Eric and I have some back and forth on some comparisons between Europe and the US that I think are important for Americans (and Europeans) to understand going into elections. He has recently published a blog here in this line.
Some of the metrics he mentioned have little importance or at least the seem to have little importance for an election. This blog will address the economic comparisons he raised and my comments in his blog will discuss some of the other issues.
I think the economic comparisons are most salient for the US election. Europeans (and here I am pretty much just including western Europe and the Scandanavian countries, As I think the former soviet bloc countries have unique problems that make them less comparable) tend have “more socialism” of the type Democrats in our country are pushing for. Whether it is really “socialism”, or not, is not something I don’t care to get bogged down on here. Instead I just want to analyze the actual empirical data on how these systems are working out compared to the US system which – especially after the republican reductions in regulation and taxes – is more capitalist.
The first thing to note is that Eric’s numbers are not current. They are from 2017. It is important to consider Trump just took office at the beginning of 2017 so his policies (less taxes and regulation) which no doubt moved us away from the European economic models did not have as much of an effect yet. Therefore the 2019 numbers show I believe more accurately the difference between Europe’s soft socialism and America’s more capitalist economic policies, because they allow republican changes some time to take effect. Anyone interested in the data can see it here:
These republican economic policies have moved our purchasing power up considerably relative to Europe since 2017. So how does the US stack up? We are doing substantially better than about 95% of Europe. About 5% of Europe is doing slightly better. In particular four tiny European countries are doing better by objective measures of gdp per capita when considering purchase power.
They are Ireland, Luxembourg, Switzerland and Norway.
Ireland and Luxembourg are really outliers.
Ireland: A capitalist would love to say “see look at Ireland doing so well since they have extremely low corporate taxes!” Ireland’s gdp is caused by the low taxes but it seems it is not really Ireland’s GDP.
“Foreign-owned multinationals continue to contribute significantly to Ireland’s economy, making up 14 of the top 20 Irish firms (by turnover), employing 23% of the private sector labour-force, and paying 80% of corporation tax collected.”
Foreign companies (most of which are US companies which account for 80% of Irish multinational employment) https://en.wikipedia.org/wiki/Economy_of_the_Republic_of_Ireland claim their production/GDP from Ireland – but this appears to just be so they get the lower tax rate. Since the population of Ireland is so small – only 5 million – the US companies greatly distort this gdp per capita number so it is really hard to know what to make of it. Ireland does have other marks of a soft socialism such as national health care etc. But in any case at 5 million Ireland is the size of a smallish US state.
Luxembourg: Honestly it is so tiny with 600,000 it is not worth sorting through their gdp. I mean a few big companies could send such a small population gdp per person through the roof.
Switzerland: The US needs to grow its economy by 10% to hit Swiss numbers. I am not sure if the Swiss have higher or lower taxes. They do not have a nationalized health care system and their system seems similar to the current US system. I would be in favor of taking a look at their Health Care system and seeing if it could work here in the US. Switzerland has a population of about 8.6 million people.
Norway: the US would need to grow our economy by 2% to match Norway. Norway is has about 5.5 million people.
Ok the rest of Europe is doing worse than the US by this objective measure. But if we take these 4 countries that comes to 20 million people. The US has 330 million people. So if we divide the US by 50 states the average state is about 6.6 million per state. So are these countries average gdp/person higher than the US’s top 2 or 3 states in gdp per person ppp? I think you can just glance at the numbers and see that won’t be the case. The top US states are doing quite a bit better than the top Western European countries.
20 million are doing better than the US but as we will see western/northern Europe is about 424 million people. So this is less than 5% of Europe. And that includes Ireland which really has an inflated GDP but ok. What about the other 95% of Western Europe? They are doing much worse by objective measures. How much worse are they doing than the US? Just looking at the world bank numbers from 2019:
Denmark (6 mil), Netherlands (17 mil) and Austria (9 mil) would need to boost their economy about 10% to match the US.
Germany (84 mil) Sweden (10 mil) and Belgium (11 mil) would need about a 20% boost to their economies to match the US.
Finland (5.5 mil) and France (65 mil) would need a 30% boost in their economies to match the US.
The United Kingdom (68 mil) and Malta (.5 mil) would need a 35% boost to their economy to match the US.
Italy (60.5 mil) would need about a 47% boost to match the US
Spain (47 mil) would need about a 54% boost to match the US.
Portugal (10 mil) would need a 79% boost to match the US.
Greece (10.5 mil) would need a 108% boost to their economy to match the US.
Population numbers are based on this:
So why assume adopting these economic models will result in us matching the top 5%? Why are we ruling out the possibility these sorts of economic measures won’t lead us to be like Italy, Spain, or the UK which account for over 40% of the population we are considering. If it turns out the same for us as it did for them, our economy would be looking at over a 40% decline!
So to get an idea of how big a drop that is, the biggest drop from the great recession of 2007 -2009 was a total drop of 4.7% of GDP.
Suffice it to say these sorts of declines would be catastrophic for Americans that are used to a much higher level of spending power than Europeans.
“A pattern is emerging
A clear picture is emerging. Poverty is bad for health and happiness, and the global wellbeing would improve if there was greater equality of wealth. Wealthier countries can afford healthcare, education, housing and infrastructure that facilitate a good life.”
I agree poverty is bad for health and happiness. But it is dubious that “equality” of wealth – especially if that were to mean America’s overall wealth dropped to Western European levels – would lead to more health and happiness. I think it is pretty obvious such a huge shift would be catastrophic.
For example, in the US the top 10% of income earners pay 70% of our taxes. That is because we have many wealthy people. It is a huge benefit to the other 90% of us that we only need to cover 30% of the remaining tax burden!
Socialists claiming billionaires are immoral is not helpful to anyone. I remember when the tax cuts – which were essentially a 25% ish reduction in certain corporate taxes – were passed. People on the left were complaining how this would save trump 20 million dollars per year. I don’t think we really know how much it would save Trump since we don’t have his tax returns. But let’s assume that is true. That means he was paying 80 million per year in, and is now paying 60 million in every year. 60 million dollars in taxes every year just for having him as a citizen. Why would anyone complain? Rather than attacking wealthy I want the US to create as many as possible!
Europeans have a much more regressive taxes than the US because for whatever reason it seems very hard to make allot of money there.
Productivity per hour: Eric Says “The table below shows that workers in Luxembourg, Norway, Switzerland and Denmark produce the most goods per hour worked, followed by USA, Australia and Germany.” So America does better than the vast majority of Europe. If Eric is correct and only Luxembourg Norway Switzerland and Denmark produce more than the US per hour. That leaves about 95% of Europe producing less per hour. Why would we think we will be like the top 5% instead of something like the other 95% of Europe?
On inequality and poverty. Eric says the USA has much more poverty. But again the point of my blog here: https://trueandreasonable.co/2020/07/22/poor-europe/ Was to point out how misleading saying that is. “Poverty” as Eric defines it is based on the average earning of people in the same country. So when you say America has more poverty that is just because Americans on average are so much wealthier than Europeans. If Europe used our average wealth instead of their own much lower average wealth you would see all these countries actually would have much higher percentages of their population in the low income group than the US. Objectively Europe has much more poverty than the US. The majority of Spain and Italy – two of the larger countries in the Western Europe would have a majority of people defined as low income by US standards!
It is important to understand how those “poverty” numbers are really moving the goal posts. American’s are so much wealthier than Europeans that what many Europeans consider middle class would count as low income in the US. I really think Eric and others presenting these statistics should explain that instead of just saying “It turns out that western European countries have very low levels of poverty. USA, South Korea and Israel have the highest rates of poverty in the OECD but have less poverty than 80% of countries globally. (OECD, Wikipedia).” I don’t think eric is being intentionally misleading but that statement is very misleading. Compared to the US Europe has *much* larger percentage of their population living in poverty.
As to the inequality between people in the US being a problem in itself, the evidence is against it. Stephen Pinker analyzes the data in depth but he gives this example to help people initially understand why complaining of inequality as opposed to focusing on objective measures is misguided:
“The starting point for understanding inequality in the context of human progress is to recognize that income inequality is not a fundamental component of well-being. It is not like health, prosperity, knowledge, safety, peace, and the other areas of progress I examine in these chapters. The reason is captured in an old joke from the Soviet Union. Igor and Boris are dirt-poor peasants, barely scratching enough crops from their small plots of land to feed their families. The only difference between them is that Boris owns a scrawny goat. One day a fairy appears to Igor and grants him a wish. Igor says, “I wish that Boris’s goat should die.””
Arguing the US should adopt the Western European economic model is thinking just like Igor.