Posted on 11/14/2006 6:32:42 AM PST by .cnI redruM
IN AMERICA, arguments about the health of Europe's economy are a proxy for arguments about the shape that American economic policy should take. Intercountry comparisons of such things as income and health statistics are always fraught . . . differences between the ways the statistics are collected can seriously skew the data*. This does not, however, keep both opponents and proponents of European-style social democracy from looking to the Old World for confirmation of their beliefs about the costs and benefits of the welfare state.
Tyler Cowen, a broadly libertarian economics professor who blogs at Marginal Revolution, has been the instigator of a long series of blog posts between himself and left-wing academic bloggers John Quiggin and Chris Bertram at Crooked Timber. You can follow the debate with the links below:
In a discussion of Sheri Berman's new book on Crooked Timber, Mr Cowen asks whether social democracy is a viable model for Europe's future, given the way the rapid ageing of many populations promises to undermine its health and pension provision. Commenters react.
On his own blog, Mr Cowen links to the earlier post in the course of discussing Barry Eichengreen's new book, which argues that centralised European systems did very well at rapidly industrialising, but are having trouble coping now that constant technological change is a prime source of growth. Mr Cowen then answers interlocutors who argued, variously, that Europe's lifestyle is undermeasured by GDP, that the growth rates aren't that different, and that its demographics aren't really a problem. John Quiggin says that a libertarian approach to demographics is warranted, and that an aging population actually produces various demographic dividends. Chris Bertram says that income inequalities between countries don't matter as long as income inequality within country is supressed. Mr Cowen responds that his chief worry is not hordes of Germans consumed by envy. Many of his critics seem to have missed the thrust of Mr Cowen's argument, or at least what I take to be his argument, in their haste to defend this or that aspect of European welfare states. It seems to me that Mr Cowen is saying, basically, that Europe's rapidly ageing societies will put an increasingly heavy burden on its labour force, as an ever-smaller number of workers has to support an ever-larger number of retirees†. In order to shoulder this burden, societies need to increase the production of their labour force, either by increasing the number of workers, increasing the number of hours worked, or by increasing the productivity of the workers. For everyone in society to stay happy, productivity in European states has to grow fast enough that workers experience rising living standards even while supporting more retirees, who at least must not see a substantial drop in their consumption.
However, the welfare state acts as a serious drag on any of these solutions.
Generous welfare states tend to reduce the number of hours worked: high taxes mean that workers take more of their pay as untaxed leisure; unemployment tends to stretch out, thanks to generous benefits and reemployment schemes; sick leave and disability insurance reduce the cost of absenteeism; high pensions encourage healthy seniors to retire; and welfare benefits and family leave policies encourage women to spend more time with their children.
An expensive welfare state also tends to reduce the size of the workforce. In arguing for a "libertarian approach" to fertility, Mr Quiggin seems to be implicitly assuming that Europe's birthrate is an exogenous variable, unaffected by the policies in question. However, there is substantial evidence that in modelling the welfare state, fertility is an endogenous variable: the more secure the safety net, the less likely people are to have children.
Governments have largely nationalised the traditional functions of the family, but in doing so they have not eliminated the need for future generations to care for the current ones in their dotage. Unfortunately, the assumption of family duties by the state allows people to free ride on the fertility of others—which they seem to be trying to do in massive numbers. As we've mentioned before, a society where everyone tries to free ride on everyone else is headed for disaster. Europe's safety nets, or at least the pension systems, may contain the seeds of their own destruction.
Large welfare states keep the labour force small in another way: they make societies more reluctant to admit immigrants, who tend to be a net drain on the government, at least during the early years of their stay.
More controversial is whether a generous welfare state lowers productivity growth. In theory, generous benefits could free people to try more new things, by lowering the cost of failure. In practice, however, the European welfare states are lagging American growth on most measures: GDP, GDP per capita, GDP per hour worked. This is not a problem now; GDP is at best an imperfect measure of welfare, and most European countries are only 15-30% behind America. But as Mr Cowen points out, will it still be all right in 50 years? A 1% differential in growth rates over a 50 year time period will leave the slower-growing country with roughly a third the income of the faster growing one. And contra Mr Bertram, Benjamin Friedman has recently argued that people do care what happens in other countries, and that one of the side effects of globalisation has been to make citizens of relatively poorer countries less contented with their lot. I myself remember some consternation in Britain when the nation seemed poised to replace Italy at the bottom of the EU league tables.
When Europe's income, relative to the United States, is the same as that of present-day Lithuania, will the citizens of once-mighty nations really think that ten weeks of vacation is adequate recompense? GDP growth is not just cell phones and flat screen televisions and Princess Diana commemorative plates; it is MRI machines and soft mattresses and books and other things that everyone, left and right, agree are important to have.
There is another question to be asked, of course: even if Europe can survive the costs of its own large welfare state, could it survive America's adopting the same model? There is an argument to be made that Europe's risk averse culture free rides on innovations developed for America's less regulated markets—particularly in pharmaceuticals and medical equipment. If this is true, Europeans enamoured of their generous safety nets should not be urging the same on the US. The greatest good for the greatest number would be best served by keeping quiet and letting those foolish Americans take the bullet for the rest of the world.
Disgusting. Make sure you register the kids in the Slave Surveilance System at birth to qualify for your fabulous gifts and prizes.
"no you don't get it.
We are DOOOOOMED because we are all SOCIALISTS and don't work hard and don't shoot enough muslims and try to build cars not for size but for effectiveness and because we might not be allowed to sell our innovations to americans in future times and because we had Nazis in Germany (wounder why there's no NAzi comparison in this thread yet).
Anyhow - we could do with a lower states rate that's true. And that means you especially baguette boy ;-)"
Well, it is true that France IS a socialist country, in the very truest sense of the word: the government's "Golden Share" in all key industries means that the means of production ARE in fact owned by, or ultimately controlled by, the State. I don't think Germany really is socialist (although everything in Europe is called that on FR!) because I don't think that your industries are ultimately owned by the state.
Socialist or not, Europe has a more robust social welfare state than America does. This is undeniably true. And the core of it: universal, uniform public education, universal health insurance and universal pensions - these things are all handled better in France, anyway, than they are in the USA. Somehow the English, who have gone farther in socializing their doctors than I think anyone in Europe, have managed to botch the health care end of it - merely having good intentions does not suffice without capable officials.
Anyway, we're not doomed. I know so many (white, Catholic) French families with 4 kids now it is a trend!
Baguette boy? Bien sur. Wie der Lieber Gott im Frankreich!
Still American Social Security system is a success story - the best creation of New Deal. Despite doom sayers it is so solvent that surplus money from it are being spent on "conservative" pet projects.
Besides, I think we're supposed to put on a morality play.
Act I: I am supposed to be the vain, arrogant cheese-eating sissy with a prehensile tail (actually, four out of five have SOME baSIS...sorry about the typo, my tail flicked over the keyboard trying to catch a fallen Brie-crumb) who provokes you by imposing unfair reparations. (Forgetting that we're all under the EU and all pay tribute to Brussels)
Act II: You are supposed to be a stiff-armed swine who comes goose-stepping down the Champs-Elysee while I cringe and wave a white flag. (Forgetting that you are the most pacifistic people in Europe now.)
Act III: I am supposed to cry out for America "Oh, come SAAAAAVE me!", like a damsel in distress. (Forgetting that France has nuclear weapons and can't be invaded by anybody anymore.)
Act IV: The American audience, in self-righteous indignation, gets to stand up and say "You are ON YOUR OWN THIS TIME, Pierre!" And there is much rejoicing.
There, that was very cathartic, no?
In truth, the future of Europe (well, France anyway - you guys need to start paying people to have more babies and get out of your slump) is reasonably bright; about the same as the future of America. America will remain more violent; Europe will remain more conservative and protective of citizens.
Here is proof that the European future is bright: I like Limburger cheese and saurkraut! There! I said it! The heavens did not fall!
(Oh, and I like couscous and tagine and merguez and Morroccan mint tea too. But that's another play, in which you and I are both called "Dhimmi" when the 8% or 5% of our respective populations rise up and dominate the other 92%/95% respectively. That will happen any day now, Hans, because we are DOOMED. Les senores de los Estados Unidos Americanos said so! Perhaps they (and I) am projecting a bit?)
White American fertility rate is 1.8 children per couple, WELL below replacement. The OVERALL American fertility rate is 2.1, but that is because Hispanics, at 2.45 or thereabouts, drag up the white and blacks, both of whom are below replacement.
This is sarcasm right? It's so hard to tell on FR sometimes.
Social Security was an amazingly good invention.
Look what it did! It converted a whole generation of old people into spending consumers right until the end of their lives, and it freed their children to be able to work.
Bismarck was a genius for inventing it.
But then, Bismarck was just simply a genius period.
Well, he was. Too bad that his successors were dumb.
None dumber than the jackass who fired him and set the world on fire.
You are spot on.
Will durant noted the trend decades ago.
The purposeful Vatican program you described is by design for a return to the power lost during the Reformation. That is America is in the midst of a population counterreformation.
"Blessed are the meek: for they shall inherit the earth"?
Indeed. And the good thing that will come out of it is the end of abortion.
Creating a child is not stunted because the welfare state makes people more secure. People don't produce children because they no longer believe in the promise of the future. They don't believe the future holds promise because they cannot innovate and produce a brighter future for their progeny-- a socialist state is not accommodating to this.
The Europeans see their nations and lives being reduced by drips to islamic ghettos. Is the muslim male going to settle for his income being conscripted to support the elderly infidel? Likely not.
The Russians don't have enough people to defend their flank against the Chinese now, apart from trying to garrison Europe.
Communist nonsense. All taxes should be based on services used (e.g. school taxes should be paid only by people with children in school, unless and until rendered moot by privatization).
Excellent system. Any taxes paid for services you don't use (e.g. school taxes paid by people without children) should (until abolished altogether, as they should be) count the next bracket up (e.g. $100 in such taxes should count as $1000 and be worth 4 extra votes).
Very interesting. So why to tax? Parents could pay directly to the school saving money on the middleman.
What about those who do not have money, should their children to be left out of school?
Now what about the military? Those who do not want military operations should be exempt from the respective part of their tax. What about those who do not want police protection (who can defend themselves, hire private guards or take the risk)? They should not pay either.
Why all this complication? Much better to put the right to vote on sale. Maybe at the auction with limited number of votes.
It can be even simpler and more direct - put the offices itself at the auction! No need for messy elections, let free market work!
"German innovations to sell to America"?
Isn't that an oxymoron?
Research and then tell me who has more patents and more Nobel prices in the last 20 years.
Of course, it could be that evil Bush paid for them all? :)
A similar proposal was made by John Zmirak in his article in The American Conservative. I strongly recommend this article.
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