassungspatriotismus, a devotion to a certain kind of constitutional order rather than ties of blood, faith, or tradition.

For those who believe in this second model of European identity, Turkey’s candidacy should be embraced rather than opposed (at least to the extent that Turkey demonstrates that it shares the EU goals). Indeed, bringing Turkey into the union would confirm that the “European dream” is not limited to a few specific peoples, but rather a model with potentially universal application. By rewarding the continuation of liberalization in Turkey with full EU membership, Europe would literally make history, breaking decisively with the most negative features of its own past—the ethnic and religious wars and hatreds that so deformed the continent’s twentieth century—and offering a stark and plausible alternative to the democracy-spreading aspirations of the United States. This model offers, in other words, a path to a truly attractive European identity and alternative, one that also holds out the promise of building a sphere of influence that could truly rival the United States.

What this would require, however, is confronting head-on the question of what it means to be European in the twenty-first century. By looking backward and inward, choosing to base its identity primarily on culture, religion, and history, continuing to ignore the challenges raised by globalization, immigration, and the need to bring a country like Turkey into the liberal democratic fold, Europe may be able to avoid troubling trade-offs for a long time. But by looking forward and outward, choosing to base its identity on universal values and goals, and confronting the need to change if it wants to remain dynamic and distinctive, Europe could expand its appeal and influence beyond its borders and give itself the sense of purpose and mission that it now seems so clearly to lack.

Up to now these two radically different self-conceptions have coexisted side by side, rarely conflicting with each other on a day-to-day basis. With the recent decision to accept Turkey’s bid for full membership, however, Europe has reached the point where it must choose between two alternative visions of its future.

Sheri Berman is an associate professor of political science at Barnard College, Columbia University, and the author of The Primacy of Politics: Social Democracy and the Making of Europe’s Twentieth Century, forthcoming from Cambridge University Press.

39

Walt 10.30.06 at 9:05 pm

John: How do you explain the change, since the US has been less socially democratic than Europe for a lot longer than ten years? To me, arguments about productivity figure sounds like the purest expression of confirmation bias. If you believe that the US model is intrinsically superior, then of course you take the last ten years as proof. If you don’t, it’s easy enough to discount it. It’s exactly like the US versus Japan arguments that used to happen twenty years ago. If you were persuaded by the possibility of technocratic meddling in the economy, then Japan of course proved that you were right. If you didn’t believe in it, it was easy enough to form an account where it didn’t matter. Anyone who thinks that the past ten years settles the matter is not learning from history.

40

Patrick 10.30.06 at 9:33 pm

Australia already has a “Higher education contribution scheme” debt that you get from attending university. This is construed as a tax debt, so the full force of the tax department is behind any attempt to make you pay it back.

Doesn’t stop people from going overseas. If anything it encourages it.

To get to the main topic, isn’t this just the whole idea of economic convergence? If one area (Europe say) DOES fall behind, then providing they aren’t complete idiots the lower levels of capital investment, lower wages, and opportunities for applying more advanced [American] technology makes them a better place to invest.

Hence one location can trail by a certain amount (depending on the drag of it’s local politics) but this deficit will stop growing and will stabilize as the ever growing advantage of higher returns pushes the two economies towards convergence.

This is why Japan, the Asian Tigers, and Now China/India/Brazil/Argentina/Chile are now catching up. Because they are poorer, they are better places to invest in productivity improvement.

Of course some countries aren’t catching up, remember I said they have to not be complete idiots. Africa I’m looking at you.

But overall, none of the liberal democracies is going to fall too far behind, because then the forces for convergence will speed them back up again.

Another way of looking at this, is that the countries with more deadweight, are riding on the coat-tails of the more dynamic countries. Getting them to do all the hard work, and enjoying the easy (if slightly poorer) life.

A common example of this is in Medical research.

41

radek 10.30.06 at 9:35 pm

On this my heart agrees with Tyler but my head says he is overstating the case. Since this argument has been rehearsed a number of times already there’s little one can add. European productivity is inflated because European countries don’t integrate the least productive into the labor market. On the other hand these same folks get enough to get by from the state so it’s not clear things are all bad. I’m sure there’s a comperative study somewhere out there which constructs a counterfactual world where US has European labor force participation/population/skill structure and compares the relevant productivities but I don’t know where it is. In the end the data does not convince that the costs of social democracy in EU are catastrophic:

http://www.econ.ucdavis.edu/faculty/fzlinder/Freelunch/HarvardFreelunch1.pdf

A part of this is that Europe is less social democratic then people think. Taxes are less progressive then in US actually. Most of the distortions are in labor markets but in many ways other aspects of their economies are more laissez faire then in US.
The demographic changes on the other hand do bode trouble for Europe. More immigration please!
(But can that sustain the social democratic consensus?; http://www.economics.harvard.edu/hier/2001papers/HIER1933.pdf

42

John Quiggin 10.30.06 at 10:17 pm

Patrick, the issue of people going overseas and failing to repay their HECS debt is a live one in Australia, and even more so in NZ. At this stage, the general view is that most will come back at some point, so it’s not worth worrying about.

But it would clearly be possible to convert the HECS debt to an ordinary commercial debt. More likely in the short run is a mutual recognition arrangement which would embrace NZ and Aust, and maybe also the UK (though we are still fighting them about old age pensions, so maybe not).

43

Michael Sullivan 10.30.06 at 11:53 pm

Patrick/40:

I’m not at all familiar with the Australian Higher Education Contribution Scheme. Is there a place you could point me to to learn about it? A quick Googling got results which seemed to fluctuate between very nitty-gritty details and supplemental material that assumed you already basically knew about it.

For the purposes of this conversation, I’m interested to know whether or not, like Tykhyy’s proposed scheme, you were only on the hook for HECS if you did go abroad.

But I’m also just interested in it in general.

44

A Tykhyy 10.31.06 at 1:49 am

michael: yes, I agree that it would probably be a bad idea. That’s why I mentioned identity management.

45

abb1 10.31.06 at 2:11 am

The anti-brain-drain thing – it could also be implemented as something similar to residency in medical education: you are not fully certified as a professional until you spend a few years working (with low pay) where you’ve been assigned by your national certification board. Something like that.

46

try 10.31.06 at 6:46 am

Besides the productivity per hour, is there any statistics which could compare the productivity per dollar value of fixed assets (e.g. real assets, office rents, lease rents for mechinary), return rate on capitalization,return rate on patent rights?

Is it possible that some biochemist spend more hours on AIDS research more than the worker on the drug assembly line for the generic products?

47

Barry 10.31.06 at 7:40 am

Brandon Berg: “It should be fairly clear from the article to which you link that the US government’s financial problems stem not from “cowboy capitalism,” but from its primary social democratic elements: Social Security and Medicare.”

Anybody who figures that Social Security is unsustainable must be using the ridiculous assumption of 1.8%/year GDP growth for the next half-century.

An assumption which I’ve never seen used for private accounts, by Social Security destruction advocates, BTW.

48

Down and Out in Sài Gòn 10.31.06 at 8:42 am

Michael Sullivan: for you on HECS.

49

SamChevre 10.31.06 at 9:41 am

As I should have guessed, the two wildly misleading statistics showed up (yes, John, I’m disagreeing with you).

GDP per hour worked is a very poor statistic to use for comparison, and especially misleading when comparing a high-unemployment and a low-unemployment economy. Literate, experienced workers are more productive than semi-literate, inexperienced ones. (Even at very basic work, like waiting tables.) The US has a far greater proportion of young people and and uneducated immigrants in its workforce; of course productivity per hour worked is lower. The flip side is the 20% unemployment rate among young men that France has.

The even worse statistic is the “employment of prime-age workers” rate. More mothers in the workforce is hardly an unambiguous good; most families seem to prefer a stay-at-home mother if they can afford it. Europe’s rate of employment of prime-age men is about the same as the US; its employment rates for women are much higher in Scandinavia and the Netherlands than in the US.

50

engels 10.31.06 at 12:10 pm

It’s amusing that Henry’s essay refers to

…the passivity of traditional socialism as set out by Engels, and explicated by Kautsky. The reigning orthodoxy emphasized the primacy of economics – economic progress would ineluctably lead to the victory of socialists, who merely had to bide their time. Over time, it became clear that this passive approach was both badly wrong, and a rotten basis to boot for sustaining mass support over the medium term.

whereas here libertarian economist Tyler Cowen argues that the iron law of exponential growth means that the European political model is doomed by economic necessity, regardless of the political consensus in its favour. Coincidence? You decide.

51

Brandon Berg 10.31.06 at 2:29 pm

Barry:
GDP growth alone can’t save Social Security. The problem is that benefits are indexed to wages. So no matter how much wages increase, they can’t outgrow benefits. By itself, this wouldn’t be a problem. But the ratio of workers to retirees is decreasing due to greater life expectancies and more time spent in the educational system.

This trend in benefit growth can’t be sustained without raising taxes.

52

A Tykhyy 10.31.06 at 3:01 pm

Are there any truly imaginative economists here? There seem to be so many problems connected to economic growth, somebody should design a system where economic growth is not necessary provided that the population stays roughly constant.

53

Martin James 10.31.06 at 3:02 pm

Brandon,

The benefits are only indexed to wages before retirement. Also benefits decrease as wages increase based on two “bend points”, whereas the tax rate only has a dollar maximum indexed to wages.

I think the main point about GDP growth is not that it obviates the need for tax increases but that tax increases would not reduce the standard of living of workers from current levels.

Surely you agree that 2% real wage growth makes the social security sitation easier to cope with than 1% real wage growth, correct?

54

Brett 11.01.06 at 7:46 am

How dare Mr. Cowan attack Santa!

55

Kevin 11.01.06 at 8:21 am

Just wait til the death spiral affect starts compounding. The worse the demographics get, the more irresponsible it will be for any individual couple to bring even one child into this mess. And any young person with a brain, seeing the enormous burden he’ll be jammed with, will flee to another continent. Think about that feedback loop. I see implosion.

56

Paul 11.01.06 at 8:34 am

To steal from Stalin, “No Europeans, no european problems.”

57

beloml 11.01.06 at 9:32 am

Hasn’t ANYONE who reads this blog read Mark Steyn’s “America Alone” yet???

58

ic 11.01.06 at 9:52 am

” trade-off between much greater inequality in the US” You can achieve the most equality in planned economies: when everybody is equally poor. Ask the Cubans and the North Koreans to see how much they enjoy their equality. In fact, in such economies, the elites and insiders are much more powerful and weathier than the masses. They just won’t let you talk about them without sending you to re-education camps. In an “unequal” US, we are free to gripe about our neigbors’ riches and pity ourselves, use our powers to tax those SOBs. BTW, do you know that an average German retiree is getting less social security benefits than an average retiree of that cold-hearted United States? Do you know that it doesn’t matter how high your country men’s productivity is, if you don’t have a job, you lose your self-respect? Do you know that it sucks to be “well-educated” and can’t find a job? Do you know that it saps your hopes and plans for your future if you cannot get a job after college, while a slouch is protected from losing his by law? Protection is for the haves, for an entrenched class.

59

PD Quig 11.01.06 at 9:55 am

I love this whistling past the graveyard. Paris is burning, the Muslim ghettos are seething. Secularism has triumphed and the population is in inexorable decline. And you’re worried about relative productivity indices and the proper metrics to employ to obfuscate the obvious stagnation–if not outright decline? To carry on the charade for a few more decades until what?

It is already too late for Western Europe. The die was cast in the 1970’s and 80’s welfare explosion. The only question is whether secularist-socialism will also doom the United States.

60

engels 11.01.06 at 11:00 am

Wow, where did all the trolls come from? It’s like Dawn of the Dead.

61

Jim,MtnViewCA,USA 11.01.06 at 11:50 am

Thoughtful and balanced, this post has a lot to offer. “Most of Western Europe experienced a long postwar boom…”. Don’t forget that among the factors which contributed to the boom was that the US subsidized Euro military defence. That was a lot of extra bucks that became available for various social programs.

62

Jay Manifold 11.01.06 at 1:54 pm

Without meaning to seem flippant — and in the face of the libertarianism of many of the commenters coming in here from InstaPundit, a libertarianism I share — I wonder how much current trends really matter. It seems to me that they presume no substantial technological discontinuities over the next several decades; but multiple converging lines of evidence indicate that long before 2050 (to quote a date mentioned above) we will have experienced advances far greater than those of 1900-2000, with attendant, and currently well-nigh unimaginable, increases in productivity growth and life expectancy, among other things. Combined with the availability of nonterrestrial resources, the apparently insuperable difficulties of this present decade may be reduced to trivialities by mid-century. The annoying reality for some of us is that the Europeans may very well get away with it.

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anony-mouse 11.01.06 at 2:34 pm

Regarding leederick/25’s question…I think Patrick/40’s suggestion is on the right track. The US manages to tax its citizens everywhere, with the evasion detterent being an arrest warrant at the border should you re-enter the United States.

The other option is to renounce citizenship, but that makes re-entry for any reason — including business concerns or visitng family — unnecessarily difficult for most.

Of course, Europe might need to get the concept of an EU citizenship established (with necessary extradition powers clearly delineated and respected) before such a threat would have the necessary force — being on the run from German tax authorities might not be so bad if you can just fly into France or Switzerland and have your relatives ride in for a weekend visit.

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lucklucky 11.01.06 at 5:01 pm

“Given how we already overtax the resources of Earth any solution that consist of increasing population growth has to be considered flawed.”

Pfft if you put all humans in Europe evenly (less than 10% or earth) the density in European cities will be less than today.

“It won’t necessarily self-destruct, it just that it produces a lot of waste. Take the dot-com bubble for example: hunderds of millions of man-hours down the drain, billions of lines of worthless code, hundreds of thousands of useless servers and other gadgets, useless infrastructure, dark fiber. No government bureaucracy can create so much waste, not even the pentagon. So much for the high productivity.”

I think you never worked into the real economy where in average only 2 of 10 firms last more than 5 years. An i mean average not talking about hi-tech.

Europe and USA are going Social Democracy way with the Governemnt increasingly getting more resources produced by citizens. The European problem is just a level worse and augmented by a demographic problem.

The USA problems are this: A public education system more socialist than many European countries
where the results are one of the worse in world for resources spent. A nightmare of political correct regulations and other red tape that in every contract can be more than
70% of it.

65

jon 11.01.06 at 5:09 pm

Somebody’s been reading Kurzweil without taking it with the appropriate big halide crystals; superhuman AI and nano don’t mean an end of history, they’re just part of how we keep or maybe incrementally raise a high exponential growth rate. The EU will continue to have the choice whether to lead or follow then just as they do now.

> Are there any truly imaginative economists here? There seem to be so
> many problems connected to economic growth, somebody should design a
> system where economic growth is not necessary provided that the
> population stays roughly constant.

Economic growth isn’t a need. The nobility in the Middle Ages, I imagine, probably didn’t miss it.

But growth does make lots of people’s lives better.

If you care about the poor, well, economic growth and technological improvement have historically been the most effective way of bettering their lot, because they allow continually improved low-end standards of living.

66

reuben 11.01.06 at 5:31 pm

Radek,

That Alesina paper you link to is great, but I do think it’s analysis is limited. In response to your question about europe’s ability to cope with rising cultural diversity, I’d recommend Keith Banting, who argues that countries that already have a fairly large welfare state in place and then begin opening up to high levels of immigration don’t necessarily follow the US model, which is of course based on being very diverse before a robust welfare state was truly in place (and the negative effects that diversity had on welfare state growth). Banting’s cites Canada as a country that is managing an explosion on diversity quite well, and finds only a moderately negative effect on welfare state growth, and no effect on the maintenance of a large welfare state, IIRC. (I think Kymlicka writes on this as well, but can’t recall.) In Europe, Peter Taylor-Gooby (2004 or ’05, I think) applauds Alesina’s work, but argues that once you factor in the presence in European states of strong parties on the political left (who tend to support both increased diversity and strong welfare states) then much of Alesina’s pessimism re Europe is unfounded. (The US of course lacking a strong left to defend the welfare state from retrenchment.) I have to say that while I like Alesina’s work, I did find it a bit limited with regard to Europe.

67

abb1 11.01.06 at 5:36 pm

lucklucky,

I think you never worked into the real economy where in average only 2 of 10 firms last more than 5 years. An i mean average not talking about hi-tech.

So, are you saying it’s a good thing? It’s waste. I worked for 3 or 4 dot-com companies and saw everything, literally everything produced by hundreds of people over several years disappearing literally overnight; pure waste.

Before that I saw companies merging and then breaking up within a few years; every time most of the IT stuff (which is what I’m dealing with) had to be trashed and re-created again – for no good reason, pure waste again.

I feel that the US economic system is just too liquid, too dynamic, too erratic, too unstable – yes, it does produce a lot of GDP, but too much of it is waste.

68

reuben 11.01.06 at 5:40 pm

Samchevre,

Are you sure about the Netherlands’ female employment rate? 2005 OECD figures indicate that they are only two percentage points ahead of the US female population (74% v 72%), and given the traditionally very high support in the Netherlands for part-time female work, I would strongly suspect that a higher and possibly even far higher percentage of American women (and American mothers, in particular) are in full-time employment.

69

Quo Vadis 11.01.06 at 7:22 pm

Are proponents of the European social model are suggesting that, if implemented correctly, it would be ideal for all time and under all circumstances? That seems a dangerously rigid position to take given the complexity of social and economic systems and the dynamism of environmental influences. Historically, it seems that those societies that were less capable of adapting to change have been left behind by those more capable.

Is the assumption made that the technocrats in the government would always be able to make the necessary adjustments within the confines of the model keep the model working sufficiently well? Would adjustments that alter the fundamental assumptions of the model like privatization be acceptable under the model? Would any adjustment that diminished the power of the technocrats be realistic?

70

Beaufort 11.01.06 at 8:34 pm

Articulate and erudite. However, economics is of little import when the birth rate for Europeans hovers at 1.4 and the birthrate of “immigrants” sits at 4.3. It is more appropriate to look at the economies of the Middle East vs Europe than comparing to US. Are there any studies of productivity when wearing a burkha vs not wearing a burkha? {The US has at best a 15 year hiatus to get its act in order.]

71

RSSCMH 11.01.06 at 11:16 pm

Further evidence for Prof. Cowen’s argument: Lewis, William, The Power of Productivity: Wealth, Poverty, and the Threat to Global Stability, U of Chicago Press, 2004. 339 pp.
Excerpt
Review
Interview

Another angle:

Why Europe chooses extinction by Spengler:

Demographics is destiny. Never in recorded history have prosperous and peaceful nations chosen to disappear from the face of the earth. Yet that is what the Europeans have chosen to do. … In 200 years, French and German will be spoken exclusively in hell. …

Little enough has been said about the “how” but almost nothing about the “why” of Europe’s demographic suicide. Suicidal behavior is common among (for example) stone-age tribes who have encountered the modern world. One can extend this example to Tamil or Arab suicide bombers … . Here I draw on the German-Jewish theologian Franz Rosenzweig (1886-1929), an existentialist of sorts. …

All religion, Rosenzweig argued, responds to man’s anxiety in the face of death (against which philosophy is like a child stuffing his fingers in his ears and shouting, “I can’t hear you!”). The pagans of old faced death with the confidence that their race would continue. But tribes and nations anticipate their own extinction just as individuals anticipate their own death, he added: “The love of the nations for their own nationhood is sweet and pregnant with the presentiment of death.” Each nation, he wrote, knows that some day other peoples will occupy their lands, and their language and culture will be interred in dusty books.

The early Christian Church encountered a great extinction of peoples and their cultures through the rise and fall of the Alexandrine and Roman empires. … As nations faced extinction, individuals within these nations came face to face with their own mortality. Christianity offered an answer: the Church called individuals out of the nations and offered them salvation in the form of a life beyond the grave. … Christianity made possible the assimilation of thousands of doomed tribes into what became European nations. … By providing the pagans with a humanized God (and a humanized mother of God and a host of saints), Christianity allowed the pagans to continue to worship their own image.

Yet Christianity’s weakness, Rosenzweig added, lay in the devil’s bargain it made with the old paganism. … The result, wrote Rosenzweig, is that Christians “are forever torn between Jesus and [the medieval pagan hero] Siegfried”.

… For today’s Europeans, there is no consolation, neither the old pagan continuity of national culture, nor the Christian continuity into the hereafter. … They have no ambition but to die quietly, no concerns except for those amusements which might reduce boredom and anxiety en route to the grave. They have no passions except hatred born of envy. They hate America, a new kind of universality that succeeded where the old Christian empire failed. They hate Israel, which makes the Jewish people appear all the more eternal in stark contrast to Europe’s morbid temporality. They will pass out of history unmourned even by themselves.

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Alistair 11.02.06 at 3:16 am

Immigration isn’t the answer to Europe’s demographic crisis, at least not under the current system. Too many immigrants in Europe simply take advantage of the generous welfare state by living on the dole, providing a drag on the economy rather than a boost.

73

david g 11.02.06 at 8:58 am

#73: the link to “Why Europe chooses extinction”, which I assume is an article, is simply to the top of this page. What is the actual link?

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Jay Manifold 11.02.06 at 9:35 am

Jon (#65) nailed me re: Kurzweil. I would note only that even if Kurzweil is pretty far off, predictions about the state of Europe ca 2050, let alone 2100, are rather like those late 19th century attempts to calculate the year in which the streets of Manhattan would be buried ten feet deep in horse manure. Nor, again, am I defending social democracy, which has many foolish inefficiencies and is, in its actual effects, often far less compassionate or equitable than its adherents imagine. But they might still get away with it.

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jon 11.02.06 at 11:05 am

> So, are you saying it’s a good thing? It’s waste. I worked for 3 or
> 4 dot-com companies and saw everything, literally everything produced
> by hundreds of people over several years disappearing literally
> overnight; pure waste.

Yep! But, guess what – the waste factor’s even worse in big organizations.

In pre-Gerstner IBM, the products of tens of thousands of people would vanish, and they would take thousands or tens of thousands of people to do what outside companies took 100 to do.

> yes, it does produce a lot of GDP, but too much of it is waste.

Production without waste is impossible. Because people make mistakes. And people run our companies, governments, and organizations.

The important thing is that you got paid and probably had a little fun, as hard as it was when the impending ill fates became apparent.

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Martin James 11.02.06 at 11:33 am

The people who say that lower fertility is bad for economic growth have the causality backward.

All over the world, including the USA, economic growth leads to more education. All over the world more education, particularly of women, leads to lower fertility.

In rough terms current global fertility seems to be maximized at about the $5,000 per captia GDP and an eighth grade education for women.

The future may be different but from a strictly evolutionary point of view it doesn’t seem to pay to be too rich or too well educated.

77

Knemon 11.02.06 at 7:15 pm

“As for his assertion that low fertility is a function of European secularism… what is there to do but roll one’s eys?”

You could argue against it.

No, you’re right, rolling one’s eyes is a much better response.

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